Bank7(BSVN) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides Bank7 Corp.'s unaudited condensed consolidated financial statements and management's discussion for the periods ended June 30, 2025 Item 1. Financial Statements This section presents Bank7 Corp.'s unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2025, and December 31, 2024 Unaudited Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets to $1.84 billion as of June 30, 2025, from $1.74 billion at December 31, 2024, primarily driven by growth in loans Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total Assets | $1,836,346 | $1,739,808 | $96,538 | 5.55% | | Loans, net | $1,479,134 | $1,379,465 | $99,669 | 7.22% | | Total Deposits | $1,594,138 | $1,515,471 | $78,667 | 5.19% | | Total Liabilities | $1,604,487 | $1,526,595 | $77,892 | 5.10% | | Total Shareholders' Equity | $231,859 | $213,213 | $18,646 | 8.75% | Unaudited Condensed Consolidated Statements of Comprehensive Income Net income decreased for both the three and six months ended June 30, 2025, compared to the prior year, primarily due to lower interest and noninterest income Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Total Interest Income | $31,781 | $32,436 | $(655) | -2.02% | | Total Interest Expense | $10,043 | $11,204 | $(1,161) | -10.36% | | Net Interest Income | $21,738 | $21,232 | $506 | 2.38% | | Total Noninterest Income | $2,701 | $3,165 | $(464) | -14.66% | | Total Noninterest Expense | $9,732 | $9,142 | $590 | 6.45% | | Net Income | $11,105 | $11,524 | $(419) | -3.64% | | Basic EPS | $1.18 | $1.25 | $(0.07) | -5.60% | | Diluted EPS | $1.16 | $1.23 | $(0.07) | -5.69% | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Total Interest Income | $62,223 | $65,723 | $(3,500) | -5.33% | | Total Interest Expense | $19,643 | $22,481 | $(2,838) | -12.62% | | Net Interest Income | $42,580 | $43,242 | $(662) | -1.53% | | Total Noninterest Income | $4,456 | $5,174 | $(718) | -13.88% | | Total Noninterest Expense | $18,616 | $18,278 | $338 | 1.85% | | Net Income | $21,441 | $22,812 | $(1,371) | -6.01% | | Basic EPS | $2.27 | $2.47 | $(0.20) | -8.10% | | Diluted EPS | $2.25 | $2.44 | $(0.19) | -7.79% | Unaudited Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $231.9 million at June 30, 2025, from $213.2 million at December 31, 2024, driven by net income and paid-in capital Condensed Consolidated Statements of Shareholders' Equity Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Total Shareholders' Equity | $231,859 | $213,213 | $18,646 | 8.75% | | Retained Earnings (6 months) | $133,186 | $116,281 | $16,905 | 14.54% | | Additional Paid-in Capital (6 months) | $102,321 | $101,809 | $512 | 0.50% | | Cash dividends declared (6 months) | $(4,536) | $(3,883) | $(653) | 16.82% | Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased, while investing activities shifted to using cash, resulting in a net decrease in cash for the six months ended June 30, 2025 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Net cash provided by operating activities | $20,448 | $28,592 | $(8,144) | -28.48% | | Net cash (used in) provided by investing activities | $(109,048) | $114,503 | $(223,551) | -195.24% | | Net cash provided by (used in) financing activities | $73,243 | $(114,032) | $187,275 | 164.23% | | Net (Decrease) Increase in Cash and Due from Banks | $(15,357) | $29,063 | $(44,420) | -152.84% | | Cash and Due from Banks, End of Period | $218,839 | $210,105 | $8,734 | 4.16% | Notes to Unaudited Condensed Consolidated Financial Statements This section details the Company's accounting policies, recent events, earnings per share, debt, loans, equity, related-party transactions, and fair value measurements - The company is a bank holding company operating through its wholly-owned subsidiary, Bank7, providing banking and financial services in Oklahoma, Texas, and Kansas[17] - The financial statements are unaudited and reflect management's necessary adjustments for fair presentation[18] - The company operates as a single reportable segment, the Bank, with net income and total assets as key performance measures[20] Note 1: Nature of Operations and Summary of Significant Accounting Policies Bank7 Corp. operates as a bank holding company, with financial statements reflecting unaudited consolidated results and key accounting estimates - Bank7 Corp. is a bank holding company, owning and managing Bank7, which offers banking and financial services in Oklahoma, Texas, and Kansas[17] - The financial statements are unaudited, include all necessary adjustments, and reflect