Bank7
Annual Report 2022

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022. 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 (State or other jurisdiction of incorporation or organization) 1039 N.W. 63rd Street, Oklahoma City, Oklahoma (Address of principal executive offices) 20-0764349 (I.R.S. Employer Identification Number) 73116 (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 Common Stock, $0.01 par value Trading Symbol(s) BSVN Name of each exchange on which registered The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒ 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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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, a smaller reporting company, or an “emerging growth company”. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐ Non-accelerated filer ☒ Accelerated filer ☐ 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 checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by checkmark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒ As of June 30, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $88,873,167 based on the closing sale price reported on the NASDAQ Global Market Select System. As of March 24, 2023, the registrant had 9,151,977 shares of common stock, par value $0.01, outstanding. DOCUMENTS INCOPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 18, 2023 are incorporated into Part III of this Annual Report on Form 10-K. TABLE OF CONTENTS PART I Item 1 Business Item 1A Risk Factors Item 1B Unresolved Staff Comments Item 2 Properties Item 3 Legal Proceedings Item 4 Mine Safety Disclosures PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6 [Reserved] Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A Quantitative and Qualitative Disclosures about Market Risk Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A Controls and Procedures Item 9B Other Information Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10 Directors, Executive Officers and Corporate Governance Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13 Certain Relationships and Related Transactions, and Director Independence Item 14 Principal Accountant Fees and Services PART IV Item 15 Exhibits and Financial Statement Schedules Item 16. Form 10-K Summary SIGNATURES 1 12 22 22 23 23 23 24 26 47 49 93 93 94 94 95 95 95 95 95 95 97 98 Table of Contents Item 1. Business Company Overview We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate twelve full-service branches in Oklahoma, Texas, and Kansas. We were formed in 2004 in connection with our acquisition of First National Bank of Medford, which was renamed Bank7 (the “Bank”). We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well- designed banking solutions. As of December 31, 2022, we had total assets of $1.58 billion, total loans of $1.26 billion, total deposits of $1.43 billion and total shareholders’ equity of $144.1 million. Our website is: www.bank7.com. We make available free of charge through our website, our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after they have been electronically filed or furnished with the Securities and Exchange Commission. Information included on our website is not incorporated into this filing. Products and Services The Bank is a full-service commercial bank. We focus on the development of deep business relationships with our commercial customers and their principals. We also focus on providing customers with exceptional service and meeting their banking needs through a wide variety of commercial and retail financial services. The Bank has a particular focus in the following loan categories (i) commercial real estate lending, (ii) hospitality lending, (iii) energy lending, and (iv) commercial and industrial lending. Although it is a very small segment of the Bank, we also provide consumer lending services to individuals for personal and household purposes, including secured and unsecured term loans and home improvement loans. Consumer lending services include (i) residential real estate loans and mortgage banking services, (ii) personal lines of credit, (iii) loans for the purchase of automobiles, and (iv) other installment loans. The Bank offers deposit banking products, including (i) commercial deposit services, commercial checking, money market, and other deposit accounts, and (ii) retail deposit services such as certificates of deposit, money market accounts, checking accounts, negotiable order of withdrawal accounts, savings accounts, and automated teller machine access. Strategic Focus Our success is driven by: • • • • • the development of deep business relationships with our commercial customers and their principals; disciplined growth without compromising our asset quality or credit culture; drawing upon years of executive level experience at multi-billion dollar banks; efficiencies gained by adherence to automated and repeatable processes; and investing in our people and technology. We focus on our daily execution, making sound credit decisions and maintaining cost discipline, which is the foundation for our success. Our customers are our top priority and we focus on efficiently providing tailored banking products and services to business owners and entrepreneurs, with a goal of generating consistent growth and delivering exceptional returns to our shareholders. Additionally, we continually position ourselves for future growth both organically and through strategic acquisitions. 1 Table of Contents Cost Discipline and Efficiency We constantly monitor expenditures, and, when appropriate, we use automation, technology and repeatable processes to drive profitability. The Bank operates as few branches as practical, and the branches we do operate are smaller and very cost efficient. As we continue to grow, we expect our utilization of automation, technology, and repeatable processes will continue to drive efficiencies throughout the Bank. Combining talented people with process automation will enable us to scale even further, and will also enable us to deliver consistently superior customer service. Organic Growth Much of our historic asset growth has been driven organically and within our current markets. In particular the Dallas/Fort Worth metropolitan area, Oklahoma City, and Tulsa. Although our expansion with brick and mortar branches will be limited, we believe operating strategically placed branches will be important, and therefore we will continue to selectively build our presence in key markets. We currently operate twelve branches. We also intend to continually enhance our internet and mobile banking products to remain competitive in the marketplace. Markets We are headquartered in Oklahoma City, Oklahoma, and we operate seven additional branches in Oklahoma. We also operate two branches in the Dallas/Fort Worth metropolitan area and two branches in Kansas. Competition The banking and financial services industry is highly competitive, and we compete with a wide range of financial institutions within our markets, including local, regional and national commercial banks and credit unions. We also compete with mortgage companies, trust companies, brokerage firms, consumer finance companies, mutual funds, securities firms, insurance companies, third-party payment processors, financial technology, or Fintech, companies and other financial intermediaries for certain of our products and services. Some of our competitors are not subject to the regulatory restrictions and level of regulatory supervision applicable to us. Interest rates on loans and deposits, as well as prices on fee-based services, are typically significant competitive factors within the banking and financial services industry. Many of our competitors are much larger financial institutions that have greater financial resources than we do and compete aggressively for market share. These competitors attempt to gain market share through their financial product mix, pricing strategies and banking center locations. Other important competitive factors in our industry and markets include office locations and hours, quality of customer service, community reputation, continuity of personnel and services, capacity and willingness to extend credit, and ability to offer excellent banking products and services. While we seek to remain competitive with respect to fees charged, interest rates and pricing, we believe that our broad suite of financial solutions, our high-quality customer service culture, our positive reputation and our long-standing community relationships enable us to compete successfully within our markets and enhance our ability to attract and retain customers. Human Capital Our corporate culture is defined by core values which include integrity, accountability, professionalism, community-focus and efficiency. As of December 31, 2022, we had 123 full time employees. We value our employees by investing in competitive compensation and benefit packages and fostering a team environment centered on professional service and open communication. Attracting, retaining and developing qualified, engaged employees who embody these values are crucial our success. We offer all of our employees a comprehensive benefits package that includes medical, dental and vision insurance, a flexible spending plan, group life insurance, short-term and long-term disability insurance, a traditional 401(k) Plan, competitive paid time off/paid holidays, and competitive incentives. 2 Table of Contents We are committed and focused on the health and safety of our employees, customers, and communities and are committed to providing a safe and secure work environment in accordance with applicable labor, safety, health, anti-discrimination and other workplace laws. We strive for all of our employees to feel safe at work. To that end, we maintain a whistleblower hotline that allows associates and others to anonymously voice concerns. We prohibit retaliation against an individual who reported a concern or assisted with an inquiry or investigation. Supervision and Regulation The following is a general summary of the material aspects of certain statutes and regulations that are applicable to us. These summary descriptions are not complete. Please refer to the full text of the statutes, regulations, and corresponding guidance for more information. These statutes and regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be adopted. We are unable to predict future changes or the effects, if any, that these changes could have on our business or our revenues. General We are extensively regulated under U.S. federal and state law. As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Oklahoma Banking Department (“OBD”), the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”). Furthermore, tax laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities and Anti-Money Laundering (“AML”) laws enforced by the U.S. Department of the Treasury, or Treasury, also impact our business. Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of banks, their holding companies and their affiliates. These laws are intended primarily for the protection of depositors, customers and the Depositor Insurance Fund of the FDIC (“DIF”) rather than for shareholders. Federal and state laws, and the related regulations of the bank regulatory agencies, affect, among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with insiders and affiliates and the payment of dividends. This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that, while not publicly available, can affect the conduct and growth of their businesses. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management’s ability and performance, earnings, liquidity and various other factors. These regulatory agencies have broad discretion to impose restrictions and limitations on the operations of a regulated entity and exercise enforcement powers over a regulated entity (including terminating deposit insurance, imposing orders, fines and other civil and criminal penalties, removing officers and directors and appointing supervisors and conservators) where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. 3 Table of Contents Regulatory Capital Requirements The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements. The current risk-based capital standards applicable to the Company and the Bank are based on the Basel III Capital Rules established by the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments. The Basel III Capital Rules require the Bank and the Company to comply with four minimum capital standards: a Tier 1 leverage ratio of at least 4.0%; a CET1 to risk-weighted assets ratio of 4.5%; a Tier 1 capital to risk-weighted assets ratio of at least 6.0%; and a total capital to risk-weighted assets ratio of at least 8.0%. The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations. The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) is subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers based on the amount of the shortfall. As of December 31, 2022, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis. Prompt Corrective Action The Federal Deposit Insurance Act requires federal banking agencies to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. For purposes of prompt corrective action, the law establishes five capital tiers: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A depository institution’s capital tier depends on its capital levels and certain other factors established by regulation. Under the applicable FDIC regulations, an institution is deemed to be “well-capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a CET1 ratio of 6.5% or greater and a leverage ratio of 5.0% or greater. At each lower capital category, a bank is subject to increased restrictions on its operations. For example, a bank is generally prohibited from making capital distributions and paying management fees to its holding company if doing so would make the bank “undercapitalized.” Asset growth and branching restrictions apply to undercapitalized banks, which are required to submit written capital restoration plans meeting specified requirements (including a guarantee by the parent holding company, if any). “Significantly undercapitalized” banks are subject to broad regulatory restrictions, including among other things, capital directives, forced mergers, restrictions on the rates of interest they may pay on deposits, restrictions on asset growth and activities, and prohibitions on paying bonuses or increasing compensation to senior executive officers without FDIC approval. “Critically undercapitalized” are subject to even more severe restrictions, including, subject to a narrow exception, the appointment of a conservator or receiver within 90 days after becoming critically undercapitalized. The appropriate federal banking agency may determine (after notice and opportunity for a hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice. The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution. 4 Table of Contents The capital classification of a bank affects the frequency of regulatory examinations, the bank’s ability to engage in certain activities and the deposit insurance premium paid by the bank. A bank’s capital category is determined solely for the purpose of applying prompt correct action regulations and the capital category may not accurately reflect the bank’s overall financial condition or prospects. As of December 31, 2022, the Bank met the requirements for being deemed “well-capitalized” for purposes of the prompt corrective action regulations. The Company General. As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, or the BHCA. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of its operations and such additional information as the Federal Reserve may require. Acquisitions, Activities and Change in Control. The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company or a bank holding company’s acquisition of more than 5% of a class of voting securities of any additional bank or bank holding company or to acquire all or substantially all of the assets of any additional bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA and the Dodd-Frank Act), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. Permitted Activities. The BHCA generally prohibits the Company from controlling or engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company. Source of Strength. Federal Reserve policy historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide it. The Company must stand ready to use its available resources to provide adequate capital to the Bank during periods of financial stress or adversity. The Company must also maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting the Bank. The Company’s failure to meet its source of strength obligations may constitute an unsafe and unsound practice or a violation of the Federal Reserve’s regulations or both. The source of strength obligation most directly affects bank holding companies where a bank holding company’s subsidiary bank fails to maintain adequate capital levels. Any capital loans by a bank holding company to the subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. The BHCA provides that in the event of a bank holding company’s bankruptcy any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of its subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. 5 Table of Contents Safe and Sound Banking Practices. Bank holding companies and their non-banking subsidiaries are prohibited from engaging in activities that represent unsafe and unsound banking practices or that constitute a violation of law or regulations. Under certain conditions the Federal Reserve may conclude that certain actions of a bank holding company, such as a payment of a cash dividend, would constitute an unsafe and unsound banking practice. The Federal Reserve also has the authority to regulate the debt of bank holding companies, including the authority to impose interest rate ceilings and reserve requirements on such debt. Under certain circumstances the Federal Reserve may require a bank holding company to file written notice and obtain its approval prior to purchasing or redeeming its equity securities, unless certain conditions are met. Dividend Payments, Stock Redemptions and Repurchases. The Company’s ability to pay dividends to its shareholders is affected by both general corporate law considerations and the regulations and policies of the Federal Reserve applicable to bank holding companies, including the Basel III Capital Rules. Generally, an Oklahoma corporation may not make distributions to its shareholders if (i) after giving effect to the dividend, the corporation would be insolvent, or (ii) the amount of the dividend exceeds the surplus of the corporation. Dividends may be declared and paid in a corporation’s own treasury shares that have been reacquired by the corporation out of surplus. Dividends may be declared and paid in a corporation’s own authorized but unissued shares out of the surplus of the corporation upon the satisfaction of certain conditions. It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. Bank holding companies must consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital (or, for small bank holding companies like the Company, before redeeming any instruments included in equity as defined under GAAP) prior to stated maturity, if such redemption could have a material effect on the level or composition of the organization’s capital base. In addition, bank holding companies are unable to repurchase shares equal to 10% or more of its net worth if it would not be well-capitalized (as defined by the Federal Reserve) after giving effect to such repurchase. Bank holding companies experiencing financial weaknesses, or that are at significant risk of developing financial weaknesses, must consult with the Federal Reserve before redeeming or repurchasing common stock or other regulatory capital instruments. The Bank General. The Bank is an Oklahoma-chartered member bank and is subject to examination, supervision and regulation by the OBD and the Federal Reserve. The Bank is also subject to certain regulations of the FDIC and the CFPB. The OBD supervises and regulates all areas of the Bank’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of the Bank’s corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of banking offices. The Federal Reserve is the Bank’s primary federal regulatory agency, and periodically examines the Bank’s operations and financial condition and compliance with federal law. In addition, the Bank’s deposit accounts are insured by the DIF to the maximum extent provided under federal law and FDIC regulations, and the FDIC has certain enforcement powers over the Bank. Depositor Preference. In the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors including the parent bank holding company with respect to any extensions of credit they have made to that insured depository institution. 6 Table of Contents Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC. The amount of such premiums is determined by multiplying the institution’s assessment rate by its assessment base. The assessment base is based on the institution’s risk classification which is assigned based on the institution’s capital levels and the level of supervisory concern the institution poses to the regulators. The assessment rate is calculated as the institution’s average consolidated total assets minus average tangible equity. Additionally, the Dodd-Frank Act altered the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may increase or decrease the assessment rates, following notice and comment on proposed rulemaking. As a result, the Bank’s FDIC deposit insurance premiums could increase. Examination Assessments. Oklahoma-chartered banks are required to pay an annual fee of $1,000 to the OBD to fund its operations. In addition, Oklahoma-chartered banks are charged an examination assessment calculated based on the amount of the Bank’s assets at rates established by the Oklahoma Banking Board. During the year ended December 31, 2022, the Bank paid examination assessments to the OBD totaling $184,000. Capital Requirements. Banks are generally required to maintain minimum capital ratios. For a discussion of the capital requirements applicable to the Bank, see “—Regulatory Capital Requirements” above. Bank Reserves. The Federal Reserve requires all depository institutions to maintain reserves against some transaction accounts (primarily NOW and Super NOW checking accounts). The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements. An institution may borrow from the Federal Reserve “discount window” as a secondary source of funds if the institution meets the Federal Reserve’s credit standards. Dividend Payments. The primary source of funds for the Company is dividends from the Bank. Unless the approval of the Federal Reserve is obtained, the Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of the Bank’s net income during the current calendar year and the retained net income of the prior two calendar years. Oklahoma law also places restrictions on the declaration of dividends by Oklahoma state-chartered banks, including the Bank, to their shareholders. Before any dividend may be declared by the Bank, not less than 10% of the net profits of the Bank must be transferred to a surplus fund until the surplus equals 100% of the Bank’s capital stock. This may decrease any amount available for the payment of dividends in a particular period if the surplus funds for the Bank fail to comply with this limitation. Furthermore, the approval of the Commissioner of the OBD is required if the total of all dividends declared by the Bank in any calendar year exceed the total of its net profits of that year combined with its retained net profits of the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. The Federal Reserve and the OBD also may, under certain circumstances, prohibit the payment of dividends to us from the Bank. Oklahoma corporate law also requires that dividends can only be paid out of funds legally available therefor. The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2022. 7 Table of Contents Transactions with Affiliates. The Bank is subject to sections 23A and 23B of the Federal Reserve Act, or the Affiliates Act, and the Federal Reserve’s implementing Regulation W. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. Accordingly, transactions between the Company, the Bank and any non-bank subsidiaries will be subject to a number of restrictions. The Affiliates Act imposes restrictions and limitations on the Bank from making extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, the Company or other affiliates, the purchase of, or investment in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of the Company or other affiliates. Such restrictions and limitations prevent the Company or other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Furthermore, such secured loans and investments by the Bank to or in the Company or to or in any other non-banking affiliate are limited, individually, to 10% of the Bank’s capital and surplus, and such transactions are limited in the aggregate to 20% of the Bank’s capital and surplus. All such transactions, as well as contracts entered into between the Bank and affiliates, must be on terms that are no less favorable to the Bank than those that would be available from non-affiliated third parties. Federal Reserve policies also forbid the payment by bank subsidiaries of management fees which are unreasonable in amount or exceed the fair market value of the services rendered or, if no market exists, actual costs plus a reasonable profit. Loans to Directors, Executive Officers and Principal Shareholders. The authority of the Bank to extend credit to its directors, executive officers and principal shareholders, including their immediate family members and corporations and other entities that they control, is subject to substantial restrictions and requirements under the Federal Reserve’s Regulation O, as well as the Sarbanes-Oxley Act. These statutes and regulations impose limits the amount of loans the Bank may make to directors and other insiders and require that the loans must be made on substantially the same terms, including interest rates and collateral, as prevailing at the time for comparable transactions with persons not affiliated with the Company or the Bank, that the Bank must follow credit underwriting procedures at least as stringent as those applicable to comparable transactions with persons who are not affiliated with the Company or the Bank; and that the loans must not involve a greater than normal risk of non-payment or include other features not favorable to the Bank. Furthermore, the Bank must periodically report all loans made to directors and other insiders to the bank regulators. As of December 31, 2022, the Bank had no lines of credit for loans to insiders and one loan outstanding to insiders of $132,000. Limits on Loans to One Borrower. As an Oklahoma state-chartered bank, the Bank is subject to limits on the amount of loans it can make to one borrower. With certain limited exceptions, loans and extensions of credit from Oklahoma state-chartered banks outstanding to any borrower (including certain related entities of the borrower) at any one time may not exceed 30% of the capital, less intangible assets, of the bank. An Oklahoma state-chartered bank may lend an additional amount if the loan is fully secured by certain types of collateral, like bonds or notes of the United States. Certain types of loans are exempted from the lending limits, including loans secured by segregated deposits held by the bank. The Bank’s legal lending limit to any one borrower was $47.4 million as of December 31, 2022. Safety and Soundness Standards/Risk Management. The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. If an institution fails to comply with any of the standards set forth in the guidelines, the financial institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If a financial institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the financial institution’s rate of growth, require the financial institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments. 8 Table of Contents Branching Authority. New branches must be approved by the Federal Reserve and the OBD, which consider a number of factors, including financial history, capital adequacy, earnings prospects, character of management, needs of the community and consistency with corporate power. The Dodd-Frank Act permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state. Finally, we may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. Interstate Deposit Restrictions. The Interstate Act, together with the Dodd-Frank Act, relaxed prior branching restrictions under federal law by permitting, subject to regulatory approval, banks to establish branches in states where the laws permit banks chartered in such states to establish branches. Section 109 of the Interstate Act prohibits a bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production. Community Reinvestment Act. The CRA directs the federal bank regulatory agencies, in examining insured depository institutions, to assess their record of helping to meet the credit needs of their entire community, including low- and moderate- income neighborhoods, consistent with safe and sound banking practices. The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions or holding company formations. The federal banking agencies have adopted regulations which measure a bank’s compliance with its CRA obligations on a performance-based evaluation system. This system bases CRA ratings on an institution’s actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements. The ratings range from a high of “outstanding” to a low of “substantial noncompliance.” The Bank had a CRA rating of “satisfactory” as of its most recent CRA assessment. Anti-Money Laundering and the Office of Foreign Assets Control Regulation. The USA PATRIOT Act is designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The USA PATRIOT Act substantially broadened the scope of United States AML laws and regulations by imposing significant compliance and due diligence obligations, created new crimes and penalties and expanded the extra territorial jurisdiction of the United States. Financial institutions are also prohibited from entering into specified financial transactions and account relationships, must use enhanced due diligence procedures in their dealings with certain types of high-risk customers and must implement a written customer identification program. Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions. Regulatory authorities routinely examine financial institutions for compliance with these obligations and have imposed cease and desist orders and civil money penalties against institutions found to be in violation of these obligations. Likewise, OFAC administers and enforces economic and trade sanctions against targeted foreign countries and regimes under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. Financial institutions are responsible for, among other things, blocking accounts of and transactions with such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure of a financial institution to maintain and implement adequate AML and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. 9 Table of Contents Consumer Financial Services We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers. These laws include the ECOA, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, the Military Lending Act, and these laws’ respective state law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices. These and other federal laws, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices and subject us to substantial regulatory oversight. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties. Failure to comply with consumer protection requirements may also result in failure to obtain any required bank regulatory approval for mergers or acquisitions or prohibition from engaging in such transactions even if approval is not required. Rulemaking authority for most federal consumer protection laws was transferred from the prudential regulators to the CFPB on July 21, 2011. In some cases, regulators such as the Federal Trade Commission and the DOJ also retain certain rulemaking or enforcement authority. The CFPB also has broad authority to prohibit unfair, deceptive and abusive acts and practices, or UDAAP, and to investigate and penalize financial institutions that violate this prohibition. While the statutory language of the Dodd-Frank Act sets forth the standards for acts and practices that violate the prohibition on UDAAP, certain aspects of these standards are untested, and thus it is currently not possible to predict how the CFPB will exercise this authority. The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more intense and complex environment for consumer finance regulation. The CFPB has significant authority to implement and enforce federal consumer protection laws and new requirements for financial services products provided for in the Dodd-Frank Act, as well as the authority to identify and prohibit UDAAP. The review of products and practices to prevent such acts and practices is a continuing focus of the CFPB, and of banking regulators more broadly. The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing, practices, products and procedures. It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties. In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition or results of operations. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their applicable bank regulators. 10 Table of Contents Federal Banking Agency Incentive Compensation Guidance The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking. The incentive compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes. The incentive compensation guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon three primary principles: (1) balanced risk-taking incentives; (2) compatibility with effective controls and risk management; and (3) strong corporate governance. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or take other actions. In addition, under the incentive compensation guidance, a banking organization’s federal supervisor may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization. Further, the Basel III capital rules limit discretionary bonus payments to bank executives if the institution’s regulatory capital ratios fail to exceed certain thresholds. Although the federal bank regulatory agencies proposed additional rules in 2016 related to incentive compensation for all banks with more than $1.0 billion in assets, which would include the Company and the Bank, those rules have not been finalized and the scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. Financial Privacy The federal bank regulatory agencies have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Cybersecurity Banking institutions are required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of confidential and personal information are in effect across our lines of business. Furthermore, the federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management. A financial institution is expected to implement multiple lines of defense against cyber-attacks and ensure that their risk management procedures address the risk posed by potential cyber threats. A financial institution is further expected to maintain procedures to effectively respond to a cyber-attack and resume operations following any such attack. The Bank has adopted and implemented policies and procedures to comply with privacy, information security, and cybersecurity requirements. On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.” Impact of Monetary Policy The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These tools are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. 11 Table of Contents Changes in Laws, Regulations or Policies Other legislative and regulatory initiatives which could affect the Company, the Bank and the banking industry in general may be pending, proposed or introduced before the U.S. Congress, the Oklahoma Legislature and other governmental bodies from time to time. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Company or the Bank to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby. Item 1A. Risk Factors We believe the risks described below are the risks that are material to us. Any of the following risks, as well as risks that we do not know or currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Risks Relating to Our Business and Market Our business is concentrated in, and largely dependent upon, the continued growth and welfare of our markets, and adverse economic conditions in these markets could negatively impact our operations and customers. Our business is primarily affected by the economies of Oklahoma, Texas and to a smaller degree the State of Kansas. Our success depends to a significant extent upon the business activity, population, income levels, employment trends, deposits and real estate activity in these markets. As of December 31, 2022, the substantial majority of the loans in our loan portfolio were made to borrowers who live and/or conduct business in our markets and the substantial majority of our secured loans were secured by collateral located in our markets. Accordingly, we are exposed to risks associated with a lack of geographic diversification as any regional or local economic downturn that affects our markets, our existing or prospective borrowers, or property values in our markets may affect us and our profitability more significantly and more adversely than our competitors whose operations are less geographically focused. In addition, market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which could impact our charge-offs and provision for credit losses. Adverse changes in economic conditions in these markets could reduce our growth in loans and deposits, impair our ability to collect our loans, increase our problem loans and charge-offs and otherwise negatively affect our performance and financial condition. We have credit exposure to the energy industry. The energy industry is a significant sector in our Oklahoma market, and to a lesser extent, Kansas and the Dallas/Fort Worth metropolitan area. A downturn or lack of growth in the energy industry and energy-related business, including sustained low oil or gas prices or the failure of oil or gas prices to rise in the future, could adversely affect our business, financial condition and results of operations. As of December 31, 2022, our energy loans, which include loans to exploration and production companies, midstream companies, purchasers of mineral and royalty interests and service providers totaled $182.8 million, or 14.4% of total loans, as compared to $98.5 million, or 9.6% of total loans as of December 31, 2021. In addition to our direct exposure to energy loans, we also have indirect exposure to energy prices, as some of our non-energy customers’ businesses are directly affected by volatility with the oil and gas industry and energy prices and otherwise are dependent on energy-related businesses. As of December 31, 2022, we had $43.8 million in unfunded commitments to borrowers in the oil and gas industry. 12 Table of Contents We have credit exposure to the hospitality industry. The Company has loan exposure to the hospitality industry, primarily through loans made to construct or finance the operation of hotels. At December 31, 2022, this exposure was approximately $244.3 million, or 19.2%, of the total loan portfolio, along with an additional $15.5 million in unfunded debt, as compared to $198.4 million, or 19.2%, of the total loan portfolio, along with an additional $41.5 million in unfunded debt as of December 31, 2021. The hospitality industry is subject to changes in the travel patterns of business and leisure travelers, both of which are affected by the strength of the economy, as well as other factors. The performance of the hospitality industry has traditionally been closely linked with the performance of the general economy and, specifically, growth in gross domestic product. Changes in travel patterns of both business and leisure travelers, particularly during periods of economic contraction or low levels of economic growth, may create difficulties for the industry over the long-term. Although we have made a large portion of our hospitality loans to long-term, well-established hotel operators in strategic locations, a general downturn in the supply growth of such markets or hotel occupancy or room rates could negatively impact the borrowers’ ability to repay. A significant loss in this portfolio could materially and adversely affect the Company’s financial condition and results of operations. We have a concentration in commercial real estate lending that could cause our regulators to restrict our ability to grow. As a part of their regulatory oversight, the federal regulators have issued guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices, or the CRE Concentration Guidance, with respect to a financial institution’s concentrations in CRE lending activities. The CRE Concentration Guidance identifies certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis with regard to the institution’s CRE concentration risk. The CRE Concentration Guidance is designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans. In general, the CRE Concentration Guidance establishes the following supervisory criteria as preliminary indications of possible CRE concentration risk: (1) the institution’s total construction, land development and other land loans represent 100% or more of total capital; or (2) total CRE loans as defined in this guidance, or Regulatory CRE, represent 300% or more of total capital, and the institution’s Regulatory CRE has increased by 50% or more during the prior 36-month period. Pursuant to the CRE Concentration Guidance, loans secured by owner occupied CRE are not included for purposes of the CRE concentration calculation. As of December 31, 2022, our Regulatory CRE represented 304.72% of our total Bank capital and our construction, land development and other land loans represented 101.20% of our total Bank capital, as compared to 302.47% and 129.02% as of December 31, 2021, respectively. During the prior 36-month period, our Regulatory CRE has decreased 39.1%. We are actively working to manage our Regulatory CRE concentration, and we believe that our underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are currently sufficient to address the CRE Concentration Guidance. We utilize enhanced CRE monitoring techniques as expected by banking regulators as our concentrations have approached or exceeded the regulatory guidance. Nevertheless, the Federal Reserve could become concerned about our CRE loan concentrations, and it could limit our ability to grow by restricting its approvals for the establishment or acquisition of branches, or approvals of mergers or other acquisition opportunities, or by requiring us to raise additional capital, reduce our loan concentrations or undertake other remedial actions. Because a portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses. Adverse developments affecting real estate values, particularly in Oklahoma City and the Dallas/Fort Worth metropolitan area, could increase the credit risk associated with our real estate loan portfolio. Real estate values may experience periods of fluctuation, and the market value of real estate can fluctuate significantly in a short period of time. Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, and could result in losses that adversely affect credit quality, financial condition and results of operation. Negative changes in the economy affecting real estate values and liquidity in our market areas could significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans. Such declines and losses could have a material adverse impact on our business, results of operations and growth prospects. If real estate values decline, it is also more likely that we would be required to increase our allowance, which could adversely affect our business, financial condition and results of operations. 13 Table of Contents Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans. As of December 31, 2022, we had approximately $1.26 billion of commercial purpose loans, which include general commercial, energy, agricultural, and CRE loans, representing approximately 98.8% of our gross loan portfolio. Commercial purpose loans are often larger and involve greater risks than other types of lending. Because payments on these loans are often dependent on the successful operation or development of the property or business involved, their repayment is more sensitive than other types of loans to adverse conditions in the real estate market or the general economy. Accordingly, a downturn in the real estate market or the general economy could heighten our risk related to commercial purpose loans, particularly energy and CRE loans. Unlike residential mortgage loans, which generally are made on the basis of the borrowers’ ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial purpose loans typically are made on the basis of the borrowers’ ability to make repayment from the cash flow of the commercial venture. If the cash flow from business operations is reduced, the borrowers’ ability to repay the loan may be impaired. As a result of the larger average size of each commercial purpose loan as compared with other loans such as residential loans, as well as the collateral which is generally less readily marketable, losses incurred on a small number of commercial purpose loans could have a material adverse impact on our financial condition and results of operations. Our largest loan relationships make up a material percentage of our total loan portfolio. As of December 31, 2022, our 20 largest borrowing relationships ranged from approximately $15.4 million to $35.8 million (including unfunded commitments) and totaled approximately $451.1 million in total commitments (representing, in the aggregate, 35.4% of our total outstanding commitments as of December 31, 2022). Each of the loans associated with these relationships has been underwritten in accordance with our underwriting policies and limits. Along with other risks inherent in these loans, such as the deterioration of the underlying businesses or property securing these loans, this concentration of borrowers presents a risk that, if one or more of these relationships were to become delinquent or suffer default, we could be exposed to material losses. The allowance for loan losses may not be adequate to cover losses associated with any of these relationships, and any loss or increase in the allowance would negatively affect our earnings and capital. Even if these loans are adequately collateralized, an increase in classified assets could harm our reputation with our regulators and inhibit our ability to execute our business plan. Our largest deposit relationships currently make up a material percentage of our deposits and the withdrawal of deposits by our largest depositors could force us to fund our business through more expensive and less stable sources. At December 31, 2022, our 20 largest deposit relationships accounted for 29.8% of our total deposits. Withdrawals of deposits by any one of our largest depositors or by one of our related customer groups could force us to rely more heavily on borrowings and other sources of funding for our business and withdrawal demands, adversely affecting our net interest margin and results of operations. We may also be forced, as a result of withdrawals of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources. Additionally, such circumstances could require us to raise deposit rates in an attempt to attract new deposits, which would adversely affect our results of operations. Under applicable regulations, if the Bank were no longer “well capitalized,” the Bank would not be able to accept brokered deposits without the approval of the FDIC. 14 Table of Contents A substantial portion of our loan portfolio consists of loans maturing within one year, and there is no guarantee that these loans will be replaced upon maturity or renewed on the same terms or at all. As of December 31, 2022, approximately 37.6% of our gross loans were maturing within one year, compared to approximately 38.4% of our gross loans that were maturing within one year as of December 31, 2021. As a result, we will either need to renew or replace these loans during the course of the year. There is no guarantee that these loans will be originated or renewed by borrowers on the same terms or at all, as demand for such loans may decrease. Furthermore, there is no guarantee that borrowers will qualify for new loans or that existing loans will be renewed by us on the same terms or at all, as collateral values may be insufficient or the borrowers’ cash flow may be materially less than when the loan was initially originated. This could result in a significant decline in the size of our loan portfolio. Our allowance for loan losses may not be adequate to cover our actual loan losses, which could adversely affect our earnings. We maintain an allowance for loan losses in an amount that we believe is appropriate to provide for losses inherent in the portfolio. While we strive to carefully monitor credit quality and to identify loans that may become nonperforming, at any time there are loans included in the portfolio that will result in losses but that have not been identified as nonperforming or potential problem loans. We cannot be sure that we will be able to identify deteriorating loans before they become nonperforming assets or that we will be able to limit losses on those loans that are identified. As a result, future additions to the allowance may be necessary. Additionally, future additions may be required based on changes in the loans comprising the portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions or as a result of incorrect assumptions by management in determining the allowance. Federal banking regulators, as an integral part of their supervisory function, periodically review our allowance for loan losses. These regulatory agencies may require us to increase our provision for loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for loan losses could have a negative effect on our financial condition and results of operations. Commercial and commercial real estate loans comprise a significant portion of our total loan portfolio. These types of loans typically are larger than residential real estate loans and other consumer loans. Because our loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming assets. An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the allowance for loan losses, or an increase in loan charge-offs, which could have an adverse impact on our results of operations and financial condition. Our profitability depends on interest rates generally, and we may be adversely affected by changes in market interest rates. Our profitability depends in substantial part on our net interest income. Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities. Our net interest income depends on many factors that are partly or completely outside of our control, including competition, federal economic, monetary and fiscal policies and economic conditions generally. Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments. 15 Table of Contents Changes in interest rates could affect our ability to originate loans and deposits. Historically, there has been an inverse correlation between the demand for loans and interest rates. Loan origination volume usually declines during periods of rising or high interest rates and increases during periods of declining or low interest rates. Changes in interest rates also have a significant impact on the carrying value of certain of our assets, including loans and other assets, on our balance sheet. Interest rate increases often result in larger payment requirements for our borrowers, which increase the potential for default. At the same time, the marketability of any underlying property that serves as collateral for such loans may be adversely affected by any reduced demand resulting from higher interest rates. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonaccrual loans would have an adverse impact on net interest income. Rising interest rates in prior periods have increased interest expense, which in turn has adversely affected net interest income, and may do so in the future if the Federal Reserve raises rates as anticipated. In a rising interest rate environment, competition for cost-effective deposits increases, making it more costly to fund loan growth. In addition, a rising rate environment could cause mortgage and mortgage warehouse lending volumes to substantially decline. Any rapid and unexpected volatility in interest rates creates uncertainty and potential for unexpected material adverse effects. The Company actively monitors and manages the balances of maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurances that the Company can avoid all material adverse effects that such interest rate changes may have on the Company’s net interest margin and overall financial condition. The ratio of variable- to fixed-rate loans in our loan portfolio, the ratio of short-term (maturing at a given time within 12 months) to long-term loans, and the ratio of our demand, money market and savings deposits to certificates of deposit (and their time periods), are the primary factors affecting the sensitivity of our net interest income to changes in market interest rates. The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced position that would cause market rate changes to have a greater impact on our earnings. Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings. We rely on short-term funding, which can be adversely affected by local and general economic conditions. As of December 31, 2022, approximately $1.25 billion, or 87.2%, of our deposits consisted of demand, savings, money market and negotiable order of withdrawal, or NOW, accounts. Approximately $183.5 million of the remaining balance of deposits consists of certificates of deposit, of which approximately $157.1 million, or 85.6% of remaining deposits, was due to mature within one year. Based on our experience, we believe that our savings, money market and non-interest-bearing accounts are relatively stable sources of funds. Historically, a majority of non-brokered certificates of deposit are renewed upon maturity as long as we pay competitive interest rates. Many of these customers are, however, interest-rate conscious and may be willing to move funds into higher-yielding investment alternatives. Our ability to attract and maintain deposits, as well as our cost of funds, has been, and will continue to be significantly affected by general economic conditions. In addition, as market interest rates rise, we will have competitive pressure to increase the rates we pay on deposits. If we increase interest rates paid to retain deposits, our earnings may be adversely affected. 16 Table of Contents Liquidity risk could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition. Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding. The Bank’s primary funding source is customer deposits. In addition, the Bank has historically had access to advances from the Federal Home Loan Bank of Topeka, or the FHLB, the Federal Reserve Bank of Kansas City, or the FRB, discount window and other wholesale sources, such as internet-sourced deposits to fund operations. We participate in the Certificate of Deposit Account Registry Service, or CDARS, where customer funds are placed into multiple certificates of deposit, each in an amount under the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States. Although the Bank has historically been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on liquidity. Our access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization specifically or the financial services industry or economy in general. Factors that could detrimentally impact access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory actions against us. The Bank’s ability to borrow or attract and retain deposits in the future could be adversely affected by the Bank’s financial condition or regulatory restrictions, or impaired by factors that are not specific to it, such as FDIC insurance changes, disruption in the financial markets or negative views and expectations about the prospects for the banking industry. Borrowing capacity from the FHLB or FRB may fluctuate based upon the condition of the Bank or the acceptability and risk rating of loan collateral and counterparties could adjust discount rates applied to such collateral at the lender’s discretion. The FRB or FHLB could restrict or limit the Bank’s access to secured borrowings. Correspondent banks can withdraw unsecured lines of credit or require collateralization for the purchase of fed funds. Liquidity also may be affected by the Bank’s routine commitments to extend credit. Market conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations and fund asset growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences. Any substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our financial condition and results of operations, and could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition. We are exposed to cybersecurity risks associated with our internet-based systems and online commerce security, including “hacking” and “identify theft.” We conduct a portion of our business over the internet. We rely heavily upon data processing, including loan servicing and deposit processing, software, communications and information systems from a number of third parties to conduct our business. As a bank, we are more likely to be targeted by cyber- attacks in an effort to unlawfully access customer funds or customer personally identifiable information. Third-party or internal systems and networks may fail to operate properly or become disabled due to deliberate attacks or unintentional events. Our operations are vulnerable to disruptions from human error, natural disasters, power loss, computer viruses, spam attacks, denial of service attacks, unauthorized access and other unforeseen events. Undiscovered data corruption could render our customer information inaccurate. These events may obstruct our ability to provide services and process transactions. While we believe we are in compliance with all applicable privacy and data security laws, an incident could put our customer confidential information at risk. Although we have not experienced a cyber-incident which has been successful in compromising our data or systems, we can never be certain that all of our systems are entirely free from vulnerability to breaches of security or other technological difficulties or failures. We monitor and modify, as necessary, our protective measures in response to the perpetual evolution of known cyber-threats. 17 Table of Contents A breach in the security of any of our information systems, or other cyber-incident, could have an adverse impact on, among other things, our revenue, ability to attract and maintain customers and our reputation. In addition, as a result of any breach, we could incur higher costs to conduct our business, to increase protection, or related to remediation. Furthermore, our customers could incorrectly blame us and terminate their account with us for a cyber- incident which occurred on their own system or with that of an unrelated third party. In addition, a security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and possible financial liability. Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations. We depend to a significant extent on a number of relationships with third-party service providers. Specifically, we receive core systems processing, essential web hosting and other internet systems, loan and deposit processing and other processing services from third-party service providers. If these third-party service providers experience financial, operational or technological difficulties or terminate their services and we are unable to replace them with other service providers, our operations could be interrupted. If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be materially adversely affected. Even if we are able to replace our service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations. We may be exposed to risk of environmental liabilities with respect to properties to which we take title. In the course of our business, we may foreclose and take title to real estate, and we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected. Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation reached a near 40-year high in late 2021, and high levels of inflation persisted during 2022 and may continue in 2023. The U.S. Bureau of Labor Statistics reported that the 12-month percent change in the Consumer Price Index for All Urban Consumers (not seasonally adjusted) for all items was 6.5% for December 2021 to December 2022, 7.0% for December 2020 to December 2021, 1.4% for December 2019 to December 2020, and 2.3% for December 2018 to December 2019. Inflationary pressures are currently expected to remain elevated throughout 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. When the rate of inflation accelerates, there is an erosion of consumer and customer purchasing power. Accordingly, this could impact our business by reducing our tolerance for extending credit, and our customer’s desire to obtain credit, or causing us to incur additional provisions for loan losses resulting from a possible increased default rate. Inflation may lead to lower loan re-financings. Furthermore, a prolonged period of inflation could cause wages and other costs to further increase which could adversely affect our results of operations and financial condition. Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity. A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations. 18 Table of Contents A natural disaster affecting our market areas could adversely affect the Company’s financial condition and results of operations. Our business is concentrated in Oklahoma, the Dallas/Ft. Worth and to a lesser extent Kansas. Almost all of our credit exposure is in that area. This geographic region has been subject to tornadoes and severe hail storms with occasional flooding. Natural disasters could harm our operations directly through interference with communications, which would prevent us from gathering deposits, originating loans, and processing and controlling our flow of business, as well as through the destruction of facilities and our operational, financial and management information systems. A natural disaster or recurring power outages may also impair the value of our loan portfolio, as uninsured or underinsured losses, including losses from business disruption, may reduce our borrowers’ ability to repay their loans. Disasters may also reduce the value of the real estate securing our loans, impairing our ability to recover on defaulted loans through foreclosure and making it more likely that we would suffer losses on defaulted loans. The occurrence of natural disasters in our market areas could have a material adverse effect on our business, prospects, financial condition, and results of operations. Risks Relating to Our Regulatory Environment We are subject to extensive regulation, which increases the cost and expense of compliance and could limit or restrict our activities, which in turn may adversely impact our earnings and ability to grow. We operate in a highly regulated environment and are subject to regulation, supervision and examination by a number of governmental regulatory agencies, including the Federal Reserve, the OBD, and the FDIC. Regulations adopted by these agencies, which are generally intended to provide protection for depositors, customers and the DIF, rather than for the benefit of shareholders, govern a comprehensive range of matters relating to ownership and control of our shares, our acquisition of other companies and businesses, permissible activities for us to engage in, maintenance of adequate capital levels, dividend payments and other aspects of our operations. These bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. Following examinations, we may be required, among other things, to change our asset valuations or the amounts of required loan loss allowances or to restrict our operations, as well as increase our capital levels, which could adversely affect our results of operations. The laws and regulations applicable to the banking industry could change at any time and we cannot predict the effects of these changes on our business, profitability or growth strategy. Increased regulation could increase our cost of compliance and adversely affect profitability. Moreover, certain of these regulations contain significant punitive sanctions for violations, including monetary penalties and limitations on a bank’s ability to implement components of its business plan, such as expansion through mergers and acquisitions or the opening of new branch offices. In addition, changes in regulatory requirements may add costs associated with compliance efforts. Furthermore, government policy and regulation, particularly as implemented through the Federal Reserve, significantly affect credit conditions. Negative developments in the financial industry and the impact of new legislation and regulation in response to those developments could negatively impact our business operations and adversely impact our financial performance. Monetary policy and other economic factors could affect our profitability adversely. In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits. The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted. 19 Table of Contents Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities. We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws. For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share non-public personal information about our customers with non-affiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with non-affiliated third parties (with certain exceptions) and (iii) requires we develop, implement and maintain a written comprehensive information security program containing safeguards appropriate based on our size and complexity, the nature and scope of our activities and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities. On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.” This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level by the Federal Trade Commission, as well as at the state level. We rely on third parties, and in some cases subcontractors, to provide information technology and data services. Although we provide for appropriate protections through our contracts and perform information security risk assessments of its third-party service providers and business associates, we still have limited control over their actions and practices. In addition, despite the security measures that we have in place to ensure compliance with applicable laws and rules, our facilities and systems, and those of our third-party providers may be vulnerable to security breaches, acts of vandalism or theft, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. In such cases, notification to affected individuals, state and federal regulators, state attorneys general and media may be required, depending upon the number of affected individuals and whether personal information including financial data was subject to unauthorized access. Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations. 20 Table of Contents Risks Related to Our Common Stock Shares of certain shareholders may be sold into the public market. This could cause the market price of our common stock to drop significantly. Our principal shareholders (collectively, the “Haines Family Trusts”) have the benefit of certain registration rights covering all of their shares of our common stock pursuant to the registration rights agreement that we entered into with the Haines Family Trusts in connection with our initial public offering. Sales of a substantial number of these shares in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline or to be lower than it might otherwise be. In addition, as of December 31, 2022 approximately 57.3% of our outstanding common stock is beneficially owned by our principal shareholders, executive officers and directors. The substantial amount of common stock that is owned by and issuable to our principal shareholders, executive officers and directors may adversely affect our share price, our share price volatility and the development and persistence of an active and liquid trading market. The sale of these shares could impair our ability to raise capital through the sale of additional equity securities. We are controlled by trusts established for the benefit of members of the Haines family, whose interests may not coincide with our other shareholders. As of December 31, 2022, the Haines Family Trusts control approximately 50.8% of our common stock. So long as the Haines Family Trusts continue to control more than 50% of our outstanding shares of common stock, they will have the ability, if they vote in the same manner, to determine the outcome of all matters requiring shareholder approval, including the election of directors, the approval of mergers, material acquisitions and dispositions and other extraordinary transactions, and amendments to our certificate of incorporation, bylaws and other corporate governance documents. In addition, this concentration of ownership may delay or prevent a change in control of our Company and make some transactions more difficult or impossible without the support of the Haines Family Trusts. The Haines Family Trusts also have certain rights, such as registration rights, that our other shareholders do not have. In any of these matters, the interests of the Haines Family Trusts may differ from or conflict with our interests as a company or the interests of other shareholders. Accordingly, the Haines Family Trusts could influence us to enter into transactions or agreements that other shareholders would not approve or make decisions with which other shareholders may disagree. We are a “controlled company” within the meaning of the rules of NASDAQ, and qualify for exemptions from certain corporate governance requirements. As a result, our shareholders do not have the same protections afforded to shareholders of companies that are subject to such requirements. We are a “controlled company” under NASDAQ’s corporate governance listing standards, meaning that more than 50% of the voting power for the election of our board of directors will be held by a single person, entity or group. As a controlled company, we are exempt from the obligation to comply with certain corporate governance requirements, including the requirements: • • • that a majority of our board of directors consists of “independent directors,” as defined under NASDAQ rules; that director nominations are selected, or recommended for the board of directors’ selection, by either (i) the independent directors constituting a majority of the board of directors’ independent directors in a vote in which only independent directors participate, or (ii) a nominating and corporate governance committee that is composed entirely of independent directors; and that we have a compensation committee that is composed entirely of independent directors. Even though we are a “controlled company,” we currently intend to comply with each of these requirements. However, we may avail ourselves of certain of these other exemptions for as long as we remain a “controlled company.” Accordingly, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all of NASDAQ’s corporate governance requirements, which could make our stock less attractive to investors or otherwise harm our stock price. 21 Table of Contents We are a bank holding company and our only source of cash, other than further issuances of securities, is distributions from the Bank. We are a bank holding company with no material activities other than activities incidental to holding the common stock of the Bank. Our principal source of funds to pay distributions on our common stock and service any of our obligations, other than further issuances of securities, would be dividends received from the Bank. Furthermore, the Bank is not obligated to pay dividends to us, and any dividends paid to us would depend on the earnings or financial condition of the Bank and various business considerations. As is the case with all financial institutions, the profitability of the Bank is subject to the fluctuating cost and availability of money, changes in interest rates and in economic conditions in general. In addition, various federal and state statutes limit the amount of dividends that the Bank may pay to the Company without regulatory approval. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties The Company’s corporate offices are located at 1039 N.W. 63rd Street, Oklahoma City, Oklahoma 73116. The Company’s corporate office space is owned by the Bank’s wholly-owned subsidiary, 1039 NW 63rd, LLC, and consists of approximately 6,600 square feet, an annex of approximately 4,400 square feet, and a 10,000 square foot operations building. The Bank operates from our corporate office, eight full-service branch offices located in Oklahoma, two full-service branch offices located in southwest Kansas and two full-service branch offices located in the Dallas/Fort Worth metropolitan area. Of these twelve locations, four are leased and eight are owned by the Bank. 22 Table of Contents Item 3. Legal Proceedings From time to time, the Company or the Bank is a party to claims and legal proceedings arising in the ordinary course of business. Management does not believe any present litigation or the resolution thereof will have a material adverse effect on the business, consolidated financial condition or results of operations of the Company. Item 4. Mine Safety Disclosures Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s shares of common stock are traded on The NASDAQ Global Select Market under the symbol “BSVN”. The approximate number of holders of record of the Company’s common stock as of March 24, 2023 was 4. The Company paid quarterly dividends of $0.12 per share with respect to each of the first three quarters of 2022, increasing to $0.16 per share in the fourth quarter. The Company currently expects to continue quarterly dividends of $0.16 per share in the future. Any future determination to pay dividends and the amount of such dividends on the Company’s common stock will be made by its Board of Directors and will depend on a number of factors, including • • • • • • • • • historical and projected financial condition, liquidity and results of operations; the Company’s capital levels and requirements; statutory and regulatory prohibitions and other limitations; any contractual restriction on the Company’s ability to pay cash dividends, including pursuant to the terms of any of its credit agreements or other borrowing arrangements; business strategy; tax considerations; any acquisitions or potential acquisitions; general economic conditions; and other factors deemed relevant by the Board of Directors. Set forth below is information as of December 31, 2022 regarding equity compensation plans. The plan that has been approved by the shareholders is the 2018 Equity Incentive Plan. Plan Equity compensation plans approved by shareholders 23 Number of securities to be issued upon exercise of outstanding options and rights Number of securities remaining available for issuance under plan Weighted average exercise price 364,141 $ 17.52 700,087 Table of Contents COMPANY PERFORMANCE Presented below is a line graph which compares the percentage in the cumulative total return on the Company’s Common Stock to the cumulative total return of the NASDAQ Stock Market (U.S. Companies) Index and the NASDAQ Bank Stock Index. The period presented is from September 24, 2018 through December 31, 2022. The graph assumes an investment on September 24, 2018 of $100 in the Company’s Common Stock and in each index, and that any dividends were reinvested. The values presented for each year during the period represent the cumulative market values of the respective investment. The performance graph represents past performance and should not be considered to be an indication of future performance. Item 6. [Reserved] 24 Table of Contents CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: • • • • • • • • • • • • • • • • • • • • • • • our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions; business and economic conditions, particularly those affecting our market areas of Oklahoma, the Dallas/Fort Worth metropolitan area and Kansas, including a decrease in or the volatility of oil and gas prices or agricultural commodity prices within the region; the geographic concentration of our markets in Oklahoma, the Dallas/Fort Worth metropolitan area and Kansas; successful integration of Watonga Bancshares, Inc. high concentrations of loans secured by real estate and energy located in our market areas; risks associated with our commercial loan portfolio, including the risk for deterioration in value of the general business assets that secure such loans; risks related to the significant amount of credit that we have extended to a limited number of borrowers; our ability to maintain our reputation; our ability to successfully manage our credit risk and the sufficiency of our allowance; reinvestment risks associated with a significant portion of our loan portfolio maturing in one year or less; our ability to attract, hire and retain qualified management personnel; our dependence on our management team, including our ability to retain executive officers and key employees and their customer and community relationships; interest rate fluctuations, which could have an adverse effect on our profitability; competition from banks, credit unions and other financial services providers; system failures, service denials, cyber-attacks and security breaches; our ability to maintain effective internal control over financial reporting; employee error, fraudulent activity by employees or customers and inaccurate or incomplete information about our customers and counterparties; increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; costs and effects of litigation, investigations or similar matters to which we may be subject, including any effect on our reputation; severe weather, acts of god, acts of war, pandemics or terrorism; compliance with governmental and regulatory requirements, including the Dodd-Frank and Wall Street Consumer Protection Act, or Dodd-Frank Act, and other regulations relating to banking, consumer protection, securities and tax matters; changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters, including the policies of the Federal Reserve and as a result of initiatives of the Trump administration; and other factors that are discussed in the section entitled “Risk Factors,” beginning on page 12. 25 Table of Contents The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this report. In addition, our past results of operations are not necessarily indicative of our future results. Accordingly, no forward-looking statements should be relied upon, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. Unless the context indicates otherwise, references in this management’s discussion and analysis to “we”, “our”, and “us,” refer to Bank7 Corp. and its consolidated subsidiaries. All references to “the Bank” refer to Bank7, our wholly owned subsidiary. General We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate twelve full-service branches in Oklahoma, the Dallas/Fort Worth, Texas metropolitan area and Kansas. We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed loan and deposit products to meet their financing needs. We intend to grow organically by selectively opening additional branches in our target markets and we will also pursue strategic acquisitions. As a bank holding company, we generate most of our revenue from interest income on loans and from short-term investments. The primary source of funding for our loans and short-term investments are deposits held by our subsidiary, Bank7. We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, and our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income. As of December 31, 2022, we had total assets of $1.58 billion, total loans of $1.26 billion, total deposits of $1.43 billion and total shareholders’ equity of $144.1 million. 26 Table of Contents The U.S. economy experienced widespread volatility throughout 2020 and 2021 as a result of the COVID-19 pandemic and government responses to the pandemic. Economic condition declined rapidly and significantly following the initial widespread U.S. outbreak in March and April of 2020. Federal stimulus was quickly passed in the form of the CARES Act and the economy rebounded significantly in the second half of 2020. In an emergency measure aimed at dampening the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% effective on March 16, 2020 where it remained through the end of 2020. This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective March 4, 2020. As the pandemic eased through 2021 and inflation increased, the Federal Reserve aggressively raised the federal funds target rate to 4.25-4.50% by the end of 2022. These actions positively impacted growth in net interest income in 2022 but the higher rates could negatively impact loan customers in a slowing economy. 2022 Highlights For the year ended December 31, 2022, we reported pre-tax net income of $39.3 million, an increase of $8.3 million, or 27.0% compared to pre-tax net income of $30.9 million for the year ended December 31, 2021. The increase was primarily related to an increase in interest earning assets. For the year ended December 31, 2022, average loans totaled $1.14 billion, an increase of $237.6 million or 26.2%, from December 31, 2021. Pre-tax return on average assets and return on average equity was 2.68% and 29.32%, respectively for the year ended December 31, 2022, as compared to 2.96% and 26.41%, respectively, for the same period in 2021. Tax-adjusted return on average assets and return on average equity was 2.02% and 23.92%, respectively for the year ended December 31, 2022, as compared to 2.21% and 20.13%, respectively, for the same period in 2021. Our efficiency ratio for the year ended December 31, 2022 was 39.29% as compared to 36.76% for the year ended December 31, 2021. As of December 31, 2022, total loans were $1.27 billion, an increase of $242.1 million, or 23.5%, from December 31, 2021. Total deposits were $1.43 billion as of December 31, 2022, an increase of $211.8 million, or 17.4%, from December 31, 2021. Results of Operations Years Ended December 31, 2022, December 31, 2021, and December 31, 2020 Net Interest Income and Net Interest Margin The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets, and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates; (iii) net interest income; and (iv) the net interest margin. 27 Table of Contents Interest-Earning Assets: Short-term investments Debt securities, taxable Debt securities, tax exempt(1) Loans held for sale Total loans(2) Total interest-earning assets Noninterest-earning assets Total assets Funding sources: Interest-bearing liabilities: Deposits: Transaction accounts Time deposits Total interest-bearing deposits Total interest-bearing liabilities 2022 Interest Income/ Expense Average Yield/ Rate Average Balance Net Interest Margin For the Year Ended December 31, 2021 Interest Income/ Expense Average Balance Average Yield/ Rate 2020 Interest Income/ Expense Average Yield/ Rate Average Balance (Dollars in thousands) 145,915 21,635 586 $ 129,624 $ 1,673 2,313 360 - 1,143,380 74,403 1,441,140 78,749 1.29% $ 126,136 $ 4,663 1.59 1,852 1.66 - 318 6.51 5.46 178 312 31 - 905,804 55,768 1,038,773 56,289 0.25% $ 116,295 $ 1,123 3.84 - 1.62 - 244 6.16 5.42 828 36 - - 823,228 52,450 940,890 53,314 0.71% 3.21 - - 6.37 5.67 23,532 $ 1,464,672 7,361 $ 1,046,134 8,067 $ 948,957 $ 724,617 165,735 890,352 890,352 7,842 1,480 9,322 9,322 1.08% $ 430,268 205,437 0.89 635,705 1.05 635,705 1.05 1,396 1,657 3,053 3,053 0.32% $ 377,519 207,442 0.81 584,961 0.48 584,961 0.48 2,729 3,424 6,153 6,153 0.72% 1.65 1.05 1.05 Noninterest-bearing liabilities: Noninterest-bearing deposits Other noninterest-bearing liabilities Total noninterest-bearing liabilities Shareholders’ equity Total liabilities and shareholders’ 432,901 7,520 440,421 133,899 288,446 4,930 293,376 117,053 256,431 5,206 261,637 102,359 equity $ 1,464,672 $ 1,046,134 $ 948,957 Net interest income Net interest spread Net interest margin $ 69,427 $ 53,236 $ 47,161 4.42% 4.82% 4.94% 5.12% 4.61% 5.01% (1) Taxable-equivalent yield of 2.20% as of December 31, 2022, applying a 24.5% effective tax rate (2) Average loan balances include monthly average nonaccrual loans of $8.8 million, $12.6 million and $11.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. We continued to experience strong asset growth for the year ended December 31, 2022 compared to the year ended December 31, 2021: - - - Total interest income on loans increased $18.6 million, or 33.4%, to $74.4 million, which was attributable to a $237.6 million increase in the average balance of loans to $1.14 billion during the year ended 2022 as compared with the average balance of $905.8 million for the year ended 2021; Yields on our interest-earning assets totaled 5.46%, an increase of 4 basis points which was attributable to higher loan rates of 35 basis points, an increase in yield on short term investments of 104 basis points, and a decrease in yield on taxable debt securities of 225 basis points; and Net interest margin for the years ended 2022 and 2021 was 4.82% and 5.12%, respectively. For the year ended December 31, 2021 compared to the year ended December 31, 2020: - - - - Total interest income on loans increased $3.3 million, or 6.3%, to $55.8 million, which was attributable to a $82.6 million increase in the average balance of loans to $905.8 million during the year ended 2021 as compared with the average balance of $823.2 million for the year ended 2020; Loan fees totaled $7.8 million, an increase of $2.8 million or 54.7%. $949,000 of the increase was due to PPP fee income recognized; Yields on our interest-earning assets totaled 5.42%, a decrease of 25 basis points which was attributable to lower loan rates and a decrease in yield on short term investments of 46 basis points, both were primarily impacted by the aforementioned changes in market interest rates related to the pandemic; and Net interest margin for the years ended 2021 and 2020 was 5.12% and 5.01%, respectively. 28 Table of Contents The FED influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. For the three year period between January 1, 2020 and December 31, 2022, the prime rate fluctuated between a high of 7.50%, and a low of 3.25%. Interest income on short-term investments increased $1.5 million, or 839.9%, to $1.7 million for year ended December 31, 2022 compared to 2021, due to an increase in the average balances of $3.5 million, or 2.8% and a yield increase of 104 basis points. Interest income on short-term investments decreased $515,000, or 62.2%, to $313,000 for year ended December 31, 2021 compared to 2020, due to yield decrease of 46 basis points. Interest expense on interest-bearing deposits totaled $9.3 million for the year ended December 31, 2022, compared to $3.1 million for 2021, an increase of $6.2 million, or 205.3%. The increase was related to the cost of interest-bearing deposits increasing to 1.05% for the year ended December 31, 2022 from 0.48% for the year ended December 31, 2021. Interest expense on interest-bearing deposits totaled $3.1 million for the year ended December 31, 2021, compared to $6.2 million for 2020, a decrease of $3.1 million, or 50.4%. The decrease was related to the cost of interest-bearing deposits decreasing to 0.48% for the year ended December 31, 2021 from 1.05% for the year ended December 31, 2020, which was related to the aforementioned changes in market interest rates related to the pandemic. Net interest margin for the years ended December 31, 2022, 2021 and 2020 was 4.82%, 5.12% and 5.01%, respectively. The following table sets forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Analysis of Changes in Interest Income and Expenses For the Year Ended December 31, 2022 vs 2021 Change due to: For the Year Ended December 31, 2021 vs 2020 Change due to: Volume(1) Rate(1) (Dollars in thousands) Interest Variance Volume(1) Rate(1) (Dollars in thousands) Interest Variance 10 $ 7,633 14,635 22,278 1,485 $ (5,303) 4,000 182 1,495 $ 2,330 18,635 22,460 70 $ 354 5,260 5,684 (585) $ (211) (1,943) (2,739) (515) 143 3,317 2,945 942 (322) 620 5,504 145 5,649 6,446 (177) 6,269 380 (33) 347 (1,713) (1,734) (3,447) (1,333) (1,767) (3,100) 620 5,649 6,269 347 (3,447) (3,100) Increase (decrease) in interest income: Short-term investments Debt securities Total loans Total increase (decrease) in interest income $ Increase (decrease) in interest expense: Deposits: Transaction accounts Time deposits Total interest-bearing deposits Total increase (decrease) in interest expense Increase (Decrease) in net interest income $ 21,657 $ (5,466) $ 16,191 $ 5,337 $ 708 $ 6,045 (1) Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances in each category. 