no significant changes in accounting policies since December 31, 2024[18] - The consolidated financial statements include the Company, the Bank, and its three subsidiaries: 1039 NW 63rd, LLC (real estate), Giddings Production, LLC (oil/natural gas), and First American Mortgage LLC (residential mortgages)[19] - The Company operates as a single reportable segment (the Bank), with the CEO evaluating performance on a company-wide basis using net income and total assets as key measures[20] - Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, income taxes, goodwill and intangibles, and fair values of financial instruments[22] Note 2: Recent Events, Including Mergers and Acquisitions The Company acquired oil and natural gas properties in November 2023, with related revenues decreasing in Q2 2025 compared to Q2 2024 - On November 17, 2023, the Company acquired proven oil and natural gas properties from HB2 Origination, LLC for $15.1 million in cash, assuming $0.4 million in asset retirement obligations[27] - Oil and gas related revenues (included in "Other" noninterest income) were $1.6 million for Q2 2025, down from $2.4 million for Q2 2024 (-33.3%)[29] - Oil and gas related revenues (included in "Other" noninterest income) were $2.7 million for the six months ended June 30, 2025, down from $3.8 million for the same period in 2024 (-28.9%)[31] Note 3: Earnings per Share Basic and diluted earnings per share decreased for both the three and six months ended June 30, 2025, compared to the prior year Earnings per Common Share (in thousands, except per share amounts) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Net Income (in thousands) | $11,105 | $11,524 | $(419) | -3.64% | | Basic EPS | $1.18 | $1.25 | $(0.07) | -5.60% | | Diluted EPS | $1.16 | $1.23 | $(0.07) | -5.69% | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Net Income (in thousands) | $21,441 | $22,812 | $(1,371) | -6.01% | | Basic EPS | $2.27 | $2.47 | $(0.20) | -8.10% | | Diluted EPS | $2.25 | $2.44 | $(0.19) | -7.79% | Note 4: Debt Securities Available-for-sale debt securities saw a decrease in fair value and amortized cost, with unrealized losses attributed to market interest rate increases Available-for-Sale Debt Securities (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Amortized Cost | $62,027 | $66,445 | $(4,418) | -6.65% | | Fair Value | $57,170 | $59,941 | $(2,771) | -4.62% | | Gross Unrealized Losses | $(4,857) | $(6,504) | $1,647 | -25.32% | - The Company had no realized gains or losses from the sale, prepayment, or call of debt securities for the three and six months ended June 30, 2025 and 2024[44] - All unrealized losses are due to increases in market interest rates and are expected to recover as securities approach maturity, with no impairment loss recognized[46] Note 5: Loans and Allowance for Credit Losses Gross loans increased, while the allowance for credit losses saw net recoveries for the six months ended June 30, 2025 Loan Portfolio and Allowance for Credit Losses (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Gross loans | $1,500,059 | $1,399,293 | $100,766 | 7.20% | | Allowance for credit losses | $18,222 | $17,918 | $304 | 1.70% | | Net loans | $1,479,134 | $1,379,465 | $99,669 | 7.22% | - For the six months ended June 30, 2025, net recoveries were $304,000, a significant improvement from net charge-offs of $1.919 million in the prior year period[55] - During the six months ended June 30, 2025, the Company modified eight loans for borrowers experiencing financial difficulty, totaling $1.3 million for construction and development, $2.7 million for commercial real estate, and $4.3 million for commercial and industrial loans, primarily through term extensions[85][86] Note 6: Shareholders' Equity Total shareholders' equity increased, and the Company and Bank exceeded all minimum capital adequacy requirements under Basel III Total Shareholders' Equity (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Total Shareholders' Equity | $231,859 | $213,213 | $18,646 | 8.75% | - The Company adopted a repurchase plan in October 2023 authorizing up to 750,000 shares, with no repurchases made as of June 30, 2025[88][89] - As of June 30, 2025, both the Company and Bank exceeded all minimum capital adequacy requirements under Basel III Capital Rules, with the Bank categorized as "well capitalized"[90][91][99] Note 7: Related-Party Transactions No outstanding loans to related parties were reported, but lease payments to related parties increased for Q2 2025 - No loans outstanding to executive officers, directors, significant shareholders, and their affiliates as of June 30, 2025, and December 31, 2024[100] - Lease payments to related parties for office space totaled $82,000 for Q2 2025, up from $65,000 for Q2 2024 (+26.15%)[101] Note 8: Employee Benefits Employer contributions to the 401(k) plan and stock-based compensation expense both increased for Q2 2025 - Employer contributions to the 401(k) plan were $133,000 for Q2 2025, up from $124,000 for Q2 2024 (+7.26%)[104] - Stock-based compensation expense was $762,000 for Q2 2025, up from $637,000 for Q2 2024 (+19.62%)[105] - As of June 30, 2025, there were 660,743 shares available for future grants under the Bank7 Corp. 2018 Equity Incentive Plan[105] Note 9: Disclosures About Fair Value of Assets and Liabilities Fair value measurements are categorized into three levels, with available-for-sale debt securities using Level 2 inputs and no nonrecurring fair value assets at June 30, 2025 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[117] - Available-for-sale debt securities are reported at fair value using Level 2 inputs, obtained from an independent pricing service[115] - There were no assets measured at fair value on a nonrecurring basis at June 30, 2025, compared to $3.2 million in collateral-dependent loans (Level 3) at December 31, 2024[119][124] Note 10: Financial Instruments with Off-Balance Sheet Risk Off-balance sheet commitments, primarily for credit extensions and standby letters, slightly decreased overall from December 31, 2024 Off-Balance Sheet Commitments (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :----------------------------------- | :------------ | :---------------- | :----- | :------- | | Commitments to extend credit | $263,846 | $272,261 | $(8,415) | -3.09% | | Financial and performance standby letters of credit | $16,940 | $11,333 | $5,607 | 49.48% | | Total Off-Balance Sheet Commitments | $280,786 | $283,594 | $(2,808) | -0.99% | - The reserve for unfunded loan commitments remained stable at $464,000 at both June 30, 2025, and December 31, 2024[133] Note 11: Significant Estimates and Concentrations Hospitality and energy loans represent significant concentrations, and goodwill is evaluated annually for potential impairment - Hospitality loans constituted 19% of gross total loans ($278.5 million) at June 30, 2025[135] - Energy loans constituted 11% of gross total loans ($168.4 million) at June 30, 2025[135] - Goodwill of $11.2 million was recorded on the consolidated balance sheet at June 30, 2025, and is evaluated annually for potential impairment[136] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Bank7 Corp.'s financial performance, noting decreased pre-tax net income despite growth in loans and deposits, and increased efficiency ratios - Bank7 Corp. is a bank holding company operating twelve locations in Oklahoma, Dallas/Fort Worth, Texas, and Kansas, focused on serving business owners and entrepreneurs[139] - Total loans increased by 10.7% to $1.50 billion, and total deposits increased by 7.6% to $1.59 billion as of June 30, 2025, compared to June 30, 2024[141] - Pre-tax net income decreased by 3.6% for Q2 2025 and 5.7% for the six months ended June 30, 2025, compared to the prior year periods[142] - Return on average assets (ROAA) for Q2 2025 was 2.47% (down from 2.74% in Q2 2024) and return on average equity (ROAE) was 19.62% (down from 25.02% in Q2 2024)[143] - The efficiency ratio for Q2 2025 was 39.95%, up from 37.72% in Q2 2024[143] Q2 2025 Overview The second quarter of 2025 saw loan and deposit growth, but a decline in pre-tax net income and returns on assets and equity, alongside an increased efficiency ratio Q2 2025 Key Financial Metrics | Metric | June 30, 2025 | June 30, 2024 | Change | % Change | | :----------------------------------- | :------------ | :------------ | :----- | :------- | | Total Loans (in billions) | $1.50 | $1.35 | $0.15 | 10.7% | | Total Deposits (in billions) | $1.59 | $1.48 | $0.11 | 7.6% | | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Pre-tax Net Income (in millions) | $14.7 | $15.3 | $(0.6) | -3.92% | | Return on Average Assets | 2.47% | 2.74% | -0.27% | -9.85% | | Return on Average Equity | 19.62% | 25.02% | -5.40% | -21.58% | | Efficiency Ratio | 39.95% | 37.72% | 2.23% | 5.91% | Results of Operations Overall profitability decreased due to lower loan yields and noninterest income, partially offset by reduced interest expense - Net interest income for Q2 2025 increased by $506,000 (2.38%) to $21.7 million, while for the six months ended June 30, 