29 Table of Contents Weighted Average Yield of Debt Securities The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at December 31, 2022. The following table presents securities at their expected maturities, which may differ from contractual maturities. The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and for pledging requirements for public funds: Within One Year After One Year But Within Five Years As of December 31, 2022 After Five Years But Within Ten Years After Ten Years Total Available-for-sale U.S. Federal agencies Mortgage-backed securities Amount Yield * Amount Yield * Amount Yield * (Dollars in thousands) Amount Yield * Amount Yield * $ 11 2.62% $ 176 1.83% $ 955 1% $ - 0% $ 1,142 1.21% 500 1.17 9,599 0.96 3,541 1.30 24,434 1.66 38,074 1.45 State and political subdivisions U.S. Treasuries Corporate debt securities Total 2,104 - - $ 2,615 1.61 - - 15,070 98,168 - 1.53% $ 123,014 1.24 1.18 - 10,650 2,492 4,934 1.17% $ 22,571 531 1.44 - 1.11 3.36 - 1.78% $ 24,965 1.48 - - 28,356 100,660 4,933 1.66% $ 173,165 1.35 1.18 3.36 1.34% Percentage of total 1.51% 71.04% 13.03% 14.42% 100.00% *Yield is on a taxable-equivalent basis using 21% tax rate Provision for Loan Losses For the year ended December 31, 2022 compared to the year ended December 31, 2021: - - The provision for loan losses increased from $4.2 million to $4.5 million; and The allowance as a percentage of loans increased by 16 basis points to 1.16%. For the year ended December 31, 2021 compared to the year ended December 31, 2020: - - The provision for loan losses decreased from $5.4 million to $4.2 million; and The allowance as a percentage of loans decreased by 15 basis points to 1.00%. Noninterest Income The following table sets forth the major components of our noninterest income for the years ended December 31, 2022, 2021 and 2020: Noninterest income: Mortgage lending income Gain (Loss) on sales of available-for-sale debt securities Service charges on deposit accounts Other income and fees Total noninterest income $ For the Years Ended December 31, For the Years Ended December 31, 2022 2021 $ Increase (Decrease) % Increase (Decrease) 2021 2020 $ Increase (Decrease) % Increase (Decrease) (Dollars in thousands) (Dollars in thousands) $ 486 $ 435 $ 51 11.72% $ 435 $ 175 $ 260 148.57% (127) - (127) -100.00% - 900 1,680 2,939 $ 550 1,265 2,250 $ 350 415 689 63.64% 32.81% 30.62% $ 550 1,265 2,250 $ 442 1,048 1,665 $ 108 217 585 24.43% 20.71% 35.14% 30 Table of Contents Noninterest Expense Noninterest expense for the year ended December 31, 2022 was $28.6 million compared to $20.4 million for the year ended December 31, 2021, an increase of $8.2 million or 40.4%. Noninterest expense for the year ended December 31, 2021 was $20.4 million compared to $17.6 million for the year ended December 31, 2020, an increase of $2.8 million or 15.9%. The following table sets forth the major components of our noninterest expense for the years ended December 31, 2022, 2021 and 2020: For the Years Ended December 31, For the Years Ended December 31, 2022 2021 $ Increase (Decrease) % Increase (Decrease) 2021 2020 $ Increase (Decrease) % Increase (Decrease) (Dollars in thousands) (Dollars in thousands) 17,040 $ 1,468 2,329 2,068 11,983 $ 883 1,899 1,237 5,057 585 430 831 42.20% $ 66.25% 22.64% 67.18% 11,983 $ 883 1,899 1,237 10,130 $ 868 1,957 1,091 984 1,344 800 604 184 740 23.00% 122.52% 800 604 536 506 1,853 15 (58) 146 264 98 18.29% 1.73% -2.96% 13.38% 49.25% 19.37% 477 282 195 69.15% 282 400 (118) -29.50% 363 2,568 28,641 $ 409 2,300 20,397 $ (46) 268 8,244 -11.25% 11.65% 40.42% $ 409 2,300 20,397 $ 241 1,863 17,592 $ 168 437 2,805 69.71% 23.46% 15.94% $ Noninterest expense: Salaries and employee benefits $ Furniture and equipment Occupancy Data and item processing Accounting, marketing, and legal fees Regulatory assessments Advertising and public relations Travel, lodging and entertainment Other expense Total noninterest expense For the year ended December 31, 2022 compared to the year ended December 31, 2021: - Salaries and employee benefits expense was $17.0 million compared to $12.0 million, an increase of $5.1 million, or 42.2%. The increase was attributable to overall increases in compensation to remain competitive, and due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount. For the year ended December 31, 2021 compared to the year ended December 31, 2020: - Salaries and employee benefits expense was $12.0 million compared to $10.1 million, an increase of $1.9 million, or 18.3%. The increase was attributable to overall increases in compensation to remain competitive, and partially due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount. Financial Condition The following discussion of our financial condition compares December 31, 2022, 2021, and 2020. Total Assets Total assets increased $233.6 million, or 17.3%, to $1.58 billion as of December 31, 2022, as compared to $1.35 billion as of December 31, 2021 and $1.02 billion as of December 31, 2020. 31 Table of Contents Loan Portfolio Our loans represent the largest portion of our earning assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. As of December 31, 2022, 2021 and 2020, our gross loans were $1.27 billion, $1.03 billion and $839.1 million, respectively. The following table presents the balance and associated percentage of each major category in our loan portfolio as of December 31, 2022, December 31, 2021 and December 31, 2020: Amount 2022 % of Total As of December 31, 2021 % of Total Amount Amount 2020 % of Total (Dollars in thousands) Construction & development 1-4 family real estate Commercial real estate - other Total commercial real estate Commercial & industrial Agricultural Consumer Gross loans Less: unearned income, net Total Loans, net of unearned income Less: Allowance for loan losses Net loans $ $ 163,203 76,928 439,001 679,132 513,011 66,145 14,949 1,273,237 (2,781) 1,270,456 (14,734) 1,255,722 12.8% $ 6.0% 34.5% 53.3% 40.3% 5.2% 1.2% 100.0% $ 169,322 62,971 339,655 571,948 361,974 73,010 24,046 1,030,978 (2,577) 1,028,401 (10,316) 1,018,085 16.4% $ 6.1% 32.9% 55.5% 35.1% 7.1% 2.3% 100.0% $ 107,855 29,079 290,489 427,423 351,248 50,519 9,898 839,088 (2,475) 836,613 (9,639) 826,974 12.8% 3.5% 34.6% 50.9% 41.9% 6.0% 1.2% 100.0% During the second quarter of 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Included in our commercial & industrial balance at December 31, 2022 and 2021, are $2.6 million and $18.7 million of PPP loans, respectively. We have established internal concentration limits in the loan portfolio for CRE loans, hospitality loans, energy loans, and construction loans, among others. All loan types are within our established limits. We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur. 32 Table of Contents The following tables show the contractual maturities of our gross loans as of the periods below: As of December 31, 2022 Due in One Year or Less Fixed Rate Adjustable Rate Due after One Year Through Five Years Fixed Rate Adjustable Rate Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) $ 11,749 $ 10,550 81,002 $ 12,664 7,556 $ 24,741 57,439 $ 15,782 - $ 314 1,160 $ 6,606 - $ - 4,297 $ 163,203 76,928 6,271 2,680 59,870 131,105 207,819 6,635 17,146 - 13,746 439,001 24,979 153,536 163,402 281,040 6,949 24,912 - 24,314 679,132 43,823 1,798 1,683 159,571 33,270 156 $ 72,283 $ 405,645 $ 238,754 $ 474,037 $ 234,573 17,514 22 60,275 8,767 6,310 3,745 469 587 11,750 $ 10,390 980 2,860 39,142 $ - 140 82 222 $ 513,011 634 66,145 3,207 14,949 3,249 31,404 $ 1,273,237 As of December 31, 2021 Due in One Year or Less Fixed Rate Adjustable Rate Due after One Year Through Five Years Fixed Rate Adjustable Rate Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) $ 7,283 $ 3,259 71,551 $ 21,322 10,148 $ 11,979 74,052 $ 11,674 - $ 926 2,243 $ 7,375 - $ - 4,045 $ 169,322 62,971 6,436 5,156 97,309 59,227 143,906 413 19,230 - 14,414 339,655 15,698 190,182 81,354 229,632 1,339 28,848 - 24,895 571,948 24,249 2,529 4,870 145,654 39,305 172 $ 47,346 $ 350,205 $ 113,681 $ 414,763 $ 142,553 17,441 29 16,346 5,156 10,825 20,474 623 1,554 23,990 $ 12,047 1,587 2,458 44,940 $ - - 84 84 $ 361,974 651 73,010 6,369 4,054 24,046 35,969 $ 1,030,978 Construction & development 1-4 family real estate Commercial real estate - other Total commercial real estate Commercial & industrial Agricultural Consumer Gross loans Construction & development 1-4 family real estate Commercial real estate - other Total commerical real estate Commercial & industrial Agricultural Consumer Gross loans As of December 31, 2020 Due in One Year or Less Fixed Rate Adjustable Rate Due after One Year Through Five Years Fixed Rate Adjustable Rate Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) Construction & development 1-4 family real estate Commercial real estate - other Total real estate $ 14 $ 273 47,649 $ 13,394 885 $ 4,712 58,387 $ 9,959 - $ 39 920 $ 702 2,377 2,664 55,307 116,350 45,880 51,477 180,721 249,067 294 333 4,288 5,910 Commercial & industrial Agricultural Consumer Gross loans $ 93,707 16,914 14,420 5,141 1,544 65 26,263 $ 338,235 $ 100,174 $ 357,259 $ 194,520 27,215 150 39,593 2,534 6,570 11 60 1,057 1,461 $ 6,503 541 425 13,379 $ - $ - - - - - 87 87 $ - $ 107,855 29,079 - 1,622 290,489 1,622 427,423 - 351,248 50,519 9,898 2,230 $ 839,088 608 - 33 Table of Contents Allowance for Loan and Lease Losses The allowance is based on management’s estimate of probable losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit reviews. To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type. Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel. In addition to the segment evaluations, impaired loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary. Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment. The allowance was $14.7 million at December 31, 2022, $10.3 million at December 31, 2021 and $9.6 million at December 31, 2020. The increasing trend was related to loan growth. The following table provides an analysis of the activity in our allowance for the periods indicated: Balance at beginning of the period Provision for loan losses Charge-offs: Construction & development 1-4 family real estate Commercial real estate - other Commercial & industrial Agricultural Consumer Total charge-offs Recoveries: Construction & development 1-4 family real estate Commercial real estate - other Commercial & industrial Agricultural Consumer Total recoveries Net recoveries (charge-offs) Balance at end of the period Net recoveries (charge-offs) to average loans 34 $ $ For the Year Ended December 31, 2021 (Dollars in thousands) $ $ 9,639 4,175 2022 10,316 4,468 - - - (2) (50) (22) (74) - - - 10 4 10 24 (50) $ 14,734 0.00% - - - (3,750) - (68) (3,818) - - - 16 300 4 320 (3,498) $ 10,316 0.39% 2020 7,846 5,350 - - - (3,289) (300) (1) (3,590) - 2 - 18 10 3 33 (3,557) 9,639 0.43% 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: 2022 As of December 31, 2021 2020 Amount Percent Amount Percent Amount Percent (Dollars in thousands) $ $ 1,889 890 5,080 5,937 765 173 14,734 12.8% $ 6.0% 34.5% 40.3% 5.2% 1.2% 100.0% $ 1,695 630 3,399 3,621 730 241 10,316 16.4% $ 6.1% 32.9% 35.2% 7.1% 2.3% 100.0% $ 1,239 334 3,337 4,035 580 114 9,639 12.8% 3.5% 34.6% 41.9% 6.0% 1.2% 100.0% Construction & development 1-4 family real estate Commercial real estate - Other Commercial & industrial Agricultural Consumer Total Nonperforming Assets Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability of the obligation. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on a nonaccrual loan is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on nonaccrual status and loans modified in a troubled debt restructuring, or TDR. Income from a loan on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral. The impairment amount on a collateral dependent loan is charged off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral dependent is set up as a specific reserve. 35 Table of Contents In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a TDR. Included in certain loan categories of impaired loans are TDRs on which we have granted certain material concessions to the borrower as a result of the borrower experiencing financial difficulties. The concessions granted by us may include, but are not limited to: (1) a modification in which the maturity date, timing of payments or frequency of payments is modified, (2) an interest rate lower than the current market rate for new loans with similar risk, or (3) a combination of the first two concessions. If a borrower on a restructured accruing loan has demonstrated performance under the previous terms, is not experiencing financial difficulty and shows the capacity to continue to perform under the restructured terms, the loan will remain on accrual status. Otherwise, the loan will be placed on nonaccrual status until the borrower demonstrates a sustained period of performance, which generally requires six consecutive months of payments. Loans identified as TDRs are evaluated for impairment using the present value of the expected cash flows or the estimated fair value of the collateral, if the loan is collateral dependent. The fair value is determined, when possible, by an appraisal of the property less estimated costs related to liquidation of the collateral. The appraisal amount may also be adjusted for current market conditions. Adjustments to reflect the present value of the expected cash flows or the estimated fair value of collateral dependent loans are a component in determining an appropriate allowance, and as such, may result in increases or decreases to the provision for loan losses in current and future earnings. Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under TDRs that are not performing in accordance with their modified terms. Nonperforming assets consist of nonperforming loans plus OREO. Loans accounted for on a nonaccrual basis were $8.0 million as of December 31, 2022, $9.9 million as of December 31, 2021 and $14.6 million as of December 31, 2020. OREO was $0 as of December 31, 2022, December 31, 2021 and December 31, 2020. The following table presents information regarding nonperforming assets as of the dates indicated. Nonaccrual loans Troubled-debt restructurings (1) Accruing loans 90 or more days past due Total nonperforming loans Other real estate owned Total nonperforming assets Ratio of nonperforming loans to total loans Ratio of nonaccrual loans to total loans Ratio of allowance for loan losses to total loans Ratio of allowance for loan losses to nonaccrual loans Ratio of nonperforming assets to total assets $ $ As of December 31, 2021 (Dollars in thousands) $ $ 9,885 - 496 10,381 - 10,381 2022 8,039 - 9,941 17,980 - 17,980 $ $ 1.42% 0.63% 1.16% 183.28% 1.13% 1.01% 0.96% 1.00% 104.36% 0.77% 2020 14,575 - 1,960 16,535 - 16,535 1.98% 1.74% 1.15% 66.13% 1.63% (1) $1.2 million, $1.4 million and $12.98 million of TDRs as of December 31, 2022, 2021 and 2020, respectively. 36 Table of Contents The following tables present an aging analysis of loans as of the dates indicated. Loans 30-59 days past due Loans 60-89 days past due As of December 31, 2022 Loans 90+ days past due and accruing Loans 90+ days past due Total Past Due Loans Current Total loans Construction & development 1-4 family real estate Commercial real estate - other Commercial & industrial Agricultural Consumer Total $ $ - $ - - 21 4 291 316 $ - $ - 617 - - 82 699 $ (Dollars in thousands) - $ - - 9,923 - 18 9,941 $ - $ - - 9,923 - 22 9,945 $ - $ - 617 9,944 4 395 10,960 $ 163,203 $ 76,928 438,384 503,067 66,141 14,554 1,262,277 $ 163,203 76,928 439,001 513,011 66,145 14,949 1,273,237 Loans 30-59 days past due Loans 60-89 days past due As of December 31, 2021 Loans 90+ days past due and accruing Loans 90+ days past due Total Past Due Loans Current Total loans Construction & development 1-4 family real estate Commercial real estate - other Commercial & industrial Agricultural Consumer Total $ $ - $ - - - - 48 48 $ - $ - 174 19 - 15 208 $ (Dollars in thousands) - $ - - 401 77 18 496 $ - $ - - 501 77 18 596 $ - $ - 174 520 77 81 852 $ 169,322 $ 62,971 339,481 361,454 72,933 23,965 1,030,126 $ 169,322 62,971 339,655 361,974 73,010 24,046 1,030,978 Loans 30-59 days past due Loans 60-89 days past due Construction & development 1-4 family commerical Commercial real estate - Other Commercial & industrial Agricultural Consumer Total $ $ 714 $ - 1,444 - - 193 2,351 $ - $ - - - - - - $ Loans 90+ days past due As of December 31, 2020 Loans 90+ days past due and accruing (Dollars in thousands) - $ - 1,960 - - - 1,960 $ - $ - 1,960 - - - 1,960 $ Total Past Due Loans Current Total loans 714 $ - 3,404 - - 193 4,311 $ 107,141 $ 29,079 287,085 351,248 50,519 9,705 834,777 $ 107,855 29,079 290,489 351,248 50,519 9,898 839,088 In addition to the past due and nonaccrual criteria, the Company also evaluates loans according to its internal risk grading system. Loans are segregated between pass, watch, special mention, and substandard categories. The definitions of those categories are as follows: Pass: These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history. Watch: These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or deficiencies in loan documentation, or other risk issues determined by the lending officer, Commercial Loan Committee or CQC warrant a heightened sense and frequency of monitoring. Special mention: These loans have observable weaknesses or evidence imprudent handling or structural issues. The weaknesses require close attention, and the remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade. 37 Table of Contents Substandard: These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured. The loans have defined weaknesses relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated. Substandard loans totaled $21.0 million as of December 31, 2022, a decrease of $3.7 million compared to December 31, 2021. Substandard loans totaled $24.7 million as of December 31, 2021, an increase of $1.6 million compared to December 31, 2020. The total net decrease in 2022 as compared to 2021, is comprised of a net increase in commercial and industrial substandard loans primarily related to an increase in two relationships comprised of four notes totaling $16.4 million with a $133,306 specific reserve and a decrease in one relationship comprised of one note totaling $2.1 million with no specific reserve, and a net decrease in commercial real estate substandard loans primarily related to two relationships comprised of one note each totaling $13.8 million with no specific reserves. Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows: Construction & development 1-4 family real estate Commercial real estate - Other Commercial & industrial Agricultural Consumer Total Construction & development 1-4 family real estate Commercial real estate - Other Commercial & industrial Agricultural Consumer Total Construction & development 1-4 family real estate Commercial real estate - Other Commercial & industrial Agricultural Consumer Total $ $ $ $ $ $ Pass 163,203 $ 76,928 397,295 493,412 65,857 14,927 1,211,622 $ Pass 169,322 $ 62,971 282,268 341,661 72,295 24,000 952,517 $ Pass 107,855 28,711 248,194 328,656 50,051 9,898 773,365 $ $ 38 Watch Substandard Watch Substandard As of December 31, 2022 Special mention (Dollars in thousands) - $ - $ - - 24,747 14,976 584 - - 288 - - 25,331 $ 15,264 $ As of December 31, 2021 Special mention (Dollars in thousands) - $ - $ - - 27,112 14,976 6,300 4,658 460 255 - - 33,872 $ 19,889 $ $ As of December 31, 2020 Special mention (Dollars in thousands) - $ 368 24,155 7,691 - - 32,214 - - 10,086 300 - - 10,386 $ $ Total 163,203 76,928 439,001 513,011 66,145 14,949 1,273,237 Total 169,322 62,971 339,655 361,974 73,010 24,046 1,030,978 Total 107,855 29,079 290,489 351,248 50,519 9,898 839,088 - $ - 1,983 19,015 - 22 21,020 $ - $ - 15,299 9,355 - 46 24,700 $ - - 8,054 14,601 468 - 23,123 $ $ Watch Substandard 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 CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) January 1, 2022. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. As of December 31, 2022, one loan totaling $2.6 million was modified, related to COVID-19, which was not considered a troubled debt restructuring. The following table presents loans restructured as TDRs as of December 31, 2022, December 31, 2021 and December 31, 2020. Commercial real estate Total Commercial real estate Total Commercial & industrial Agricultural Commercial real estate Total As of December 31, 2022 Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Number of Contracts Specific Reserves Allocated 1 $ 1 $ 1,198 $ 1,198 $ 1,198 $ 1,198 $ - - As of December 31, 2021 Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Number of Contracts Specific Reserves Allocated 1 $ 1 $ 1,402 $ 1,402 $ 1,402 $ 1,402 $ - - As of December 31, 2020 Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Number of Contracts Specific reserves allocated 1 $ 1 1 3 $ 10,886 $ 469 1,622 12,977 $ 10,886 $ 469 1,622 12,977 $ - - - - 39 Table of Contents There were no payment defaults with respect to loans modified as TDRs as of December 31, 2022, 2021, and 2020. Impairment analyses are prepared on TDRs in conjunction with the normal allowance process. TDRs restructured during the years ended December 31, 2022, 2021, and 2020 required $0, $0 and $0 in specific reserves, respectively. The following table presents total TDRs, both in accrual and nonaccrual status as of the periods indicated: Number of contracts 2022 - $ 1 1 $ As of December 31 2021 Amount Number of contracts Amount Number of contracts - 1,198 1,198 (Dollars in thousands) - $ 1 1 $ - 1,402 1,402 2020 - $ 3 3 $ Amount - 12,977 12,977 Accrual Nonaccrual Total Deposits We gather deposits primarily through our twelve branch locations and online though our website. We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such as savings accounts and certificates of deposit. We put continued effort into gathering noninterest- bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with community networks. Some of our interest-bearing deposits were obtained through brokered transactions. We participate in the CDARS program, where customer funds are placed into multiple certificates of deposit, each in an amount under the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States. As of December 31, 2022, 2021, and 2020 brokered deposits were $261.3 million, $273.8 million, and $427.0 million, respectively, of these $261.3 million, $273.8 million, and $427.0 million, respectively, were reciprocal deposits. Total deposits as of December 31, 2022, 2021, and 2020 were $1.43 billion, $1.22 billion and $905.5 million, respectively. The increase was primarily due to acquired deposits and organic deposit growth. The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits. 2022 Amount Percentage of Total As of December 31 2021 Amount Percentage of Total (Dollars in thousands) 2020 Amount Percentage of Total Noninterest-bearing demand Interest-bearing transaction deposits Savings deposits Time deposits ($250,000 or less) Time deposits (more than $250,000) Total interest-bearing deposits Total deposits $ $ 439,409 669,852 136,537 140,929 42,573 989,891 1,429,300 30.8% $ 46.7% 9.6% 9.9% 3.0% 69.2% 100.0% $ 366,705 583,389 89,778 132,690 44,909 850,766 1,217,471 30.1% $ 47.9% 7.4% 10.9% 3.7% 69.9% 100.0% $ 246,569 392,784 54,008 135,811 76,342 658,945 905,514 27.2% 43.4% 6.0% 15.0% 8.4% 72.8% 100.0% 40 Table of Contents The following table summarizes our average deposit balances and weighted average rates for the years ended December 31, 2022, 2021, and 2020: 2022 For the Year Ended December 31, 2021 2020 Average Balance Weighted Average Rate Average Balance Weighted Average Rate Average Balance Weighted Average Rate Non interest-bearing demand Interest-bearing transaction deposits Savings deposits Time deposits Total interest-bearing deposits Total deposits $ $ 432,901 613,798 110,818 165,735 890,351 1,323,252 (Dollars in thousands) 0.00% $ 1.11% 0.92% 0.89% 1.05% 0.70% $ 288,446 375,048 55,220 205,437 635,705 924,151 0.00% $ 0.34% 0.23% 0.81% 0.48% 0.33% $ 256,431 318,713 58,806 207,442 584,961 841,392 0.00% 1.50% 0.56% 1.65% 1.05% 0.73% The following tables set forth the maturity of time deposits as of the dates indicated below: Time deposits ($250,000 or less) Time deposits (more than $250,000) Total time deposits Time deposits ($250,000 or less) Time deposits (more than $250,000) Total time deposits Liquidity Three Months $ $ 58,184 $ 12,292 70,476 $ Three Months $ $ 32,680 $ 18,234 50,914 $ Three to Six Months As of December 31, 2022 Maturity Within: After 12 Six to 12 Months Months (Dollars in thousands) 38,844 $ 17,001 55,845 $ 25,333 $ 5,579 30,912 $ 18,568 $ 7,701 26,269 $ Three to Six Months As of December 31, 2021 Maturity Within: After 12 Six to 12 Months Months (Dollars in thousands) 31,197 $ 10,729 41,926 $ 37,016 $ 5,932 42,948 $ 31,797 $ 10,014 41,811 $ Total 140,929 42,573 183,502 Total 132,690 44,909 177,599 Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest- bearing deposits in correspondent banks and fed funds sold. Other available sources of liquidity include wholesale deposits and borrowings from correspondent banks and FHLB advances. Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis. As of December 31, 2022, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced. In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $129.2 million as of December 31, 2022 and $78.1 million as of December 31, 2021. 41 Table of Contents Capital Requirements The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), the Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy required the Bank to maintain minimum amounts and ratios of Common Equity Tier 1, or CET1, capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” For further information, see “Supervision and Regulation – Regulatory Capital Requirements” and “Supervision and Regulation – Prompt Corrective Action Framework.” In the wake of the global financial crisis of 2008 and 2009, the role of capital has become fundamentally more important, as banking regulators have concluded that the amount and quality of capital held by banking organizations was insufficient to absorb losses during periods of severely distressed economic conditions. The Dodd-Frank Act and banking regulations promulgated by the U.S. federal banking regulators to implement Basel III have established strengthened capital standards for banks and bank holding companies and require more capital to be held in the form of common stock. In addition, the Basel III regulations implement a concept known as the “capital conservation buffer.” In general, banks, bank holding companies with more than $3.0 billion in assets and bank holding companies with publicly-traded equity are required to hold a buffer of CET1 capital equal to 2.5% of risk- weighted assets over each minimum capital ratio in order to avoid being subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers. As of December 31, 2022, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action framework. There have been no conditions or events since December 31, 2022 that management believes would change this classification. 42 Table of Contents The table below also summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of December 31, 2022, 2021, and 2020. The Bank exceeded all regulatory capital requirements under Basel III and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below. As of December 31, 2022 Total capital (to risk-weighted assets) Company Bank Tier 1 capital (to risk-weighted assets) $ Company Bank CET 1 capital (to risk-weighted assets) Company Bank Tier 1 capital (to average assets) Company Bank Actual Amount Ratio With Capital Conservation Buffer Ratio (Dollars in thousands) Amount Minimum to be “Well- Capitalized” Under Prompt Corrective Action Amount Ratio 158,158 158,158 143,424 143,424 143,424 143,424 143,424 143,424 12.41% $ 12.42% 133,862 133,756 10.50% 10.50% $ N/A 127,387 N/A 10.00% 11.25% 11.26% 11.25% 11.26% 9.19% 9.18% 108,365 108,279 89,241 89,171 N/A N/A 8.50% 8.50% 7.00% 7.00% N/A N/A N/A 101,909 N/A 82,801 N/A 78,111 N/A 8.00% N/A 6.50% N/A 5.00% Actual Amount Ratio With Capital Conservation Buffer Ratio (Dollars in thousands) Amount Minimum to be “Well- Capitalized” Under Prompt Corrective Action Amount Ratio As of December 31, 2021 Total capital (to risk-weighted assets) Company Bank Tier 1 capital (to risk-weighted assets) Company Bank CET 1 capital (to risk-weighted assets) Company Bank Tier 1 capital (to average assets) Company Bank $ 127,946 127,844 12.54% $ 12.54% 107,126 107,020 10.50% 10.50% $ N/A 101,924 N/A 10.00% 117,631 117,528 117,631 117,528 117,631 117,528 11.53% 11.53% 11.53% 11.53% 10.56% 10.55% 86,721 86,635 71,417 71,347 N/A N/A 8.50% 8.50% 7.00% 7.00% N/A N/A N/A 81,539 N/A 66,250 N/A 55,714 N/A 8.00% N/A 6.50% N/A 5.00% Actual Amount Ratio With Capital Conservation Buffer Ratio (Dollars in thousands) Amount Minimum to be “Well- Capitalized” Under Prompt Corrective Action Amount Ratio As of December 31, 2020: Total capital (to risk-weighted assets) Bank7 Corp. Bank Tier 1 capital (to risk-weighted assets) $ Bank7 Corp. Bank CET 1 capital (to risk-weighted assets) Bank7 Corp. Bank Tier 1 capital (to average assets) Bank7 Corp. Bank 115,375 115,335 105,736 105,696 105,736 105,696 105,736 105,696 82,216 82,114 66,556 66,473 54,811 54,743 N/A N/A 10.50% 10.50% $ 8.50% 8.50% 7.00% 7.00% N/A N/A N/A 78,204 N/A 62,563 N/A 50,832 N/A 49,041 N/A 10.00% N/A 8.00% N/A 6.50% N/A 5.00% 14.73% $ 14.75% 13.50% 13.51% 13.50% 13.51% 10.78% 10.78% 43 Table of Contents Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments. Total shareholders’ equity increased to $144.1 million as of December 31, 2022, compared to $127.4 million as of December 31, 2021 and $107.3 million as of December 31, 2020. The increases were driven by retained capital from net income during the periods. Contractual Obligations The following tables contain supplemental information regarding our total contractual obligations as of December 31, 2022: Deposits without a stated maturity Time deposits Operating lease commitments Total contractual obligations $ $ 1,245,798 157,233 $ 532 1,403,563 $ 815 26,817 $ - 267 453 720 $ $ - - 530 530 $ 1,245,798 183,502 2,330 1,431,630 Within One Year One to Three Years Payments Due as of December 31, 2022 Three to Five Years (Dollars in thousands) $ - 26,002 $ After Five Years Total We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs. Off-Balance Sheet Arrangements We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance sheet. Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of the customer to a third party. They are intended to be disbursed, subject to certain conditions, upon request of the borrower. The following table summarizes commitments as of the dates presented. Commitments to extend credit Standby letters of credit Total $ $ 44 2022 As of December 31, 2021 (Dollars in thousands) 200,393 $ 5,809 206,202 $ 198,027 $ 1,043 199,070 $ 2020 206,520 2,366 208,886 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 report, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Additional information about these policies can be found in Note 1 of the Company’s consolidated financial statements included in the Annual Report on the Form 10-K. Allowance for Loan and Lease Losses The allowance is based on management’s estimate of probable losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and changes in the composition of the loan portfolio. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit reviews. To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type. Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel. In addition to the segment evaluations, impaired loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary. Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment. Goodwill and Intangibles Intangible assets totaled $1.3 million and goodwill, net of accumulated amortization totaled $8.6 million for the year ended December 31, 2022, compared to intangible assets of $1.6 million and goodwill, net of accumulated amortization of $8.5 million for the year ended December 31, 2021. Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is tested annually for impairment or more frequently if other impairment indicators are present. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements. Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years. Such assets are periodically evaluated as to the recoverability of their carrying values. 45 Table of Contents Income Taxes The Company files a consolidated income tax return. Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized. The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future. Changes in these accruals are reported as tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences. Changes periodically occur in the estimates due to changes in tax rates, tax laws and regulations and implementation of new tax planning strategies. The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors. Management performs an analysis of the Company’s tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years. Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or the observable date. Debt securities that are being held for indefinite periods of time and are not intended to sell, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity and comprehensive income, net of income tax. The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly. The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required to sell, the securities before recovery of the amortized cost basis. If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making this assessment, the Company considers, among other things, the period of time the security has been in an unrealized loss position, and performance of any underlying collateral and adverse conditions specifically related to the security. The estimates of fair values of debt securities and other financial instruments are based on a variety of factors. In some cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future. 46 Table of Contents Item 7a. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Sensitivity and Market Risk As a financial institution, our primary component of market risk is interest rate volatility. Our financial management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options or financial future contracts to mitigate interest rate risk from specific transactions. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets. Our exposure to interest rate risk is managed by the Asset/Liability Committee, or the ALCO Committee, in accordance with policies approved by the Company’s board of directors. The ALCO Committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO Committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The ALCO Committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the ALCO Committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model. We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model. The average lives of non-maturity deposit accounts are based on decay assumptions and are incorporated into the model. We utilize third-party experts to periodically evaluate the performance of our non-maturity deposit accounts to develop the decay assumptions. All of the assumptions used in our analyses are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies. 47 Table of Contents On a quarterly basis, we run various simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static model and dynamic growth models, rates are shocked instantaneously and ramped rates change over a 12-month and 24-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for gradual parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 10% for a -100 basis point shift, 5% for a 100 basis point shift, 10% for a 200 basis point shift, 15% for a 300 basis point shift, and 20% for a 400 basis point shift. The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated: 2022 As of December 31, 2021 2020 Percent Change in Net Interest Income Percent Change in Fair Value of Equity Percent Change in Net Interest Income Percent Change in Fair Value of Equity Percent Change in Net Interest Income Percent Change in Fair Value of Equity 13.41% 9.96% 6.50% 2.99% -0.77% -4.82% 20.90% 20.13% 19.17% 18.04% 16.91% 15.25% 32.34% 23.63% 14.88% 6.07% -2.80% -5.38% 23.35% 21.37% 19.21% 16.86% 14.33% 11.30% 39.57% 29.73% 19.87% 9.90% -0.14% -3.11% 19.41% 17.53% 15.51% 13.36% 11.06% 10.35% Change in Interest Rates (Basis Points) +400 +300 +200 +100 Base -100 The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and fed funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies. Impact of Inflation Our consolidated financial statements and related notes included elsewhere in this Form 10-K have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession. Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation. 48 Table of Contents Item 8. Financial Statements and Supplementary Data Consolidated Financial Statements Index Report of Independent Registered Public Accounting Firm (PCAOB ID: 686) Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 2022 and 2021 Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2022 Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2022 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2022 Notes to Consolidated Financial Statements 49 Page 50 51 52 53 54 55 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders, Board of Directors, and Audit Committee Bank7 Corp. Oklahoma City, Oklahoma Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bank7 Corp. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion. FORVIS, LLP (Formerly, BKD,LLP) /s/ FORVIS, LLP We have served as the Company’s auditor since 2011 Oklahoma City, Oklahoma March 24, 2023 50 Table of Contents Assets Bank7 Corp. Consolidated Balance Sheets (Dollar amounts in thousands, except par value) December 31, 2022 2021 Cash and due from banks Federal funds sold Cash and cash equivalents Interest-bearing time deposits in other banks Available-for-sale debt securities Loans, net of allowance for loan losses of $14,734 and $10,316 at December 31, 2022 and December 31, 2021, $ $ 109,115 - 109,115 5,474 173,165 respectively Loans held for sale Premises and equipment, net Nonmarketable equity securities Core deposit intangibles Goodwill Interest receivable and other assets Total assets Liabilities and Shareholders’ Equity Deposits Noninterest-bearing Interest-bearing Total deposits Income taxes payable Interest payable and other liabilities Total liabilities Shareholders’ equity Common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding: 9,131,973 and 9,071,417 at December 31, 2022 and December 31, 2021 respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total shareholders’ equity 195,359 9,493 204,852 3,237 84,808 1,018,085 464 17,257 1,202 1,643 8,479 10,522 1,255,722 - 13,106 1,209 1,336 8,603 16,439 $ 1,584,169 $ 1,350,549 $ 439,409 989,891 $ 366,705 850,766 1,429,300 1,217,471 1,054 9,715 - 5,670 1,440,069 1,223,141 91 95,263 58,049 (9,303) 91 94,024 33,149 144 144,100 127,408 Total liabilities and shareholders’ equity $ 1,584,169 $ 1,350,549 See accompanying notes to Consolidated Financial Statements 51 Table of Contents Bank7 Corp. Consolidated Statements of Comprehensive Income (Dollar amounts in thousands, except per share data) Interest Income Loans, including fees Interest-bearing time deposits in other banks Debt securities, taxable Debt securities, tax-exempt Other interest and dividend income Total interest income Interest Expense Deposits Total interest expense Net Interest Income Provision for Loan Losses Year ended December 31, 2021 2022 2020 $ $ 74,403 46 2,313 360 1,627 $ 55,768 169 143 31 178 52,450 525 - - 339 78,749 56,289 53,314 9,322 9,322 3,053 3,053 6,153 6,153 69,427 53,236 47,161 4,468 4,175 5,350 Net Interest Income After Provision for Loan Losses 64,959 49,061 41,811 Noninterest Income Mortgage lending income Loss on sales, prepayments, and calls of available-for-sale debt securities Service charges on deposit accounts Other Total noninterest income Noninterest Expense Salaries and employee benefits Furniture and equipment Occupancy Data and item processing Accounting, marketing and legal fees Regulatory assessments Advertising and public relations Travel, lodging and entertainment Other Total noninterest expense Income Before Taxes Income tax expense Net Income Earnings per common share - basic Earnings per common share - diluted Weighted average common shares outstanding - basic Weighted average common shares outstanding - diluted Other Comprehensive Income Unrealized gains(losses) on securities, net of tax benefit of $2.8 million, $0, and $0 for the years ended December 30, 2022, 2021, and 2020, respectively Reclassification adjustment for realized loss included in net income net of tax of $31, $0, and $0 the years ended 2022, 2021, and 2020, respectively Other comprehensive (loss) income Comprehensive Income See accompanying notes to Consolidated Financial Statements 52 486 (127) 900 1,680 2,939 17,040 1,468 2,329 2,068 984 1,344 477 363 2,568 435 - 550 1,265 2,250 11,983 883 1,899 1,237 800 604 282 409 2,300 175 - 442 1,048 1,665 10,130 868 1,957 1,091 536 506 400 241 1,863 28,641 20,397 17,592 39,257 9,619 29,638 3.26 3.22 9,101,523 9,204,716 $ $ 30,914 7,755 23,159 2.56 2.55 9,056,117 9,091,536 $ $ 25,884 6,618 19,266 2.05 2.05 9,378,769 9,379,154 (9,543) $ 144 $ - 96 (9,447) 20,191 $ $ - 144 23,303 $ $ - - 19,266 $ $ $ $ $ Table of Contents Bank7 Corp. Consolidated Statements of Shareholders’ Equity (Dollar amounts in thousands, except per share data) Common Stock (Shares) Balance at beginning of period Exercise of employee stock options Shares issued for restricted stock units Shares acquired and canceled Balance at end of period Common Stock (Amount) Balance at beginning of period Shares issued for restricted stock units Balance at end of period Additional Paid-in Capital Balance at beginning of period Shares purchased and retired Stock-based compensation expense Balance at end of period Retained Earnings Balance at beginning of period Net income Common stock acquired and canceled Cash dividends declared ($0.52, $0.45, $0.41 per share) December 31, 2022, 2021, and 2020, respectively Balance at end of period Accumulated Other Comprehensive Income(Loss) Balance at beginning of period Comprehensive income(loss) Balance at end of period Total Shareholders’ equity See accompanying notes to Consolidated Financial Statements 53 Year Ended December 31, 2021 9,044,765 - 26,652 - 9,071,417 2022 9,071,417 17,450 43,106 - 9,131,973 2020 10,057,506 - 19,437 (1,032,178) 9,044,765 $ $ $ $ $ $ $ $ $ 91 - 91 94,024 (145) 1,384 95,263 33,149 29,638 - (4,738) 58,049 144 (9,447) (9,303) $ $ $ $ $ $ $ $ $ $ $ $ $ 90 1 91 93,162 426 436 94,024 14,067 23,159 - (4,077) $ 33,149 - 144 144 $ $ 101 (11) 90 92,391 257 514 93,162 7,634 19,266 (9,065) (3,768) 14,067 - - - 144,100 $ 127,408 $ 107,319 Table of Contents Bank7 Corp. Consolidated Statements of Cash Flows (Dollar amounts in thousands) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Provision for loan losses Amortization of premiums and discounts on securities Gain on sales of loans Net loss on sale of available for sale debt securities Stock-based compensation expense Gain on sale of premises and equipment Cash receipts from the sale of loans originated for sale Cash disbursements for loans originated for sale Deferred income tax (benefit) Changes in Interest receivable and other assets Interest payable and other liabilities Year Ended December 31, 2021 2022 2020 $ 29,638 $ 23,159 $ 19,266 1,406 4,468 812 (486) 127 1,384 (24) 33,776 (32,826) (1,423) (1,865) 4,727 1,031 4,175 30 (435) - 862 (1) 23,954 (23,659) 235 907 (303) 1,093 5,350 - (175) - 771 (3) 8,924 (8,042) (875) (162) (912) Net cash provided by operating activities 39,714 29,955 25,235 Investing Activities Net cash received for acquisition, net of cash paid Maturities of interest-bearing time deposits in other banks Purchases of interest-bearing time deposits in other banks Proceeds from sale of available-for-sale debt securities Maturities, prepayments and calls of available-for-sale debt securities Purchases of available-for-sale debt securities Net change in loans Purchases of premises and equipment Proceeds from sale of premises and equipment Change in nonmarketable equity securities - 2,490 (4,727) 11,820 19,736 (133,052) (242,105) (294) 3,370 (7) 20,432 13,175 - 1,173 290 - (77,951) (599) 17 (30) - 28,162 (14,427) - - - (132,866) (438) 27 (72) Net cash used in investing activities (342,769) (43,493) (119,614) Financing Activities Net change in deposits Cash distributions Net cash settlement of equity compensation Common stock issued for restricted stock units 211,829 (4,366) (145) - 68,470 (3,982) - 1 148,031 (7,803) - (9,076) Net cash provided by financing activities 207,318 64,489 131,152 Net Increase/(Decrease) in Cash and Due from Banks (95,737) 50,951 36,773 Cash and Due from Banks, Beginning of Period 204,852 153,901 117,128 Cash and Due from Banks, End of Period Supplemental Disclosure of Cash Flows Information Interest paid Income taxes paid Dividends declared and not paid Measurement period goodwill adjustment Supplemental Disclosure of Investing Activities Cash consideration for acquisition Fair value of assets acquired in acquisition Fair value of liabilities assumed in acquisition See accompanying notes to Consolidated Financial Statements 54 $ $ $ $ $ $ $ $ 109,115 $ 204,852 $ 153,901 9,100 9,981 1,463 124 - - - $ $ $ $ $ $ $ 3,222 7,511 1,089 - 29,266 267,327 245,528 $ $ $ $ $ $ $ 6,502 7,731 994 - - - - Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Bank7 Corp. (the “Company”) 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, Texas, and Kansas. 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 consolidated financial statements include the accounts of the Company, the Bank and its subsidiary, 1039 NW 63rd, LLC, which holds real estate utilized by the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of other real estate owned, other-than-temporary impairments, income taxes, goodwill and intangibles and fair values of financial instruments. Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Included in cash and cash equivalents is $267,000 restricted cash related to the acquisition of Watonga Bancshares, Inc. Interest-Bearing Time Deposits in Other Banks Interest-bearing time deposits in other banks totaled $5.5 million and $3.2 million at December 31, 2022 and December 31, 2021 respectively, and have original maturities generally ranging from one to five years. Available-for-Sale Debt Securities Available-for-sale debt securities are carried at fair value with unrealized gains and losses excluded from earnings and reported separately in other comprehensive income. The Company currently has no securities designated as trading or held-to-maturity. Interest income is recognized at the coupon rate adjusted for amortization and accretion of premiums and discounts. Discounts are accreted into interest income over the estimated life of the related security and premiums are amortized against income to the earlier of the call date or weighted average life of the related security using the interest method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. They are included in noninterest income or expense and, when applicable, are reported as a reclassification adjustment in other comprehensive income. 55 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Declines in the fair value of individual available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value. The Company monitors the investment security portfolio for impairment on an individual security basis and has a process in place to identify securities that could potentially have a credit impairment that is other than temporary. This process involves analyzing the length of time and the extent to which the fair value has been less than the amortized cost basis, the market liquidity for the security, the financial condition and near-term prospects of the issuer, expected cash flows, and the Company’s intent and ability to hold the investment for a period of time sufficient to recover the temporary impairment. A decline in value due to a credit event that is considered other-than-temporary is recorded as a loss in noninterest income. 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. Loans acquired through business combinations are required to be carried at fair value as of the date of the combination. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date. Mortgage Loans Held for Sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon the sale of the loan. 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. 56 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements 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. 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. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is charged to operating expense and is computed using the straight- line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred while improvements are capitalized. Premises and equipment is tested for impairment if events or changes in circumstances occur that indicate that the carrying amount of any premises and equipment may not be recoverable. Premises that are identified to be sold are transferred to other real estate owned at the lower of their carrying amounts or their fair values less estimated costs to sell. Any losses on premises identified to be sold are charged to operating expense. Non-Marketable Equity Securities Non-marketable equity securities consist primarily of Federal Home Loan Bank of Topeka (FHLB) stock and Federal Reserve Bank of Kansas City stock and are required investments for financial institutions that are members of the FHLB and Federal Reserve systems. The required investment in common stock is based on a predetermined formula, carried at cost and evaluated for impairment. 57 Table of Contents Long-Lived Asset Impairment Bank7 Corp. Notes to Consolidated Financial Statements The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows is expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the years ended December 31, 2022, 2021, and 2020. Foreclosed Assets Held for Sale Foreclosed assets held for sale consist of assets acquired through, or in lieu of, loan foreclosure and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount of fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in current operations. Business Combinations The acquisition method of accounting is used for business combinations. Under the acquisition accounting method, the acquiring Company recognizes 100% of the assets acquired and liabilities assumed at the acquisition date fair value. The excess of fair value of the consideration transferred over the acquisition date fair value of net assets acquired is recorded as goodwill. Further, one-time extraordinary expenses related to the acquisition are expected to be incurred. Goodwill and Intangible Assets Intangible assets totaled $1.3 million and goodwill, net of accumulated amortization totaled $8.6 million for the year ended December 31, 2022, compared to intangible assets of $1.6 million and goodwill, net of accumulated amortization of $8.5 million for the year ended December 31, 2021. The decrease in intangible assets is due to amortization of core deposit intangibles and the increase in goodwill recognized is due to the resolution of contractual obligations, assessment of fair value of premises and equipment, and tax provision adjustments that relate to the acquisition of Watonga Bancshares, Inc. on December 9, 2021. Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is tested annually for impairment or more frequently if other impairment indicators are present. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements. Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years. Such assets are periodically evaluated as to the recoverability of their carrying values. Segments While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. 58 Table of Contents Income Taxes Bank7 Corp. Notes to Consolidated Financial Statements The Company uses a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements tax positions taken or expected to be taken on a tax return. A tax position is recognized as a benefit only if it is ‘‘more likely than not’’ that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2022, 2021 and 2020, the Company recognized no interest and penalties. The Company or one of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal or state tax examinations for years before 2019. Comprehensive Income Comprehensive income includes all changes in stockholders’ equity during a period, except those resulting from transactions with stockholders. Besides net income, other components of the Company’s comprehensive income includes the after tax effect of changes in the net unrealized gain/loss on debt securities available-for-sale. The Company’s policy is to release material stranded tax effects included in accumulated other comprehensive income on a specific identification basis. Reclassifications Certain reclassifications have been made to the 2021 consolidated financial statements to conform to the 2022 consolidated financial statement presentation. These reclassifications had no effect on net earnings. Revenue Recognition In addition to lending and related activities, the Company offers various services to customers that generate revenue. Contract performance typically occurs in one year or less. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less. Service and transaction fees on depository accounts Customers often pay certain fees to the bank to access the cash on deposit including certain non-transactional fees such as account maintenance or dormancy fees, and certain transaction based fees such as ATM, wire transfer, or foreign exchange fees. Revenue is recognized when the transactions occur or as services are performed over primarily monthly or quarterly periods. Payment is typically received in the period the transactions occur, or in some cases, within 90 days of the service period. Interchange Fees Interchange fees, or “swipe” fees, are charges that merchants pay to the processors who, in turn, share that revenue with us and other card-issuing banks for processing electronic payment transactions. Interchange fees represent the portion of the debit card transaction amount that the card issuer retains to compensate it for processing transactions and providing rewards. Interchange fees are settled and recognized on a daily or monthly basis. Interchange fees are included with noninterest income and recorded net of related expenses as the Bank acts as an agent, introducing the customer transactions to the processor. 59 Table of Contents Recent Accounting Pronouncements Standards Adopted During Current Period: Bank7 Corp. Notes to Consolidated Financial Statements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires lessees to recognize a lease liability and a right-of-use asset for all leases, excluding short-term leases, at the commencement date. The guidance in the ASU is effective for annual reporting periods beginning after December 15, 2021. Additionally, a modified retrospective approach is required for leases existing at the earliest comparative period presented. The Company adopted this new standard on January 1, 2022, using a modified retrospective transition approach and recognized right-of-use lease assets and related lease liabilities totaling $2.2 and $2.2 million, respectively. The Company elected to apply certain practical adoption expedients provided under the updates whereby it did not reassess initial direct costs for any existing leases. No cumulative-effect adjustment was recognized as the amount was not material, and the impact on our results of operations and cash flows was also not material. No prior periods were adjusted. See Note (19) for the financial position impact and additional disclosures. Standards Not Yet Adopted: In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). 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. The ASU requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The ASU requires enhanced disclosures related to the significant estimates and judgements used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will be effective for the Company on January 1, 2023. The Company believes under current assumptions the adoption will result in an immaterial change in our allowance for loan loss. The Company is currently finalizing the execution of its implementation controls and processes, the ultimate impact of the adoption of the ASU as of January 1, 2023 could differ from its current assumptions. Furthermore, the ASU will necessitate that the Company establish an allowance for expected credit losses for certain debt securities and other financial assets. The Company expects to adopt the standard in the first quarter of 2023. Legislative and Regulatory Developments In April 2020, the Company began originating loans to qualified small businesses under the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). PPP loans are fully guaranteed by the SBA and thus have a zero percent risk weight under applicable risk-based capital rules. As of December 31, 2022, the Company had two PPP loans with balances totaling $2.6 million, and 43 PPP loans with balances totaling $18.7 million as of December 31, 2021. The Company recognized $219,000 in fee income during the year ended December 31, 2022, with $50,000 remaining to be recognized, as compared to $2.3 million recognized and $269,000 to be recognized as of December 31, 2021. 60 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 2: Recent Events, Including Mergers and Acquisitions On December 9, 2021, the Company’s largest shareholder sold approximately 1.1 million shares of stock pursuant to an S-3 registered secondary offering. The Company incurred $423,000 in non-recurring expenses associated with the offering, which are included in noninterest expenses. The effect of this purchase and related expenses was included in the consolidated financial statement of the Company as of December 31, 2021. Business Combinations On December 9, 2021, the Company acquired 100% of the outstanding equity of Watonga Bancshares, Inc. (“Watonga”), the bank holding company for Cornerstone Bank, for $29.3 million in cash. Immediately following the acquisition, Watonga was dissolved and Cornerstone Bank merged with and into Bank7. A summary of the fair value of assets acquired and liabilities assumed from Watonga are as follows: (in thousands) Assets Acquired Cash and cash equivalents Available-for-sale debt securities Federal funds sold Loans Premises and equipment Core deposit intangible Prepaid expenses and other assets Total assets acquiried Liabilities Assumed Deposits Accounts payable and accrued expenses Total liabilities assumed Net assets acquired Consideration transferred Goodwill Estimated Fair Value $ $ $ $ $ $ 41,747 86,166 7,941 117,335 8,669 1,254 4,512 267,624 243,487 2,232 245,719 21,905 29,498 7,593 Goodwill increased $124,000 for the twelve months ended December 31, 2022, respectively, related to the resolution of contractual obligations, assessment of the fair value of premises and equipment, and tax provision adjustments. The Company engaged a third-party specialist to develop the fair value estimate of Watonga’s loan portfolio as of the acquisition date in accordance with ASC 820. Inputs and assumptions used in the fair value estimate of the loan portfolio, includes interest rate, servicing, credit and liquidity risk, and required equity return. The fair value of loans was calculated using a discounted cash flow analysis based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of Watonga’s allowance for loan losses associated with the loans that were acquired, as the loans were initially recorded at fair value as of the acquisition date. None of the acquired loans were deemed purchased-credit impaired as of the acquisition date. The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years. The fair value of retail demand and interest-bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The Company has determined the above noted acquisition constitutes a business combination as defined by ASC Topic 805, which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired and the liabilities assumed. The Company has recorded the assets purchased and liabilities assumed at their estimated fair value in accordance with ASC Topic 805. As of the acquisition date, the Company evaluated $117.3 million of net loans ($118.5 million gross loans less $1.2 million discount) purchased in conjunction with the acquisition of Watonga Bancshares, Inc. in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs. As of December 31, 2022, the net loan balance of the ASC Topic 310-20 purchased loans is $63.0 million ($63.8 million gross loans less $743,000 discount). The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. Summary of Unaudited Pro Forma Information The following table presents unaudited pro-forma information as if the acquisition of Watonga had occurred on January 1, 2020. This pro-forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and other intangibles and related income tax effects and is based on our historical results for the periods presented. Transaction-related costs related to each acquisition are not reflected in the pro-forma amounts. The pro-forma information does not necessarily reflect the results of operations that would have occurred had the Company acquired Watonga at the beginning of fiscal year 2020. Cost savings are also not reflected in the unaudited pro-forma amounts. Actual from Acquisition Date through December 31, 2021 Pro-Forma for Year Ended December 31, 2021 2020 Net interest income Non-interest income Net income Pro-forma earnings per share: Basic Diluted Subsequent Events $ $ 411 67 124 $ 60,420 3,261 21,935 $ $ 2.42 2.41 $ $ 54,690 3,721 17,433 1.86 1.86 The Company evaluated subsequent events through the date the consolidated financial statements were issued. There were no subsequent events requiring recognition or disclosure. 61 Table of Contents Note 3: Restriction on Cash and Due from Banks Bank7 Corp. Notes to Consolidated Financial Statements On March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effectively eliminating reserve requirements for all depository institutions. There was no reserve requirement as of December 31, 2022. Note 4: Earnings per Share Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the year. Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income 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: As of and for the Years ended December 31, 2021 2020 2022 (Dollars in thousands, except per share amounts) Numerator Net income Denominator Weighted-average shares outstanding for basic earnings per share Dilutive effect of stock compensation (1) Denominator for diluted earnings per share Earnings per common share Basic Diluted $ 29,638 $ 23,159 $ 19,266 9,101,523 103,193 9,204,716 9,056,117 35,419 9,091,536 9,378,769 385 9,379,154 $ $ 3.26 3.22 $ $ 2.56 2.55 $ $ 2.05 2.05 (1) The following have not been included in diluted earnings per share because to do so would have been antidilutive for the periods presented: Nonqualified stock options outstanding of 5,000, 264,000, and 185,250 as of December 31, 2022, 2021, and 2020, respectively; Restricted stock units outstanding of 0, 0, and 10,000 as of December 31, 2022, 2021, and 2020, respectively. 