2025, it decreased by $662,000 (-1.53%) to $42.6 million[11] - Total noninterest income for Q2 2025 decreased by $464,000 (-14.7%) to $2.7 million, primarily due to lower income from oil and gas assets[158] - Total noninterest expense for Q2 2025 increased by $590,000 (6.5%) to $9.7 million, driven by higher salaries and employee benefits and data processing costs[161] Net Interest Income and Net Interest Margin Net interest income increased for Q2 2025 due to volume, but net interest margin decreased, and average yield on assets declined - For Q2 2025, net interest income increased by $506,000, driven by a $1.145 million increase due to volume, partially offset by a $639,000 decrease due to rate changes[152] - Net interest margin for Q2 2025 was 4.96%, down from 5.15% in Q2 2024[146] - For the six months ended June 30, 2025, net interest income decreased by $662,000, with a $1.037 million increase due to volume offset by a $1.699 million decrease due to rate changes[152] - Average yield on total interest-earning assets for Q2 2025 was 7.25%, a decrease of 62 basis points from Q2 2024[147] Securities The investment portfolio consists of available-for-sale securities, with all unrealized losses at June 30, 2025, being non-credit related - The investment portfolio consists entirely of available-for-sale securities, with carrying values adjusted for unrealized gains/losses reported in other comprehensive income[153] - The Company assesses potential credit losses by comparing fair value to amortized cost; all unrealized losses at June 30, 2025, were non-credit related and no impairment loss was recognized[154] - The total fair value of available-for-sale securities was $57.17 million at June 30, 2025, with a weighted average taxable equivalent yield of 1.69%[155] Provision for Credit Losses No provision for credit losses was recorded for the three or six months ended June 30, 2025, and the allowance as a percentage of total loans decreased - No provision for credit losses was recorded for the three or six months ended June 30, 2025, or 2024[11][157] - The allowance for credit losses as a percentage of total loans decreased by 9 basis points to 1.22% for both the three and six months ended June 30, 2025[157] Noninterest Income Total noninterest income decreased for Q2 2025, primarily due to lower income from oil and gas assets Noninterest Income (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Mortgage lending income | $520 | $78 | $442 | 566.67% | | Service charges on deposit accounts | $232 | $260 | $(28) | -10.77% | | Other income and fees | $1,949 | $2,827 | $(878) | -31.06% | | Total noninterest income | $2,701 | $3,165 | $(464) | -14.66% | - The decrease in noninterest income was primarily attributable to lower income from oil and gas assets[158][159] Noninterest Expense Total noninterest expense increased for Q2 2025, driven by higher salaries, employee benefits, and data processing costs Noninterest Expense (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Salaries and employee benefits | $5,721 | $5,118 | $603 | 11.78% | | Data and item processing | $590 | $481 | $109 | 22.66% | | Regulatory assessments | $213 | $336 | $(123) | -36.61% | | Advertising and public relations | $223 | $83 | $140 | 168.67% | | Total noninterest expense | $9,732 | $9,142 | $590 | 6.45% | | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Salaries and employee benefits | $11,000 | $10,407 | $593 | 5.70% | | Data and item processing | $1,100 | $939 | $161 | 17.15% | Financial Condition Total assets and the loan portfolio grew, nonperforming assets decreased, and the Company maintained strong capital ratios and increased deposits - Total assets increased by $96.6 million (5.6%) to $1.84 billion as of June 30, 2025, from $1.74 billion at December 31, 2024[165] - Gross loans increased to $1.50 billion at June 30, 2025, from $1.40 billion at December 31, 2024[166] - Total deposits increased to $1.59 billion at June 30, 2025, from $1.52 billion at December 31, 2024[187] Total Assets Total assets increased by $96.6 million, or 5.6%, to $1.84 billion as of June 30, 2025, from $1.74 billion as of December 31, 2024 - Total assets increased by $96.6 million, or 5.6%, to $1.84 billion as of June 30, 2025, from $1.74 billion as of December 31, 2024[165] Loan Portfolio Gross loans increased to $1.50 billion as of June 30, 2025, with all loan types remaining within internal concentration limits Gross Loan Portfolio by Category (in thousands) | Loan Category | June 30, 2025 (in thousands) | % of Total | December 31, 2024 (in thousands) | % of Total | Change (in thousands) | % Change | | :-------------------------- | :----------------------------- | :--------- | :----------------------------- | :--------- | :-------------------- | :------- | | Construction & development | $192,910 | 12.9% | $167,685 | 12.0% | $25,225 | 15.04% | | 1-4 family real estate | $125,637 | 8.4% | $121,047 | 8.7% | $4,590 | 3.79% | | Commercial real estate - other | $554,902 | 36.9% | $511,304 | 36.5% | $43,598 | 8.53% | | Commercial & industrial | $534,950 | 35.7% | $507,023 | 36.2% | $27,927 | 5.51% | | Agricultural | $78,126 | 5.2% | $77,922 | 5.6% | $204 | 0.26% | | Consumer | $13,534 | 0.9% | $14,312 | 1.0% | $(778) | -5.44% | | Gross loans | $1,500,059 | 100.0% | $1,399,293 | 100.0% | $100,766 | 7.20% | - The Company has established internal concentration limits for CRE, hospitality, energy, and construction loans, and all loan types are within these limits[167] Allowance for Credit Losses The allowance for credit losses increased slightly, with net recoveries reported for the six months ended June 30, 2025 Allowance for Credit Losses (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Allowance for credit losses | $18,222 | $17,918 | $304 | 1.70% | - For the six months ended June 30, 2025, net recoveries were $304,000, compared to net charge-offs of $1.919 million for the same period in 2024[172] - The allowance is allocated across loan categories, with Commercial real estate - other (40.6%) and Commercial & industrial (38.6%) holding the largest percentages at June 30, 2025[172] Nonperforming Assets Total nonperforming assets decreased by 23.72%, and the ratio of nonperforming loans to total loans improved to 0.37% Nonperforming Assets (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :----------------------------------- | :------------ | :---------------- | :----- | :------- | | Nonaccrual loans | $5,463 | $7,170 | $(1,707) | -23.81% | | Accruing loans 90 or more days past due | $6 | $0 | $6 | N/A | | Total nonperforming assets | $5,469 | $7,170 | $(1,701) | -23.72% | | Ratio of nonperforming loans to total loans | 0.37% | 0.51% | -0.14% | -27.45% | | Ratio of allowance for credit losses to nonaccrual loans | 333.55% | 249.90% | 83.65% | 33.47% | - The Company uses an internal risk grading system (Pass, Watch, Special Mention, Substandard) to evaluate loans, with "Substandard" loans having defined weaknesses that might jeopardize repayment[181][184] - Total loans categorized as "Substandard" decreased to $8.73 million at June 30, 2025, from $15.23 million at December 31, 2024[185] Deposits Total deposits increased by 5.19% to $1.59 billion, with a notable increase in interest-bearing transaction and brokered deposits Deposit Balances by Category (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Total deposits | $1,594,138 | $1,515,471 | $78,667 | 5.19% | | Noninterest-bearing demand | $315,824 | $313,258 | $2,566 | 0.82% | | Interest-bearing transaction deposits | $968,314 | $889,679 | $78,635 | 8.84% | | Brokered deposits | $371,500 | $336,700 | $34,800 | 10.33% | | Uninsured deposits | $380,300 | $354,200 | $26,100 | 7.37% | | Uninsured deposits as % of total deposits | 24.0% | 23.4% | 0.6% | 2.56% | Liquidity Liquidity is supported by liquid assets and access to alternative funds, with FHLB borrowing availability increasing and Federal Reserve access decreasing - Liquidity is supported by liquid assets (cash, interest-bearing deposits, fed funds sold) and access to alternative funds (wholesale deposits, FHLB advances, correspondent bank borrowings)[193] - Borrowing availability with the FHLB was $223.5 million at June 30, 2025, up from $190.9 million at December 31, 2024[195] - Access to liquidity with the Federal Reserve Bank was approximately $296.3 million at June 30, 2025, down from $336.1 million at December 31, 2024[195] Capital Requirements Both the Company and Bank met all Basel III capital adequacy requirements, with the Bank categorized as "well-capitalized" by the FDIC - As of June 30, 2025, the Company and Bank met all capital adequacy requirements under Basel III Capital Rules, including maintaining the capital conservation buffer[197][199] - The Bank was categorized as "well-capitalized" by the FDIC as of June 30, 2025[91][196] Capital Ratios (June 30, 2025) | Capital Ratio | Company (June 30, 2025) | Bank (June 30, 2025) | Minimum Req. | Well Capitalized Req. (Bank) | | :----------------------------------- | :---------------------- | :------------------- | :----------- | :--------------------------- | | Total