62 Table of Contents Note 5: Debt Securities Bank7 Corp. Notes to Consolidated Financial Statements The following table summarizes the amortized cost and fair value of debt securities available-for-sale at December 31, 2022 and December 31, 2021, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income: (in thousands) Available-for-sale as of December 31, 2022 U.S. Federal agencies Mortgage-backed securities(1)(2) State and political subdivisions U.S. Treasuries Corporate debt securities Total available-for-sale Total debt securities (in thousands) Available-for-sale as of December 31, 2021 U.S. Federal agencies Mortgage-backed securities(1) State and political subdivisions U.S. Treasuries Corporate debt securities Total available-for-sale Total debt securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value $ $ 1,292 42,953 30,632 104,940 5,500 185,317 185,317 $ - - - - - - - (150) $ (4,879) (2,276) (4,280) (567) (12,152) (12,152) 1,142 38,074 28,356 100,660 4,933 173,165 173,165 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value $ $ 311 33,085 45,245 6,052 - 84,693 84,693 $ 2 69 49 - - 120 120 $ - - - (5) - (5) (5) 313 33,154 45,294 6,047 - 84,808 84,808 (1) All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities. (2) Included in mortgage-backed securities is $27.90 million of residential mortgage-backed securities and $15.05 million of commerical mortgage-backed securities. 63 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The amortized cost and estimated fair value of investment securities at December 31, 2022 and December 31, 2021, by contractual maturity, are shown below. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. (in thousands) Available-for-sale as of December 31, 2022 Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Total available-for-sale (in thousands) Available-for-sale as of December 31, 2021 Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Total available-for-sale Amortized Cost Fair Value $ $ 2,133 118,108 21,495 628 42,953 185,317 2,115 113,415 19,030 531 38,074 173,165 Amortized Cost Fair Value $ $ 3,622 22,030 22,819 3,137 33,085 84,693 3,623 22,076 22,821 3,134 33,154 84,808 There were no holdings of securities of any issuer in an amount greater than 10% of stockholders equity at December 31, 2022. The following table presents a summary of realized gains and losses from the sale, prepayment and call of debt securities for the twelve months ended December 31, 2022 and December 31, 2021. (in thousands) Proceeds from sales, prepayments and calls Gross realized gains on sales, prepayments and calls Gross realized losses on sales, prepayments and calls Total realized (losses), net The following table details book value of pledged securities as of December 31, 2022: (in thousands) Book value of pledged securities 64 Year Ended December 31, 2022 Year Ended December 31, 2021 $ $ 31,556 $ 10 (137) (127) $ - - - - December 31, 2022 December 31, 2021 $ 85,280 $ 37,477 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following table details gross unrealized losses and fair values of investment securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2022 and December 31, 2021. As of December 31, 2022, the Company had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying debt securities were purchased and acquired. The fair value of those debt securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline. Management has no intent or requirement to sell before the recovery of the unrealized loss; therefore, no impairment loss was realized in the Company’s consolidated statement of comprehensive income. Less than Twelve Months Gross Unrealized Losses Fair Value Twelve Months or Longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses 1,142 38,074 28,356 100,660 4,933 173,165 $ $ (150) (4,879) (2,276) (4,280) (567) (12,152) $ $ - - - - - - $ $ - - - - - - $ $ 1,142 38,074 28,356 100,660 4,933 173,165 $ $ (150) (4,879) (2,276) (4,280) (567) (12,152) Less than Twelve Months Gross Unrealized Losses Fair Value Twelve Months or Longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (in thousands) Available-for-sale as of December 31, 2022 U.S. Federal agencies Mortgage-backed securities State and political subdivisions(1) U.S. Treasuries Corporate debt securities Total available-for-sale (in thousands) Available-for-sale as of December 31, 2021 U.S. Federal agencies Mortgage-backed securities State and political subdivisions(1) U.S. Treasuries Corporate debt securities $ $ $ - - - 6,047 - 6,047 $ $ $ $ - - - - - - - - - - - - - - - 6,047 - 6,047 $ $ - - - (5) - (5) Total available-for-sale $ (1) Of our state and political subdivisions securities $25.02 million are rate BBB+ or better and $3.34 million are not rated. $ $ $ $ - - - (5) - (5) 65 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 6: Loans and Allowance for Loan Losses A summary of loans at December 31, 2022 and December 31, 2021, are as follows (dollars in thousands): Construction & development 1 - 4 family real estate Commercial real estate - other Total commercial real estate Commercial & industrial Agricultural Consumer Gross loans Less allowance for loan losses Less deferred loan fees Net loans December 31, 2022 December 31, 2021 $ $ 163,203 76,928 439,001 679,132 513,011 66,145 14,949 169,322 62,971 339,655 571,948 361,974 73,010 24,046 1,273,237 1,030,978 (14,734) (2,781) (10,316) (2,577) $ 1,255,722 $ 1,018,085 Included in the commercial & industrial loan balance at December 31, 2022 and December 31, 2021, are $2.6 million and $18.7 million of loans that were originated under the SBA PPP program, respectively. 66 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following table presents, by portfolio segment, the activity in the allowance for loan losses for the years ended December 31, 2022, 2021, and 2020 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2022 Balance, beginning of period $ 1,695 $ 630 $ 3,399 $ 3,621 $ 730 $ 241 $ 10,316 Charge-offs Recoveries Net (charge-offs) recoveries - - - - - - - - - (2) 10 (50) 4 (22) 10 8 (46) (12) (74) 24 (50) Provision (credit) for loan losses 194 260 1,681 2,308 81 (56) 4,468 Balance, end of period $ 1,889 $ 890 $ 5,080 $ 5,937 $ 765 $ 173 $ 14,734 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2021 Balance, beginning of period $ 1,239 $ 334 $ 3,337 $ 4,035 $ 580 $ 114 $ 9,639 Charge-offs Recoveries Net (charge-offs) recoveries - - - - - - - - - (3,750) 16 (3,734) - 300 300 (68) 4 (3,818) 320 (64) (3,498) Provision (credit) for loan losses 456 296 62 3,320 (150) 191 4,175 Balance, end of period $ 1,695 $ 630 $ 3,399 $ 3,621 $ 730 $ 241 $ 10,316 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2020 Balance, beginning of period $ 782 $ 378 $ 3,025 $ 2,887 $ 642 $ 132 $ 7,846 Charge-offs Recoveries Net (charge-offs) recoveries - - - - 2 2 - - - (3,289) 18 (300) 10 (1) 3 (3,590) 33 (3,271) (290) 2 (3,557) Provision (credit) for loan losses 457 (46) 312 4,419 228 (20) 5,350 Balance, end of period $ 1,239 $ 334 $ 3,337 $ 4,035 $ 580 $ 114 $ 9,639 67 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements 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 December 31, 2022 and December 31, 2021 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2022 Allowance Balance Ending balance Individually evaluated for impairment Collectively evaluated for impairment Total Gross Loans Ending balance Individually evaluated for $ $ - $ - $ - $ 133 $ - $ - $ 133 1,889 890 5,080 5,804 765 173 14,601 1,889 $ 890 $ 5,080 $ 5,937 $ 765 $ 173 $ 14,734 impairment $ - $ - $ 1,983 $ 19,015 $ - $ 22 $ 21,020 Collectively evaluated for impairment 163,203 76,928 437,018 493,996 66,145 14,927 1,252,217 Total $ 163,203 $ 76,928 $ 439,001 $ 513,011 $ 66,145 $ 14,949 $ 1,273,237 December 31, 2021 Allowance Balance Ending balance Individually evaluated for impairment $ - $ - $ - $ 253 $ - $ - $ 253 Collectively evaluated for impairment 1,695 630 3,399 3,368 730 241 10,063 Total $ 1,695 $ 630 $ 3,399 $ 3,621 $ 730 $ 241 $ 10,316 Gross Loans Ending balance Individually evaluated for impairment $ - $ - $ 14,481 $ 9,354 $ - $ 19 $ 23,854 Collectively evaluated for impairment 169,322 62,971 325,174 352,620 73,010 24,027 1,007,124 Total $ 169,322 $ 62,971 $ 339,655 $ 361,974 $ 73,010 $ 24,046 $ 1,030,978 68 Table of Contents Internal Risk Categories Bank7 Corp. Notes to Consolidated Financial Statements 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. 69 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Loan grades are numbered 1 through 4. Grade 1 is considered satisfactory. The grades of 2 and 3, or Watch and Special Mention, respectively, represent loans of lower quality and are considered criticized. Grade of 4, or Substandard, refers to loans that are classified. • Grade 1 (Pass) – These loans generally conform to Bank policies, and are characterized by policy conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to Borrowers and/or Guarantors with a strong balance sheet and either substantial liquidity or a reliable income history. • Grade 2 (Watch) – These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or deficiencies in loan documentation, or other risk issues determined by the Lending Officer, Commercial Loan Committee (CLC), or Credit Quality Committee (CQC) warrant a heightened sense and frequency of monitoring. • Grade 3 (Special Mention) – These loans must have observable weaknesses or evidence of imprudent handling or structural issues. The weaknesses require close attention and the remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to a “2” or a “4” as this is viewed as a transitory loan grade. • Grade 4 (Substandard) – These loans are not adequately protected by the sound worth and debt service capacity of the Borrower, but may be well secured. They have defined weaknesses relative to cash flow, collateral, financial condition, or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated. The Company evaluates the definitions of loan grades and the allowance for loan losses methodology on an ongoing basis. No changes were made to either during the period ended December 31, 2022. 70 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following table presents the credit risk profile of the Company’s loan portfolio based on internal rating category as of December 31, 2022 and December 31, 2021 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2022 Grade 1 (Pass) 2 (Watch) 3 (Special Mention) 4 (Substandard) $ $ 163,203 - - - $ 76,928 - - - $ 397,295 14,976 24,747 1,983 $ 493,412 - 584 19,015 $ 65,857 288 - - $ 14,927 - - 22 1,211,622 15,264 25,331 21,020 Total $ 163,203 $ 76,928 $ 439,001 $ 513,011 $ 66,145 $ 14,949 $ 1,273,237 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2021 Grade 1 (Pass) 2 (Watch) 3 (Special Mention) 4 (Substandard) $ $ 169,322 - - - $ 62,971 - - - $ 282,268 14,976 27,112 15,299 $ 341,661 4,658 6,300 9,355 $ 72,295 255 460 - $ 24,000 - - 46 952,517 19,889 33,872 24,700 Total $ 169,322 $ 62,971 $ 339,655 $ 361,974 $ 73,010 $ 24,046 $ 1,030,978 71 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2022 and December 31, 2021 (dollars in thousands): Past Due 30–59 Days 60–89 Days Greater than 90 Days Total Current Total Loans Total Loans > 90 Days & Accruing $ December 31, 2022 Construction & development 1 - 4 family real estate Commercial real estate - other Commercial & industrial (1) Agricultural Consumer $ - - - 21 4 291 $ - - 617 - - 82 $ - - - 9,923 - 22 $ - - 617 9,944 4 395 $ 163,203 76,928 438,384 503,067 66,141 14,554 $ 163,203 76,928 439,001 513,011 66,145 14,949 - - - 9,923 - 18 Total $ 316 $ 699 $ 9,945 $ 10,960 $ 1,262,277 $ 1,273,237 $ 9,941 (1) The $9.92 million that is greater than 90 days past due consists of a single loan that is well collateralized and for which collection is being diligently pursued. December 31, 2021 Construction & development 1 - 4 family real estate Commercial real estate - other Commercial & industrial Agricultural Consumer $ $ - - - - - 48 $ - - 174 19 - 15 $ - - - 501 77 18 $ - - 174 520 77 81 $ 169,322 62,971 339,481 361,454 72,933 23,965 $ 169,322 62,971 339,655 361,974 73,010 24,046 Total $ 48 $ 208 $ 596 $ 852 $ 1,030,126 $ 1,030,978 $ - - - 401 77 18 496 The following table presents impaired loans as of December 31, 2022 and December 31, 2021 (dollars in thousands): Unpaid Principal Balance Recorded Investment with No Recorded Investment with an Allowance Allowance Total Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized December 31, 2022 Construction & development 1 - 4 family real estate Commercial real estate - other Commercial & industrial Agricultural Consumer Total December 31, 2021 Construction & development 1 - 4 family real estate Commercial real estate - other Commercial & industrial Agricultural Consumer $ $ $ $ - - 2,808 19,882 - 31 $ - - 1,983 18,882 - 22 $ - - - 133 - - $ - - 1,983 19,015 - 22 $ - - - 133 - - $ 21 - 11,749 11,773 14 27 - - 141 1,214 - - 22,721 $ 20,887 $ 133 $ 21,020 $ 133 $ 23,584 $ 1,355 $ - - 15,412 9,476 - 18 $ - - 14,481 9,101 - 19 $ - - - 253 - - $ - - 14,481 9,354 - 19 $ - - - 253 - - $ - - 11,879 12,584 161 33 - - 902 275 - 1 Total $ 24,906 $ 23,601 $ 253 $ 23,854 $ 253 $ 24,657 $ 1,178 72 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements 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 December 31, 2022, the Company had $1.2 million of commercial real estate loans, compared to $1.4 million of commercial real estate loans that were classified as troubled-debt restructurings and impaired as of December 31, 2021. There were no newly modified troubled-debt restructurings during the year ended December 31, 2022. There were no troubled-debt restructurings modified in the past twelve months that subsequently defaulted for the year ended December 31, 2022. The following table represents information regarding nonperforming assets at December 31, 2022 and December 31, 2021 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2022 Nonaccrual loans Troubled-debt restructurings (1) Accruing loans 90 or more days $ past due $ - - - $ - - - $ 1,348 - $ 6,686 - - 9,923 $ - - - $ 5 - 18 8,039 - 9,941 Total nonperforming loans $ - $ - $ 1,348 $ 16,609 $ - $ 23 $ 17,980 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2021 Nonaccrual loans Troubled-debt restructurings (1) Accruing loans 90 or more days $ past due $ - - - $ - - - $ 2,708 - $ 7,163 - $ - - - 401 77 $ 14 - 18 9,885 - 496 Total nonperforming loans $ - $ - $ 2,708 $ 7,564 $ 77 $ 32 $ 10,381 (1) $1.2 million of TDRs as of December 31, 2022 and $1.4 million as of December 31, 2021, are included in the nonaccrual loans balance. 73 Table of Contents Note 7: Premises and Equipment Bank7 Corp. Notes to Consolidated Financial Statements Major classifications of premises and equipment, stated at cost and net of accumulated depreciation are as follows (dollars in thousands): Land, buildings and improvements Furniture and equipment Automobiles Less accumulated depreciation Net premises and equipment Note 8: Goodwill and Core Deposit Intangibles The following is a summary of goodwill and intangible assets (dollars in thousands): As of December 31, 2022 Goodwill Core deposit intangibles Total As of December 31, 2021 Goodwill Core deposit intangibles Total December 31, 2022 December 31, 2021 $ $ 15,504 2,803 958 19,265 (6,159) 18,327 3,100 946 22,373 (5,116) $ 13,106 $ 17,257 Gross Carrying Amount Accumulated Amortization Net Carrying Amount 8,833 3,315 12,148 $ $ (230) $ (1,979) (2,209) $ 8,603 1,336 9,939 Gross Carrying Amount Accumulated Amortization Net Carrying Amount 8,709 3,315 12,024 $ $ (230) $ (1,672) (1,902) $ 8,479 1,643 10,122 $ $ $ $ See Note 2 for discussion on the $124,000 in adjustments to Goodwill as of the year-ended December 31, 2022. Amortization expense for intangible assets totaled $307,000, $183,000 and $206,000 for the years ended December 31, 2022, 2021 and 2020, respectively. Estimated amortization expense for each of the remaining life is as follows (dollars in thousands): 2023 2024 2025 2026 2027 Thereafter Total $ $ 305 155 125 125 125 501 1,336 74 Table of Contents Note 9: Interest-Bearing Deposits Bank7 Corp. Notes to Consolidated Financial Statements Interest-bearing time deposits in denominations of $250,000 or more were $42.6 million and $45.9 million at December 31, 2022 and 2021, respectively. At December 31, 2022, the scheduled maturities of interest-bearing time deposits were as follows (dollars in thousands): 2023 2024 2025 2026 Thereafter Total $ $ 157,233 18,150 5,775 2,076 268 183,502 As of December 31, 2022, 2021, and 2020 brokered deposits were $261.3 million, $273.8 million, and $427.0 million, respectively, of these $261.3 million, $273.8 million, and $427.0 million, respectively, were reciprocal deposits. Note 10: Income Taxes The (benefit)/provision for income taxes for the years ended December 31, 2022, 2021 and 2020 consists of the following (dollars in thousands): Federal: Current Deferred Total federal tax provision State: Current Deferred Total state tax provision Total income tax provision Year Ended December 31, 2021 2022 2020 $ $ $ $ $ 9,480 (1,309) 8,171 1,562 (114) 1,448 $ $ $ $ 6,204 90 6,294 1,440 21 1,461 $ $ $ $ 5,944 (684) 5,260 1,549 (191) 1,358 9,619 $ 7,755 $ 6,618 75 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The provision for income taxes for the years ended December 31, 2022, 2021 and 2020 differs from the federal rate of 21% due to the following: Statutory U.S. Federal Income Tax Increase (decrease) resulting from: State Taxes Permanent Differences Return to provision and deferred true ups FIN 48 Activity Other Provision for income taxes Year Ended December 31, 2021 2022 2020 $ 8,244 $ 6,492 $ 5,434 1,154 240 (7) (13) 1 9,619 $ 1,214 121 - - (72) $ 7,755 1,077 118 - - (11) 6,618 $ Deferred tax assets (liabilities) included in other assets in the accompanying consolidated balance sheet consist of the following: Deferred tax assets: Allowance for loan losses Non-accrual Loans Deferred Compensation Deferred Revenue Discounts and premiums on assets acquired Net unrealized loss on securities available for sale Accrued expenses Lease liabilities Total deferred tax assets Deferred tax liabilities: Property and equipment Intangible assets Prepaid Expenses Right of Use Asset Net unrealized gains on securities available for sale Other Total deferred tax liabilities Net deferred tax assets 76 Year Ended December 31, 2022 2021 $ $ $ $ $ 3,345 204 218 302 191 2,639 204 492 7,595 $ $ (1,066) $ (402) (149) (500) - (15) (2,132) $ 2,413 135 253 285 318 - - - 3,404 (1,189) (473) (25) - (478) (15) (2,180) 5,463 $ 1,224 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements In assessing the Company’s ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize all benefits related to these deductible differences as of December 31, 2022. The Company does not have any net operating loss or tax credit carryforwards as of December 31, 2022. The Company is not presently under examination by the Internal Revenue Service or any state tax authority. The Company establishes reserves for uncertain tax positions that reflect management’s best estimate of deductions and credits that may not be sustained on a more-likely-than-not basis. Recognized income tax positions are measured at the largest amount that is considered greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands): Balance at beginning of year Additions for positions taken in prior years Reductions for positions taken in prior years Balance at end of year For the Year Ended December 31, 2022 2021 $ $ 13 - - 13 $ $ 13 - - 13 There were no interest or penalties related to uncertain tax positions reflected in the consolidated statements of income for the years ended December 31, 2022, 2021, and 2020. 77 Table of Contents Note 11: Letters of Credit Bank7 Corp. Notes to Consolidated Financial Statements The Bank has entered into an arrangement with the FHLB resulting in the FHLB issuing letters of credit on behalf of the Bank with the resulting beneficiary being certain public funds in connection with these deposits. Outstanding letters of credit to secure these public funds at December 31, 2022 and 2021 were $800,000 and $600,000, respectively. Loans with a collateral value of approximately $130.0 million and $78.7 million were used to secure the letters of credit at December 31, 2022 and 2021, respectively. Note 12: Advances and Borrowings The Bank has a blanket floating lien security agreement with a maximum borrowing capacity of $129.2 million at December 31, 2022, with the FHLB, under which the Bank is required to maintain collateral for any advances, including its stock in the FHLB, as well as qualifying first mortgage and other loans. The Bank had no advances from the FHLB at December 31, 2022 or 2021. Note 13: Shareholders’ Equity On September 5, 2019, the Company adopted a Repurchase Plan (the “RP”). The RP initially authorized the repurchase of up to 500,000 shares of the Company’s common stock. On March 13, 2020, the Company’s Board of Directors approved a 500,000 share expansion, and on November 2, 2020, approved a 750,000 share expansion to the RP, for a total of 1,750,000 shares authorized under the RP. All shares repurchased under the RP have been retired and not held as treasury stock. The RP expired on September 5, 2021. On October 28, 2021, the Company adopted a new Repurchase Plan (the “New RP”) that authorizes the repurchase of up to 750,000 shares of the Company’s stock. Stock repurchases under the New RP will take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management. There were no repurchases as of December 31, 2022. A summary of the activity under the RP is as follows: Number of shares repurchased Average price of shares repurchased Shares remaining to be repurchased 78 Year Ended December 31, 2022 2021 $ - - $ 750,000 - - 750,000 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements 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 December 31, 2022, that the Company and Bank meet all capital adequacy requirements to which it is subject and maintains capital conservation buffers that allow the Company and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers. As of December 31, 2022, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain capital ratios as set forth in the table. 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. 79 Table of Contents The Company’s and Bank’s actual capital amounts and ratios are presented in the following table (dollars in thousands): Bank7 Corp. Notes to Consolidated Financial Statements Actual Amount Ratio Minimum Capital Requirements Ratio Amount With Capital Conservation Buffer Ratio Amount Minimum To Be Well Capitalized Under Prompt Corrective Action Ratio Amount As of December 31, 2022 Total capital to risk- weighted assets Company Bank Tier I capital to risk- weighted assets Company Bank CET I capital to risk- weighted assets Company Bank Tier I capital to average assets Company Bank As of December 31, 2021 Total capital to risk- weighted assets Company Bank Tier I capital to risk- weighted assets Company Bank CET I capital to risk- weighted assets Company Bank Tier I capital to average assets Company Bank $ 158,158 158,158 12.41% $ 12.42% 101,990 101,909 8.00% $ 8.00% 133,862 133,756 10.50% 10.50% N/A 127,387 N/A 10.00% 143,424 143,424 11.25% 11.26% 76,493 76,432 6.00% 6.00% 108,365 108,279 8.50% 8.50% N/A 101,909 143,424 143,424 11.25% 11.26% 57,370 57,324 4.50% 4.50% 89,241 89,171 7.00% 7.00% N/A 82,801 143,424 143,424 9.19% 9.18% 62,460 62,489 4.00% 4.00% N/A N/A N/A N/A N/A 78,111 N/A 8.00% N/A 6.50% N/A 5.00% $ 127,946 127,844 12.54% $ 12.54% 81,620 81,539 8.00% $ 8.00% 107,126 107,020 10.50% 10.50% $ N/A 101,924 N/A 10.00% 117,631 117,528 11.53% 11.53% 61,215 61,154 6.00% 6.00% 86,721 86,635 8.50% 8.50% N/A 81,539 117,631 117,528 11.53% 11.53% 45,911 45,866 4.50% 4.50% 71,417 71,347 7.00% 7.00% N/A 66,250 117,631 117,528 10.56% 10.55% 44,571 44,571 4.00% 4.00% N/A N/A N/A N/A N/A 55,714 N/A 8.00% N/A 6.50% N/A 5.00% The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements. The current risk-based capital standards applicable to the Company and the Bank are based on the Basel III Capital Rules established by the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments. The Basel III Capital Rules require the Bank and the Company to comply with four minimum capital standards: a Tier 1 leverage ratio of at least 4.0%; a CET1 to risk-weighted assets of 4.5%; a Tier 1 capital to risk-weighted assets of at least 6.0%; and a total capital to risk-weighted assets of at least 8.0%. The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations. 80 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) are subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers based on the amount of the shortfall. As of December 31, 2022, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis. The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2022, approximately $59.4 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval. Note 14: Related-Party Transactions At December 31, 2022 and December 31, 2021, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $132,000 and $0, respectively. 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 $155,000, $175,000 and $177,000 for the years ended December 31, 2022, 2021 and 2020, respectively. In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates. 81 Table of Contents Note 15: Employee Benefits 401(k) Savings Plan Bank7 Corp. Notes to Consolidated Financial Statements 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 years ended December 31, 2022, 2021 and 2020 totaled $366,000, $267,000 and $230,000, respectively. Stock-Based Compensation The Company adopted a nonqualified incentive stock option plan (the “Bank7 Corp. 2018 Equity Incentive Plan”) in September 2018 and amended the Bank7 Corp. 2018 Equity Plan on May 20, 2020 adding an additional 507,500 shares to the plan. The Bank7 Corp. 2018 Equity Incentive Plan will terminate in September 2028, if not extended. Compensation expense, net of settlement of shares for payroll withholding related to the Plan for the years ended December 31, 2022, 2021 and 2020 totaled $1,384,000, $862,000 and $771,000, respectively. There were 700,087 shares available for future grants as of December 31, 2022. 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. 82 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements 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): Year Ended December 31, 2022 Outstanding at December 31, 2021 Options Granted Options Exercised Options Forfeited Outstanding at December 31, 2022 Exercisable at December 31, 2022 Year Ended December 31, 2021 Outstanding at December 31, 2020 Options Granted Options Exercised Options Forfeited Outstanding at December 31, 2021 Exercisable at December 31, 2021 Wgtd. Avg. Exercise Price Wgtd. Avg. Remaining Contractual Term Aggregate Intrinsic Value Options $ 264,000 5,000 17,450 - 251,550 170,485 17.41 23.87 17.73 - 17.52 18.39 6.64 6.05 $ $ 2,032,509 1,229,200 Options Wgtd. Avg. Exercise Price Wgtd. Avg. Remaining Contractual Term Aggregate Intrinsic Value $ 185,250 80,500 - (1,750) 264,000 121,932 18.73 14.31 - 14.31 17.41 18.82 7.56 6.82 $ $ 1,474,840 509,257 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term. The fair value of each option is expensed over its vesting period. The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the period presented: Risk-free interest rate Dividend yield Stock price volatility Expected term 83 For the Year Ended December 31, 2022 December 31, 2021 3.47% 1.96% 34.92% 7.01 0.52% 2.89% 66.67% 6.41 Table of Contents The following table summarizes share information about RSUs for the years ended December 31, 2022 and 2021: Bank7 Corp. Notes to Consolidated Financial Statements Number of Shares Wgtd. Avg. Grant Date Fair Value Year Ended December 31, 2022 Outstanding at December 31, 2021 Shares granted Shares vested Shares forfeited End of the period balance Year Ended December 31, 2021 Outstanding at December 31, 2020 Shares granted Shares vested Shares forfeited End of the period balance $ 172,993 3,000 (61,902) (1,500) $ 112,591 19.02 4.03 18.88 22.13 18.66 Number of Shares Wgtd. Avg. Grant Date Fair Value $ 118,000 90,575 (35,582) - 172,993 $ 18.09 19.95 18.30 - 19.02 As of December 31, 2022, there was approximately $1.8 million of unrecognized compensation expense related to 113,000 unvested RSUs and $351,000 of unrecognized compensation expense related to 252,000 unvested and/or unexercised stock options. The stock option expense is expected to be recognized over a weighted average period of 2.05 years, and the RSU expense is expected to be recognized over a weighted average period of 2.32 years. 84 Table of Contents Note 16: Disclosures about Fair Value of Assets and Liabilities Bank7 Corp. Notes to Consolidated Financial Statements 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 data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities Recurring Measurements Assets and liabilities measured at fair value on a recurring basis include the following: Available-for-sale securities: Debt securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For those debt securities classified as Level 2, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data for similar securities, market consensus prepayments speeds, credit information and the bond’s terms and conditions, among other things. Nonrecurring Measurements The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2022 and December 31, 2021 (dollars in thousands): December 31, 2022 Impaired loans (collateral- dependent) December 31, 2021 Impaired loans (collateral- dependent) Fair Value (Level 1) (Level 2) (Level 3) $ $ 6,553 $ 6,910 $ - $ - $ - $ 6,553 - $ 6,910 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. 85 Table of Contents Collateral-Dependent Impaired Loans, Net of Allowance for Loan Losses Bank7 Corp. Notes to Consolidated Financial Statements The estimated fair value of collateral-dependent impaired loans is based on fair value, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. The Company considers evaluation analysis as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Values of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral- dependent and subsequently as deemed necessary by executive management and loan administration. Values are reviewed for accuracy and consistency by executive management and loan administration. The ultimate collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. Unobservable (Level 3) Inputs The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements. Fair Value Valuation Technique Unobservable Inputs Weighted- Average December 31, 2022 Collateral-dependent impaired loans December 31, 2021 Collateral-dependent impaired loans $ $ 6,553 Appraisals from comparable properties Estimated cost to sell 6,910 Appraisals from comparable properties Estimated cost to sell 20% 20% 86 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The estimated fair values of the Company’s financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows: Carrying Amount Level 1 Fair Value Measurements Level 3 Level 2 Total December 31, 2022 Financial Assets Cash and due from banks Interest-bearing time deposits in other banks Loans, net of allowance Loans held for sale Nonmarketable equity securities Interest receivable Financial Liabilities Deposits Interest payable December 31, 2021 Financial Assets Cash and due from banks Federal funds sold Interest-bearing time deposits in other banks Loans, net of allowance Loans held for sale Nonmarketable equity securities Interest receivable Financial Liabilities Deposits Interest payable $ $ $ $ 109,115 5,474 1,255,722 - 1,209 8,124 $ 109,115 - - - - - $ - 5,474 1,245,825 - 1,209 8,124 $ - - 6,553 - - - 109,115 5,474 1,252,378 - 1,209 8,124 1,429,300 339 $ $ - - 1,427,465 339 $ $ - - 1,427,465 339 $ 195,359 9,493 3,237 1,018,085 464 1,202 4,259 $ 195,359 9,493 - - - - - $ - - 3,237 1,011,048 464 1,202 4,259 $ $ - - - 6,910 - - - 195,359 9,493 3,237 1,017,958 464 1,202 4,259 $ 1,217,471 117 $ $ - - 1,217,094 117 $ $ - - 1,217,094 117 87 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value: Cash and Due from Banks, Federal Funds Sold, 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 December 31, 2022 or December 31, 2021. 