capital to risk-weighted assets | 15.05% | 15.06% | 8.00% | 10.00% | | Tier I capital to risk-weighted assets | 13.89% | 13.90% | 6.00% | 8.00% | | Common equity tier I capital to risk-weighted assets | 13.89% | 13.90% | 4.50% | 6.50% | | Tier I capital to average assets | 12.49% | 12.49% | 4.00% | 5.00% | Contractual Obligations The Company's total contractual obligations, primarily deposits without a stated maturity and time deposits, slightly increased from December 31, 2024, to June 30, 2025. Management believes it can meet these obligations through profitability and deposit gathering Total Contractual Obligations (in thousands) | Obligation Type (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :----------------------------- | :------------ | :---------------- | :----- | :------- | | Deposits without a stated maturity | $1,364,247 | $1,276,316 | $87,931 | 6.89% | | Time deposits | $229,891 | $239,155 | $(9,264) | -3.88% | | Operating lease commitments | $2,264 | $1,874 | $390 | 20.81% | | Total contractual obligations | $1,596,402 | $1,517,345 | $79,057 | 5.21% | - Management expects to meet contractual obligations through profitability, loan repayment, maturity activity, and continued deposit gathering[201] Off-Balance Sheet Arrangements The Company's off-balance sheet arrangements primarily consist of commitments to extend credit and standby letters of credit, which represent credit and interest rate risk. Total commitments slightly decreased from December 31, 2024, to June 30, 2025 Off-Balance Sheet Commitments (in thousands) | Commitment Type (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :----------------------------- | :------------ | :---------------- | :----- | :------- | | Commitments to extend credit | $263,846 | $272,261 | $(8,415) | -3.09% | | Standby letters of credit | $16,940 | $11,333 | $5,607 | 49.48% | | Total | $280,786 | $283,594 | $(2,808) | -0.99% | - The Company uses the same underwriting standards for off-balance sheet credit risk as for on-balance sheet loans[202] Critical Accounting Policies and Estimates This section outlines the critical accounting policies and estimates that require significant management judgment, including the allowance for credit losses, goodwill and intangibles, income taxes, and fair value of financial instruments - Management makes estimates and assumptions that affect reported amounts, particularly for the allowance for credit losses, income taxes, goodwill and intangibles, and fair values of financial instruments[208][209] Allowance for Credit Losses The allowance for credit losses is management's estimate of probable losses, determined by segmenting the loan portfolio and evaluating classified loans - The allowance is management's estimate of probable losses, with future additions potentially needed due to economic changes or portfolio composition[210] - The loan portfolio is segmented by type and risk, using historical loss factors adjusted for trends and conditions, and classified loans over $250,000 are individually evaluated[211] Goodwill and Intangibles Goodwill and intangible assets are tested annually for impairment, with core deposit intangibles amortized over 10 years - Intangible assets totaled $815,000 and goodwill was $11.2 million as of June 30, 2025[213] - Goodwill is tested annually for impairment, or more frequently if indicators are present, and is written down to implied fair value if impaired[214] - Core deposit intangible assets are amortized on a straight-line basis over an estimated useful life of 10 years[215] Income Taxes Deferred taxes are recognized based on temporary differences, with the effective tax rate for Q2 2025 consistent with the prior year - Deferred taxes are recognized based on future tax consequences of temporary differences between carrying amounts and tax basis[216] - The effective tax rate was 24.5% for Q2 2025, consistent with 24.6% for Q2 2024, primarily influenced by state income taxes and tax-exempt income[219] Fair Value of Financial Instruments Fair value is defined as an orderly transaction price, with available-for-sale debt securities reported at estimated fair value and unrealized losses reviewed quarterly - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants[220] - Available-for-sale debt securities are stated at estimated fair value, with unrealized gains or losses reported as a component of stockholders' equity and comprehensive income[221] - The Company reviews debt securities in an unrealized loss position quarterly to assess intent to sell or