88 Table of Contents Note 17: Financial Instruments with Off-Balance Sheet Risk Bank7 Corp. Notes to Consolidated Financial Statements 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 December 31, 2022 and December 31, 2021 (dollars in thousands): Commitments to extend credit Financial and performance standby letters of credit December 31, 2022 December 31, 2021 $ 198,027 $ 1,043 200,393 5,809 $ 199,070 $ 206,202 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 18: Significant Estimates and Concentrations GAAP requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in Note 6 regarding loans. As of December 31, 2022, hospitality loans were 19% of gross total loans with outstanding balances of $244.3 million and unfunded commitments of $15.5 million; energy loans were 14% of gross total loans with outstanding balances of $182.8 million and unfunded commitments of $43.8 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 December 31, 2022, goodwill of $8.6 million was recorded on the consolidated balance sheet. 89 Table of Contents Note 19: Operating Leases Lessee Bank7 Corp. Notes to Consolidated Financial Statements On January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842), which requires the recognition of the Company’s operating leases on its balance sheet. See Note (1) for additional information. The Company has operating leases, which primarily consist of office space in buildings, ATM locations, equipment and land on which it owns certain buildings. Rental expense on all operating leases, including those rented on a monthly or temporary basis were as follows (Dollars in thousands): Year Ending December 31: 2022 2021 2020 $ 777 799 837 As of December 31, 2022, a right of use lease asset included in interest receivable and other assets on the balance sheet totaled $2.0 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $2.1 million. As of December 31, 2022, our operating leases have a weighted-average remaining lease term of 12.5 years and a weighted-average discount rate of 3.6 percent. Future minimum rental commitments of branch facilities and office equipment due under non-cancelable operating leases at December 31, 2022, were as follows (dollars in thousands): 2023 2024 2025 2026 2027 Thereafter Total lease payments Less imputed interest Operating lease liability 90 $ $ 532 448 367 298 155 530 2,330 (254) 2,076 Table of Contents Note 20: Parent-only Financial Statements (dollars in thousands) Bank7 Corp. Notes to Consolidated Financial Statements Condensed Balance Sheets Assets Cash and due from banks Investment in bank subsidiary Dividends receivable Goodwill Total assets Liabilities and Shareholders’ Equity Dividends Payable Other liabilities Total liabilities Total shareholders’ equity December 31, 2022 December 31, 2021 $ 297 $ 143,049 1,463 1,011 297 126,783 1,089 1,011 $ 145,820 $ 129,180 $ 1,463 $ 257 1,089 683 1,720 1,772 144,100 127,408 Total liabilities and shareholders’ equity $ 145,820 $ 129,180 Condensed Statements of Comprehensive Income Income Dividends from subsidiary bank Total Income Expense Other Total expense Income and equity in undistributed net income of bank subsidiary Equity in undistributed net income of bank subsidiary Income before Taxes For the Years Ended December 31, 2021 2022 2020 $ 4,738 $ 4,078 $ 12,846 4,738 4,078 12,846 - - - - - - 4,738 24,900 4,078 19,081 12,846 6,420 29,638 23,159 19,266 Net Income Available to Common Shareholders $ 29,638 $ 23,159 $ 19,266 Other Comprehensive Income Equity in other comprehensive (loss) income of subsidiary Other comprehensive gain(loss) Comprehensive Income (9,447) (9,447) 20,191 $ $ 144 144 23,303 $ $ - - 19,266 $ $ 91 Table of Contents Condensed Statements of Cash Flows Operating Activities Net income Items not requiring (providing) cash Equity in undistributed net income Changes in Other current assets and liabilities Net cash provided by operating activities Financing Activities Common stock issued, net of offering costs Dividends paid Net cash used in financing activities Increase (Decrease) in Cash and Due from Banks Cash and Due from Banks, Beginning of Period Cash and Due from Banks, End of Period Supplemental Disclosure of Cash Flows Information Dividends declared and not paid Bank7 Corp. Notes to Consolidated Financial Statements For the Years Ended December 31, 2021 2022 2020 $ 29,638 $ 23,159 $ 19,266 (24,900) (19,081) (6,420) (374) 4,364 - (4,364) (4,364) - 297 (102) 4,039 3,976 16,885 1 (3,982) (9,076) (7,803) (3,981) (16,879) (5) 302 6 296 302 $ $ 92 297 $ 297 $ 1,463 $ 1,089 $ 995 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure a) Controls and Procedures Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness as of December 31, 2022 of the Company’s 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, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Form 10-K. 93 Table of Contents b) Management’s Annual Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management has assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria established in “Internal Control—Integrated Framework (2013 edition),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment and criteria, management has determined that the Company has maintained effective internal control over financial reporting as of December 31, 2022. Bank7 Corp. Oklahoma City, Oklahoma March 24, 2023 /s/ Thomas L. Travis Thomas L. Travis President and Chief Executive Officer (Principal Executive Officer) /s/ Kelly J. Harris Kelly J. Harris Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) c) (Principal Financial and Accounting Officer) Attestation Report of the Independent Registered Public Accounting Firm Not applicable because the Company is an emerging growth company. d) Changes in Internal Control Over Financial Reporting There were no significant changes made in the Company’s internal control over financial reporting during the fourth quarter of the year ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable. 94 Table of Contents Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this Item is incorporated herein by reference to the Proxy Statement (Schedule 14A) for its 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end. Item 11. Executive Compensation The information required by this Item is incorporated herein by reference to the Proxy Statement (Schedule 14A) for its 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated herein by reference to the Proxy Statement (Schedule 14A) for its 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item is incorporated herein by reference to the Proxy Statement (Schedule 14A) for its 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end. Item 14. Principal Accounting Fees and Services The information required by this Item is incorporated herein by reference to the Proxy Statement (Schedule 14A) for its 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end. PART IV Item 15. Exhibits, Financial Statement Schedules Financial Statements See index to Consolidated Financial Statements on page 49. Financial Statement Schedules Financial statement schedules have been omitted because they are not applicable or not required or the required information is shown in the Consolidated Financial Statements or Notes thereto under “Part II — Item 8. Financial Statements and Supplementary Data.” 95 Table of Contents Exhibits 3.1 3.2 4.1 4.2 4.3 4.4 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 Amended and Restated Certificate of Incorporation of Bank7 Corp.(1) Amended and Restated Bylaws of Bank7 Corp.(2) Specimen Common Stock Certificate of Bank7 Corp.(3) Description of Common Stock Securities Registered Pursuant to Section 12 of the Exchange Act of 1934(4) Form of Indenture for Senior Debt Securities(5) Form of Indenture for Subordinated Debt Securities(6) Form of Tax Sharing Agreement(7) Bank7 Corp. 2018 Equity Incentive Plan(8) First Amendment to Bank7 Corp. 2018 Equity Incentive Plan(9) Form of Stock Option award Agreement under the Bank7 Corp. 2018 Equity Incentive Plan(10) Form of Restricted Stock Unit Award Agreement under the Bank7 Corp. 2018 Equity Incentive Plan(11) Form of Indemnification Agreement(12) Form of Registration Rights Agreement(13) Stock Award Agreement Between the Company and Thomas L. Travis issued under the 2018 Equity Incentive Plan (14) Stock Award Agreement Between the Company and Jason E. Estes issued under the 2018 Equity Incentive Plan 10.10 Share Acquisition Agreement dated as of October 6, 2021 by and among Bank7 Corp., Watonga Bancshares, Inc., Cornerstone Bank, and Randy Barrett solely in his capacity as representative (15) 10.11 Employment Agreement dated March 30, 2022 between the Company and Thomas L. Travis (16) 10.12 Employment Agreement dated March 30, 2022 between the Company and Jason E. Estes 21 23 31.1 31.2 32 101 Subsidiaries of Bank7 Corp. Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2018 and 2017, (ii) the Consolidated Statements of Income for the years ended December 31, 2018 and 2017, (iii) the Consolidated Statements of Retained Earnings for the years ended December 31, 2018 and 2017, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017, and (v) the notes to the Consolidated Financial Statements 96 Table of Contents (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on the Securities and Exchange Commission on May 24, 2021. Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 24, 2018 (File No. 333-227010). Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on September 10, 2018 (File No. 333-227010). Incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission on March 30, 2020. Incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 filed with the Securities and Exchange Commission on November 16, 2020. Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-3 filed with the Securities and Exchange Commission on November 16, 2020. Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 24, 2018 (File No. 333-227010). Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on September 10, 2018 (File No. 333-227010). Incorporated by reference to Appendix A of the Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 31, 2020. Incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on September 10, 2018 (File No. 333-227010). Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on September 10, 2018 (File No. 333-227010). Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on September 10, 2018 (File No. 333-227010). Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 24, 2018 (File No. 333-227010). Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2019. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2021. (16) Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2022. Item 16. Form 10-K Summary None 97 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 24, 2023 Bank7 Corp. By: /s/ Thomas L. Travis Thomas L. Travis President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kelly J. Harris Kelly J. Harris Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title /s/ William B. Haines William B. Haines /s/ Thomas L. Travis Thomas L. Travis /s/ William M. Buergler William M. Buergler /s/ John T. Phillips John T. Phillips /s/ Gary D. Whitcomb Gary D. Whitcomb /s/ J. Michael Sanner J. Michael Sanner /s/ Teresa L. Dick Teresa L. Dick /s/ Edward P. Gray Edward P. Gray Director; Chairman Director; President and Chief Executive Officer (Principal Executive Officer) Director Director Director Director Director Director 98 Date March 24, 2023 March 24, 2023 March 24, 2023 March 24, 2023 March 24, 2023 March 24, 2023 March 24, 2023 March 24, 2023 BANK7 CORP. 2018 EQUITY INCENTIVE PLAN NOTICE OF STOCK AWARD Exhibit 10.9 Subject to the terms and conditions of this Notice of Stock Award (this “Notice”), the Stock Award Agreement attached hereto (the “Award Agreement”), and the Bank7 Corp. 2018 Equity Incentive Plan (the “Plan”), the below individual (the “Participant”) is hereby granted the below number of shares of the common stock, par value $0.01 (the “Shares”) in Bank7 Corp., an Oklahoma corporation (the “Company”). Unless otherwise specifically indicated, all terms used in this Notice have the meanings set forth in the Award Agreement or the Plan. Identifying Information: Participant Name: Date of Grant: Number of Shares Jason Estes September 5, 2019 50,938 Vesting Schedule: The Shares are not subject to a vesting schedule. Participant shall have full ownership of the Shares on the date of grant. Representations and Agreements of the Participant: The Participant has reviewed this Notice, the Award Agreement and the Plan in their entirety, has had an opportunity to have them reviewed by his or her legal and tax advisers, and hereby represents that he is relying solely on such advisors and not on any statements or representations of the Company or any of its agents or affiliates. The Participant represents to the Company that he is familiar with the terms of this Notice, the Award Agreement and the Plan, and hereby accepts the Shares subject to all of their terms. The Participant hereby agrees that all questions of interpretation and administration relating to this Notice, the Award Agreement and the Plan will be resolved solely by the Committee. * * * * * 1 BANK7 CORP. 2018 EQUITY INCENTIVE PLAN STOCK AWARD AGREEMENT Subject to the terms and conditions of the Notice of Stock Award (the “Notice”), This Stock Award Agreement (this “Award Agreement”), and the Bank7 Corp. 2018 Equity Incentive Plan (the “Plan”), Bank7 Corp., an Oklahoma corporation (the “Company”) hereby grants the individual set forth in the Notice (the “Participant”) shares of the Company’s common stock, par value $0.01 (the “Shares”). Unless otherwise specifically indicated, all terms used in this Award Agreement have the meanings set forth in the Notice or the Plan. 1. Grant of Shares. The principal features of the Shares, including the number of Shares subject to the Award, are set forth in the Notice. 2. Taxes. The Participant hereby acknowledges and understands that he or she may suffer adverse tax consequences as a result of the Participant’s receipt of or disposition of, the Shares. (a) Representations. The Participant has reviewed with the Participant’s tax advisors the tax consequences of this Award Agreement and the Shares granted hereunder, including any U.S. federal, state and local tax laws, and any other applicable taxing jurisdiction. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant hereby acknowledges and understands that the Participant (and not the Company) will be responsible for the Participant’s tax liability that may arise as a result of the Participant receiving this Award Agreement and the Shares granted hereunder. (b) Payment of Withholding Taxes. The Participant will make appropriate arrangements with the Company for the satisfaction of all U.S. federal, state, local and non-U.S. income and employment tax withholding requirements applicable to any Shares. The Committee has authorized a “net withholding” for purposes of the Participant satisfying his or her obligations under this Section 2(b). The Participant hereby acknowledges the Company’s obligations under this Award Agreement are fully contingent on the Participant first satisfying this Section 2(b). Therefore, a failure of the Participant to reasonably satisfy this Section 2 in accordance with the Committee’s sole and absolute discretion will result in the automatic termination and expiration of this Award Agreement and the Company’s obligations hereunder. The Participant hereby agrees that a breach of this Section 2(b) will be deemed to be a material breach of this Award Agreement. 3. Notice. Any notice required by the terms of this Award Agreement must be given in writing and will be deemed to be effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice must be addressed to the Company at its principal executive office and to the Participant at the address that he or she most recently provided to the Company. 2 4. Successors and Assigns. Except as provided herein to the contrary, this Award Agreement is binding upon and will inure to the benefit of the parties to this Award Agreement, their respective successors and permitted assigns. 5. No Assignment. Except as otherwise provided in this Award Agreement, the Participant may not assign any of his or her rights under the Notice or this Award Agreement without the prior written consent of the Company, which consent may be withheld in its sole discretion. The Company is permitted to assign its rights or obligations under the Notice or this Award Agreement. 6. Construction; Severability. The captions used in this Award Agreement are inserted for convenience and are not to be deemed to be a part of this Award Agreement for construction or interpretation. Except where otherwise indicated by the context, the singular form includes the plural form and the plural form includes the singular form. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise. The validity, legality or enforceability of the remainder of this Award Agreement will not be affected even if one or more of the provisions of this Award Agreement are held to be invalid, illegal or unenforceable in any respect. 7. Administration and Interpretation. Any determination by the Committee in connection with any question or issue arising under the Notice, the Plan or this Award Agreement will be final, conclusive and binding on the Participant, the Company and all other persons. Any question or dispute regarding the interpretation of this Award Agreement or the receipt of the Shares hereunder must be submitted by the Participant to the Committee. The resolution of such question or dispute by the Committee will be final and binding on all parties. 8. Counterparts. This Award Agreement may be executed in any number of counterparts, any of which may be executed and transmitted by facsimile, and each of which will be deemed to be an original, but all of which together will be deemed to be one and the same instrument. 9. Entire Agreement; Governing Law; and Amendments. The provisions of the Plan and the Notice are incorporated herein by reference. The Plan, the Notice and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and the Participant. This Award Agreement is governed by the laws of the State of Oklahoma applicable to contracts executed in and to be performed in that State. 10. Venue. The Company, the Participant and the Participant’s assignees agree that any suit, action or proceeding arising out of or related to the Notice, this Award Agreement or the Plan must be brought in the United States District Court for the Western District of Oklahoma (or should such court lack jurisdiction to hear such action, suit or proceeding, in a state court in Oklahoma) and that all parties submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. If any one or more provisions of this Section 10 are for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions be modified to the minimum extent necessary to make it or its application valid and enforceable. 3 11. Waiver. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed to be a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed to be a waiver or relinquishment of such right or power at any other time or times. DATED, this 5th day of September 2019. * * * * * COMPANY PARTICIPANT Bank7 Corp., an Oklahoma corporation By: /s/ Kelly J. Harris Kelly J. Harris, Chief Financial Officer /s/ Jason Estes Jason Estes 4 EMPLOYMENT AGREEMENT Exhibit 10.12 THIS EMPLOYMENT AGREEMENT (“Agreement”), dated as of the 30th day of March, 2022 (the “Effective Date”), is entered into by and between Bank 7 Corp. (the “Company”) and Jason E. Estes (“Executive”). IN CONSIDERATION of the premises and the mutual covenants set forth below, the parties hereby agree as follows: 1. Employment. The Company hereby agrees to employ Executive as Executive Vice President and Chief Credit Officer of the Company, and Executive hereby accepts employment, on the terms and conditions set forth in this Agreement. 2. Term. The Company agrees to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to be so employed, for a term of two (2) years (the “Initial Term”) commencing as of the Effective Date. On each anniversary of the Effective Date following the Initial Term, the term of this Agreement shall be automatically extended for successive one-year periods, provided, however, that either party hereto may elect not to extend this Agreement by giving written notice to the other party at least one hundred eighty (180) days prior to any such anniversary date. Notwithstanding the foregoing, the Executive’s employment hereunder may be earlier terminated in accordance with Section 6 and Section 8. The period of time between the Effective Date and the termination of the Executive’s employment hereunder shall be referred to as the “Employment Period.” 3. Position and Duties. During the Employment Period, Executive will serve as Executive Vice President and Chief Credit Officer and will report directly to the Board of Directors of the Company (the “Board”). Executive shall perform all services reasonably required to fully execute the duties and responsibilities associated with such position. Executive will devote substantially all of his working time, attention and energies (other than absences due to illness or vacation) to the performance of his duties for the Company. Notwithstanding the above, Executive will be permitted, to the extent such activities do not interfere with the performance by Executive of his duties and responsibilities under this Agreement or violate Sections 10(a), (b) or (c) of this Agreement, to (i) manage Executive’s personal, financial and legal affairs, and (ii) serve on civic or charitable boards or committees. 4. Place of Performance. Executive’s place of employment will be the Company’s principal executive offices in Oklahoma City, Oklahoma (the “Principal Location”). 5. Compensation and Related Matters. (a) Base Salary. During the Employment Period, the Company will pay Executive a base salary of not less than $350,000.00 per year (“Base Salary”), in approximate equal installments in accordance with the Company’s customary payroll practices. Executive’s Base Salary may be increased, but not decreased, pursuant to annual review by the Board. In the event Executive’s Base Salary is increased, the increased amount will then constitute the Base Salary for all purposes of this Agreement. established by the Board at a level commensurate with his position. (b) Annual Incentive Bonus. The Executive will be eligible to participate in a bonus program (c) Welfare, Pension and Incentive Benefit Plans. During the Employment Period, Executive (and his spouse and/or dependents to the extent provided in the applicable plans and programs) will be entitled to participate in and be covered under all the welfare benefit plans or programs maintained by the Company for the benefit of its senior executive officers pursuant to the terms of such plans and programs including, without limitation, all medical, life, hospitalization, dental, disability and accidental death and dismemberment. In addition, during the Employment Period, Executive will be eligible to participate in all retirement, savings and other employee benefit plans and programs maintained from time to time by the Company for the benefit of its senior executive officers. benefits commensurate with Executive’s position. (d) Fringe Benefits. During the Employment Period, the Company will provide Executive with fringe 6. Termination. Executive’s employment under this Agreement may be terminated during the Employment Period under the following circumstances: (a) Death. Executive’s employment under this Agreement will terminate upon his death. (b) Disability. If, as a result of Executive’s incapacity due to physical or mental illness, Executive is substantially unable to perform his duties under this Agreement (with or without reasonable accommodation, as defined under the Americans With Disabilities Act) for an entire period of six (6) consecutive months, the Company has the right to terminate Executive’s employment under this Agreement for “Disability,” and such termination will not be a breach of this Agreement by the Company. (c) Cause. The Company has the right to terminate Executive’s employment for Cause, and such termination will not be a breach of this Agreement by the Company. “Cause” means termination of employment for one of the following reasons: (i) Executive’s conviction of or plea of no contest to a felony or other crime involving fraud, dishonesty or moral turpitude; (ii) Executive’s commission of a willful wrongful act intending to enrich himself at the expense of the Company, or that causes serious injury, monetary or otherwise, to the Company; (iii) Executive’s willful or reckless neglect or misconduct in the performance of his duties which results in a material adverse effect on the Company; (iv) Executive’s material willful or reckless violation or disregard of a Company policy; or (v) Executive’s habitual or gross neglect of duties. Provided that Company may only rely on an act or failure to act under clauses (iv) or (v) if it provides Executive with written notice of such act or failure to act and Executive fails to cure such act or failure to act within thirty (30) days of such notice. The determination of whether it can reasonably be cured shall be determined by the Board. (d) Good Reason. Executive may terminate Executive’s employment with the Company for “Good Reason,” and such termination will not be a breach of this Agreement by Executive. For purposes of this Agreement, “Good Reason” shall mean the occurrence without the written consent of Executive, of one of the events set forth below: 2  (i) a material diminution in Executive’s authority, duties or responsibilities; miles from the Principal Location, except for travel reasonably required in the performance of Executive’s responsibilities, or (ii) the requirement that Executive be based at any office or location that is more than 50 (iii) Company’s material breach of the Agreement. Notwithstanding the foregoing, Executive will not be deemed to have terminated for Good Reason unless (A) Executive provides written notice to the Company of the existence of one of the conditions described above within ninety (90) days after Executive has knowledge of the initial existence of the condition, (B) the Company fails to remedy the condition so identified within thirty (30) days after receipt of such notice (if capable of correction), (C) Executive provides a Notice of Termination to the Company within thirty (30) days of the expiration of the Company’s period to remedy the condition, and (D) Executive terminates employment within ninety (90) days after Executive provides written notice to the Company of the existence of the condition referred to in clause (A). Agreement without Cause by providing Executive with a Notice of Termination. (e) Without Cause. The Company has the right to terminate Executive’s employment under this (f) Voluntary Termination. Executive may voluntarily terminate employment with the Company at any time. 7. Termination Procedure. (a) Notice of Termination. Any termination of Executive’s employment by the Company or by Executive during the Employment Period (other than termination pursuant to Section 6(a)) will be communicated by written Notice of Termination to the other party in accordance with Section 16. For purposes of this Agreement, a “Notice of Termination” means a written notice which indicates the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment. (b) Date of Termination. “Date of Termination” shall mean (i) if Executive’s employment is terminated by his death, the date of his death, (ii) if Executive’s employment is terminated due to Disability pursuant to Section 6(b), thirty (30) days after Notice of Termination (provided that Executive has not returned to the substantial performance of his duties on a full-time basis during such thirty (30) day period), (iii) if Executive’s employment is terminated for Good Reason pursuant to Section 6(d), the date provided in such Notice, or (iv) if Executive’s employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date (within thirty (30) days after the giving of such Notice of Termination) set forth in such Notice of Termination. 8. Compensation Upon Termination or During Disability. In the event of termination of Executive’s employment under this Agreement during the Employment Period, the Company will provide Executive with the payments and benefits set forth below. 3 employment is terminated by the Company for Cause or by Executive (other than for Good Reason): (a) Termination by Company for Cause or by Executive Without Good Reason. If Executive’s (i) the Company will pay Executive his Base Salary and his accrued vacation pay (to the extent required by law or the Company’s vacation policy) through the Date of Termination, within 30 days following the Date of Termination; (ii) the Company will reimburse Executive, pursuant to the Company’s policy, for reasonable business expenses incurred, but not paid, prior to the Date of Termination, unless such termination resulted from a misappropriation of Company funds; and (iii) Executive will be entitled to any other rights, compensation and/or benefits as may be due to Executive following termination to which he is otherwise entitled in accordance with the terms and provisions of any plans or programs of the Company. (b) Disability. During any period that Executive fails to perform his duties under this Agreement as a result of incapacity due to physical or mental illness (“Disability Period”), Executive will continue to receive his full Base Salary set forth in Section 5(a) until his employment is terminated pursuant to Section 6(b). In the event Executive’s employment is terminated for Disability pursuant to Section 6(b): (i) the Company will (A) pay to Executive his Base Salary and accrued vacation pay through the Date of Termination, within 30 days following the Date of Termination, and (B) provide Executive with disability benefits pursuant to the terms of the Company’s disability programs and/or practices; business expenses incurred, but not paid, prior to the Date of Termination; and (ii) the Company will reimburse Executive, pursuant to the Company’s policy, for reasonable (iii) Executive will be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any plans or programs of the Company. (c) Death. If Executive’s employment is terminated by his death, the Company will pay within 30 days in a lump sum to Executive’s beneficiary, legal representatives or estate, as the case may be, Executive’s earned but unpaid Base Salary as of the date of death, accrued vacation and unreimbursed business expenses and amounts due under any plans, programs or arrangements of the Company through the Date of Termination. employment is terminated by the Company without Cause or by Executive for Good Reason: (d) Termination by Company Without Cause or by Executive for Good Reason. If Executive’s (i) the Company will pay to Executive within 30 days of the Date of Termination in a single lump sum payment (A) his Base Salary and accrued vacation pay through the Date of Termination, (B) an amount equal to two (2) times his Base Salary and (C) an amount equal to two (2) times his Annual Bonus. For purposes of this Agreement, “Annual Bonus” will be the average of the annual bonus payments the Executive received during the preceding three (3) calendar years; 4 business expenses incurred, but not paid, prior to the Date of Termination; and (ii) the Company will reimburse Executive, pursuant to the Company’s policy, for reasonable (iii) Executive will be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any plans or programs of the Company. 9. Mitigation. Executive will not be required to mitigate amounts payable under this Agreement by seeking other employment or otherwise, and there will be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. 10. Confidential Information; Non-Solicitation. (a) Nondisclosure of Confidential Information. Executive acknowledges that it is the policy of the Company to maintain as secret and confidential (i) all valuable and unique information, (ii) other information heretofore or hereafter acquired by the Company or any affiliated entity and deemed by it to be confidential, and (iii) information developed or used by the Company or any affiliated entity relating to the business, operations, employees and customers of the Company or any affiliated entity (all such information described in clauses (i), (ii) and (iii) above, other than information which is known to the public or becomes known to the public through no fault of Executive, is hereinafter referred to as “Confidential Information”). The parties recognize that the services to be performed by Executive pursuant to this Agreement are special and unique and that by reason of his employment by the Company after the date hereof, Executive has acquired and will acquire Confidential Information. Executive recognizes that all such Confidential Information is the property of the Company. Accordingly, at any time during or after the Employment Period, Executive shall not, except in the proper performance of his duties under this Agreement, directly or indirectly, without the prior written consent of the Company, disclose to any person other than the Company, whether or not such a person is a competitor of the Company, and shall use his best efforts to prevent the publication or disclosure of any Confidential Information obtained by, or which has come to the knowledge of, Executive prior or subsequent to the date hereof. Notwithstanding the foregoing, Executive may disclose to other persons, as part of his occupation, information with respect to the Company or any affiliated entity, which (i) is of a type generally not considered by standards of the banking industry to be proprietary, or (ii) is otherwise consented to in writing by the Company. (b) Non-Solicitation. Executive agrees he shall not, during the Employment Period or for the 12- month period following his Date of Termination (the “Covered Period”), either personally or by or through his agent and whether for himself or on behalf of any other person, seek to persuade any employee of the Company or any affiliated entity or any person who was an employee of the Company or any affiliated entity during the six (6) month period prior to the commencement of the Covered Period, to discontinue his or her status or employment with the Company or such affiliated entity or to become employed in a business or activities likely to be competitive with the Company or any affiliated entity. Additionally, Executive agrees that during his Employment Period and throughout the Covered Period, he shall not, for himself or on behalf of any person, solicit, divert or attempt to solicit or divert any established customer of the Company with a view to inducing or encouraging such established customer to discontinue or curtail any business relationship with the Company. Nothing in this Section 10(b) shall preclude solicitation through any general advertisement not targeted at employees of the Company. 5 (c) Obligations of Executive Upon Termination. Upon termination of this Agreement for any reason, Executive shall return to the Company all documents and copies of documents in his possession relating to any Confidential Information including, but not limited to, internal and external business forms, manuals, correspondence, notes and computer programs, and Executive shall not make or retain any copy or extract of any of the foregoing. In addition, in the event Executive’s employment is terminated, Executive shall resign from all offices and positions held with the Company. Nothing in this paragraph shall preclude Executive from retaining documents or other information pertaining to his compensation or the other terms of employment with the Company. (d) Remedies. Executive acknowledges and understands that paragraphs 10(a), 10(b) and 10(c) and the other provisions of this Agreement are of a special and unique nature, the loss of which cannot be adequately compensated for in damages by an action at law, and that the breach or threatened breach of the provisions of this Agreement would cause the Company irreparable harm. In the event of a breach or threatened breach by Executive of the provisions of this Agreement, the Company shall be entitled to seek an injunction restraining him from such breach. Nothing contained in this Agreement shall be construed as prohibiting the Company from pursuing, or limiting the Company’s ability to pursue, any other remedies available for any breach or threatened breach of this Agreement by Executive. The provision of this Agreement relating to arbitration of disputes shall not be applicable to the Company to the extent it seeks an injunction in any court to restrain Executive from violating paragraphs 10(a), 10(b) and 10(c) hereof. Executive’s employment or of this Agreement will have no effect on the continuing operation of this Section 10. (e) Continuing Operation. Except as specifically provided in this Section 10, the termination of 11. Release. Executive agrees, if his employment is terminated under circumstances entitling him to payments under Section 8(d) and Section 8(e) of this Agreement, that in consideration for and as a condition to receiving the payments described in Section 8(d) and Section 8(e), he will execute and not revoke a General Release in substantially the form of Exhibit A attached hereto, through which Executive releases the Company from any and all claims as may relate to or arise out of his employment relationship (excluding claims Executive may have under any “employee pension plan” as described in Section 3(3) of ERISA or any claims under this Agreement). The form of the Release may be modified as needed to reflect changes in the applicable law or regulations that are needed to provide a legally enforceable and binding Release to the Company at the time of execution. 6 12. Indemnification and Insurance. Executive shall be indemnified and held harmless by the Company during the term of this Agreement and following any termination of this Agreement for any reason whatsoever in the same manner as would any other key management employee of the Company with respect to acts or omissions occurring prior to (a) the termination of this Agreement or (b) the termination of employment of Executive. In addition, during the term of this Agreement and for a period of three years following the termination of this Agreement for any reason whatsoever, Executive shall be covered by a Company-held directors and officers liability insurance policy covering acts or omissions occurring prior to (a) the termination of this Agreement or (b) the termination of employment of Executive. 13. Arbitration; Legal Fees and Expenses. The parties agree that Executive’s employment and this Agreement relate to interstate commerce, and that any and all disputes, claims or controversies between Executive and the Company which may arise out of or relate to Executive’s employment relationship or this Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Agreement. Any arbitration shall be before a single arbitrator in accordance with the American Arbitration Association’s National Rules for the Resolution of Employment Disputes pertaining to individually-negotiated contracts and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Oklahoma City, Oklahoma unless the parties mutually agree on another location. Unless parties mutually agree to self-administer the arbitration or to use a different arbitration service, it will be administered by the Dallas, Texas office of the American Arbitration Association. The decision of the arbitrator will be enforceable in any court of competent jurisdiction. The parties agree that punitive, liquidated or indirect damages shall not be awarded by the arbitrator unless such damages would have been awarded by a court of competent jurisdiction. The arbitrator shall also have the discretion and authority to award costs and attorney fees to the prevailing party or, alternatively, may order each party to bear its own costs and attorney fees in connection with the arbitration to the extent permitted by applicable law. Nothing in this Agreement to arbitrate, however, shall preclude the Company from obtaining injunctive relief from a court of competent jurisdiction prohibiting any ongoing breaches by Executive of this Agreement including, without limitation, violations of Section 10. 14. Agreement Binding on Successors. (a) Company’s Successors. No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company will require any successor (whether direct or indirect, by purchase, merger, reorganization, sale, transfer of stock, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no succession had taken place. As used in this Agreement, “Company” means the Company as hereinbefore defined, and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 14 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 7 (b) Executive’s Successors. No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to payments or benefits under this Agreement, which may be transferred only by will or the laws of descent and distribution. Upon Executive’s death, this Agreement and all rights of Executive under this Agreement shall inure to the benefit of and be enforceable by Executive’s beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive’s interests under this Agreement. Executive will be entitled to select and change a beneficiary or beneficiaries to receive any benefit or compensation payable under this Agreement following Executive’s death by giving the Company written notice thereof in a form acceptable to the Company. In the event of Executive’s death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or other legal representative(s). If Executive should die following his Date of Termination while any amounts would still be payable to him under this Agreement if he had continued to live, unless otherwise provided, all such amounts shall be paid in accordance with the terms of this Agreement to such person or persons so appointed in writing by Executive, or otherwise to his legal representatives or estate. 15. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to Executive: At his last known address evidenced on the Company’s payroll records. If to the Company: Bank 7 Corp. 1039 NW 63rd Oklahoma City, OK 73116 or to such other address as any party may have furnished to the others in writing in accordance with this Agreement, except that notices of change of address shall be effective only upon receipt. 16. Withholding. All payments hereunder will be subject to any required withholding of federal, state and local taxes pursuant to any applicable law or regulation. 17. Miscellaneous. No provisions of this Agreement may be amended, modified, or waived unless agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party of any breach by the other party of any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The respective rights and obligations of the parties under this Agreement shall survive Executive’s termination of employment and the termination of this Agreement to the extent necessary for the intended preservation of such rights and obligations. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oklahoma without regard to its conflicts of law principles. 18. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect. 8 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument. 20. Section Headings. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and will not affect its interpretation. 21. Entire Agreement. Except as provided elsewhere herein, this Agreement sets forth the entire agreement of the parties with respect to its subject matter and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party to this Agreement with respect to such subject matter. Provided, however, nothing in this Agreement shall supersede or negatively affect Executive’s rights under the Bank 7 Corp. 2018 Equity Incentive Plan (or any related awards or agreements). 22. Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), the Treasury regulations and other guidance promulgated or issued thereunder (“Section 409A”), to the extent that the requirements of Section 409A are applicable thereto, and after application of all available exemptions, including but not limited to, the “short-term deferral rule” and “involuntary separation pay plan exception” and the provisions of this Agreement shall be construed in a manner consistent with that intention. The Company shall not have any liability to Executive with respect to tax obligations that result under any tax law and makes no representation with respect to the tax treatment of the payments and/or benefits provided under this Agreement. Any provision required for compliance with Section 409A that is omitted from this Agreement shall be incorporated herein by reference and shall apply retroactively, if necessary, and be deemed a part of this Agreement to the same extent as though expressly set forth herein. To the extent required to comply with Section 409A, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (excluding death) within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “resignation,” “termination,” “termination of employment” or like terms shall mean “separation from service” (excluding death). If Executive is deemed on the date of termination to be a “specified employee,” within the meaning of that term under Section 409A(a)(2)(B) of the Code and using the identification methodology selected by the Company from time to time, or if none, the default methodology, then with regard to any payment or the providing of any benefit made under this Agreement, to the extent required to be delayed in compliance with Section 409A(a)(2)(B) of the Code, and any other payment or the provision of any other benefit that is required to be delayed in compliance with Section 409A(a)(2)(B) of the Code, such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of Executive’s “separation from service” or (ii) the date of death. On the first day of the seventh month following the date of “separation from service,” or if earlier, on the date of death, all payments delayed pursuant to this subparagraph and Section 409A (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. 9 With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, (i) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expense eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense was incurred. For purposes of applying the provisions of Section 409A to this Agreement, each separately identified amount to which Executive is entitled under this Agreement shall be treated as a separate payment within the meaning of Section 409A. In addition, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments under Section 409A, including Treas. Reg. Section 1.409A-2(b)(2)(iii). 23. Dodd-Frank Act. Notwithstanding anything in this Agreement or any other agreement between the Company and/or its related entities and Executive to the contrary, Executive acknowledges that the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”) may have the effect of requiring certain executives of the Company and/or its related entities to repay the Company, and for the Company to recoup from such executives, certain amounts of incentive-based compensation. If, and only to the extent, the Act, any rules and regulations promulgated by thereunder by the Securities and Exchange Commission or any similar federal or state law requires the Company to recoup incentive-based compensation that the Company has paid or granted to Executive, Executive hereby agrees, even if Executive has terminated his employment with the Company, to promptly repay such incentive compensation to the Company upon its written request. In addition, the Executive agrees to be subject to any other compensation clawback arrangement adopted by the Board (whether before or after the Effective Date) which is applicable to all executive officers of the Company. This Section shall survive the termination of this Agreement. 10 24. Application of 280G. (a) It is the objective of this Agreement to maximize Executive’s net after-tax benefit if payments or benefits provided under this Agreement are subject to excise tax under Section 4999 of the Code. Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, including, by example and not by way of limitation, acceleration by the Company or otherwise of the date of vesting or payment or rate of payment under any plan, program, arrangement or agreement of the Company (all such payments and benefits, including the payments and benefits under Section 8 hereof, being hereinafter referred to as the “Total Payments”), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the cash severance payments shall first be reduced, and the non-cash severance payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments shall be subject to the Excise Tax, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments). (b) The Total Payments shall be reduced by the Company in the following order: (i) reduction of any cash severance payments otherwise payable to Executive that are exempt from Section 409A of the Code, (ii) reduction of any other cash payments or benefits otherwise payable to Executive that are exempt from Section 409A of the Code, but excluding any payments attributable to the acceleration of vesting or payments with respect to any equity award with respect to the Company’s common stock that is exempt from Section 409A of the Code, (iii) reduction of any other payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code, but excluding any payments attributable to the acceleration of vesting and payments with respect to any equity award with respect to the Company’s common stock that are exempt from Section 409A of the Code, and (iv) reduction of any payments attributable to the acceleration of vesting or payments with respect to any other equity award with respect to the Company’s common stock that are exempt from Section 409A of the Code. (c) For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of independent auditors of nationally recognized standing (“Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. The costs of obtaining such determination shall be borne by the Company. 11 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. COMPANY Bank 7 Corp., an Oklahoma corporation By: /s/ William B. Haines William B. Haines, Chairman EXECUTIVE /s/ Jason Estes Jason E. Estes 12 EXHIBIT A NOTICE. Various laws, including Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Pregnancy Discrimination Act of 1978, the Equal Pay Act, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Employee Retirement Income Security Act and the Veterans Reemployment Rights Act (all as amended from time to time), prohibit employment discrimination based on sex, race, color, national origin, religion, age, disability, eligibility for covered employee benefits and veteran status. You may also have rights under laws such as the Older Worker Benefit Protection Act of 1990, the Worker Adjustment and Retraining Act of 1988, the Fair Labor Standards Act, the Family and Medical Leave Act, the Occupational Health and Safety Act and other federal, state and/or municipal statutes, orders or regulations pertaining to labor, employment and/or employee benefits. These laws are enforced through the United States Department of Labor and its agencies, including the Equal Employment Opportunity Commission (EEOC), and various state and municipal labor departments, fair employment boards, human rights commissions and similar agencies. This General Release is being provided to you in connection with the Employment Agreement between you and Bank 7 Corp., an Oklahoma corporation, dated January 1, 2022 (the “Agreement”). The federal Older Worker Benefit Protection Act requires that you have at least twenty-one (21) days, if you want it, to consider whether you wish to sign a release such as this one in connection with a special, individualized severance package. You have until the close of business twenty-one (21) days from the date you receive this General Release to make your decision. You may not sign this General Release until, at the earliest, your official date of separation from employment, _________________. BEFORE EXECUTING THIS GENERAL RELEASE YOU SHOULD REVIEW THESE DOCUMENTS CAREFULLY AND CONSULT WITH YOUR ATTORNEY. You may revoke this General Release within seven (7) days after you sign it and it shall not become effective or enforceable until that revocation period has expired. If you do not accept the severance package and sign and return this General Release, or if you exercise your right to revoke the General Release after signing it, you will not be eligible for the special, individualized severance package. Any revocation must be in writing and must be received by ____________, Bank 7 Corp., 1039 NW 63rd, Nichols Hills, Oklahoma 73116, within the seven-day period following your execution of this General Release. GENERAL RELEASE In consideration of the special, individualized severance package offered to me by Bank 7 Corp. and the separation benefits I will receive as reflected in the Employment Agreement between me and Bank 7 Corp. dated January 1, 2022 (the “Agreement”), I hereby release and discharge Bank 7 Corp. and its predecessors, successors, affiliates, parent, subsidiaries and partners and each of those entities’ employees, officers, directors and agents (hereafter collectively referred to as the “Company”) from all claims, liabilities, demands, and causes of action, known or unknown, fixed or contingent, which I may have or claim to have against the Company either as a result of my past employment with the Company and/or the severance of that relationship and/or otherwise, and hereby waive any and all rights I may have with respect to and promise not to file a lawsuit to assert any such claims. This General Release includes, but is not limited to, claims arising under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Pregnancy Discrimination Act of 1978, the Equal Pay Act, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Employee Retirement Income Security Act or 1974 and the Veterans Reemployment Rights Act (all as amended from time to time). This General Release also includes, but is not limited to, any rights I may have under the Older Workers Benefit Protection Act of 1990, the Worker Adjustment and Retraining Act of 1988, the Fair Labor Standards Act, the Family and Medical Leave Act, the Occupational Health and Safety Act and any other federal, state and/or municipal statutes, orders or regulations pertaining to labor, employment and/or employee benefits. This General Release also applies to any claims or rights I may have growing out of any legal or equitable restrictions on the Company’s rights not to continue an employment relationship with its employees, including any express or implied employment contracts, and to any claims I may have against the Company for fraudulent inducement or misrepresentation, defamation, wrongful termination or other retaliation claims in connection with workers’ compensation or alleged “whistleblower” status or on any other basis whatsoever. It is specifically agreed, however, that this General Release does not have any effect on any rights or claims I may have against the Company which arise after the date I execute this General Release or on any vested rights I may have under any of the Company’s qualified or non-qualified benefit plans or arrangements (including, without limitation, any rights that I may have under any stock option or other incentive awards or agreements) as of or after my last day of employment with the Company, or on any of the Company’s obligations under the Agreement or as otherwise required under the Consolidated Omnibus Budget and Reconciliation Act of 1985 (COBRA). I have carefully reviewed and fully understand all the provisions of the Agreement and General Release, including the foregoing Notice. I have not relied on any representation or statement, oral or written, by the Company or any of its representatives, which is not set forth in those documents. The Agreement and this General Release, including the foregoing Notice, set forth the entire agreement between me and the Company with respect to this subject. I understand that my receipt and retention of the separation benefits covered by the Agreement are contingent not only on my execution of this General Release, but also on my continued compliance with my other obligations under the Agreement. I acknowledge that the Company gave me twenty-one (21) days to consider whether I wish to accept or reject the separation benefits I am eligible to receive under the Agreement in exchange for this General Release. I also acknowledge that the Company advised me to seek independent legal advice as to these matters, if I chose to do so. I hereby represent and state that I have taken such actions and obtained such information and independent legal or other advice, if any, that I believed were necessary for me to fully understand the effects and consequences of the Agreement and General Release prior to signing those documents. Dated this ____ day of ____________, 20__. 2 Subsidiaries of Bank7 Corp. Entity Name Bank7 Subsidiaries of Bank7 Entity Name 1039 NW63RD, LLC State of Incorporation Oklahoma State of Organization Oklahoma Exhibit 21 Consent of Independent Registered Public Accounting Firm Exhibit 23 We consent to the incorporation by reference in the Registration Statement of Bank7 Corp. (the Company) on Forms S-3 (File No. 333-261356, effective November 24, 2021; and File No. 333-250102, effective November 16, 2020) and Form S-8 (File No. 333-227437, effective September 20, 2018) of our report, dated March 24, 2023, on our audits of the consolidated financial statements of the Company as of December 31, 2022 and 2021 and for each of the years in the three-year period ended December 31, 2022, which report is included in this Annual Report on Form 10-K. FORVIS, LLP (Formerly, BKD, LLP) /s/ FORVIS, LLP Oklahoma City, Oklahoma March 24, 2023 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 Annual Report on Form 10-K 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 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 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 over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 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 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 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 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 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, 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. Date: March 24, 2023 By: /s/ Thomas L. Travis Thomas L. Travis President and Chief 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 Annual Report on Form 10-K 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 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 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 over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 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 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 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 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 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, 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. Date: March 24, 2023 By: /s/ Kelly J. Harris Kelly J. Harris Executive Vice President and Chief Financial Officer Exhibit 32 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 Annual Report on Form 10-K of Bank7 Corp. (the “Company”) for the year ended December 31, 2022, 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 and 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. Date: March 24, 2023 By: /s/ Thomas L. Travis Thomas L. Travis President and Chief Executive Officer By: /s/ Kelly J. Harris Kelly J. Harris Executive Vice President and Chief Financial Officer 

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