likelihood of being required to sell, and to evaluate if declines are due to credit losses[222] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk is interest rate volatility, which is managed by the Asset/Liability Committee (ALCO) through balance sheet structuring and simulation models - The primary component of market risk is interest rate volatility, which impacts income, expense, and market value of assets/liabilities[224][225] - Interest rate risk is managed by the ALCO Committee, which formulates strategies and reviews asset/liability sensitivity, liquidity, and maturities[227] - The Company uses interest rate risk simulation models and shock analyses to test the impact of interest rate changes on net interest income and fair value of equity[228] Interest Rate Sensitivity and Market Risk The Company manages interest rate risk through ALCO, aiming to limit net interest income decline to 10% for a -100 basis point shift - The Company's internal policy specifies that 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[229] Simulated Change in Net Interest Income and Fair Value of Equity (June 30, 2025) | Change in Interest Rates (Basis Points) | Percent Change in Net Interest Income (June 30, 2025) | Percent Change in Fair Value of Equity (June 30, 2025) | | :------------------------------------ | :---------------------------------------------------- | :----------------------------------------------------- | | +400 | 19.94% | 22.19% | | +300 | 15.88% | 21.16% | | +200 | 11.70% | 20.02% | | +100 | 7.13% | 18.75% | | Base | 2.15% | 17.29% | | -100 | -3.00% | 15.69% | | -200 | -7.29% | 13.93% | Impact of Inflation Interest rates have a greater impact on the Company's performance than general inflation, though operating expenses reflect inflation levels - Substantially all of the Company's assets and liabilities are monetary, making interest rates more impactful on performance than general inflation[233] - Operating expenses do reflect general levels of inflation[233] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Management, with CEO and CFO participation, evaluated and concluded that disclosure controls and procedures were effective as of June 30, 2025[234] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[235] Disclosure Controls and Procedures Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025 - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[234] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[235] PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures Item 1. Legal Proceedings The Company is occasionally involved in routine legal actions incidental to its business but believes no existing proceedings, individually or in aggregate, would have a material adverse effect on its financial statements - The Company is a party to routine legal actions but management believes no proceedings would have a material adverse effect on financial statements[237] Item 1A. Risk Factors This section refers readers to the "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, noting no material changes other than those explicitly set forth in this report - Readers are referred to the Annual Report on Form 10-K for a comprehensive list of risk factors[238] - No material changes in risk factors were disclosed other than those explicitly mentioned in this report[238] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company adopted a repurchase plan in October 2023 authorizing the repurchase of up to 750,000 shares, but no shares were purchased under this plan during the six months ended June 30, 2025 - A repurchase plan authorizing up to 750,000 shares was adopted on October 30, 2023[239] - No shares were purchased under the repurchase plan during the six months ended June 30, 2025[239] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities reported for the period - None[240] Item 4. Mine Safety Disclosures No mine safety disclosures were reported for the period - None[240] Item 5. Other Information No officers or directors adopted or terminated Rule 10b5-1 or Non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No officers or directors adopted or terminated Rule 10b5-1 or Non-Rule 10b5-1 trading arrangements during Q2 2025[240] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - Includes certifications from Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1)[241] - Contains various XBRL taxonomy extension documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) and the Cover Page Interactive Data File (Exhibit 104)[241] Signatures The report was duly signed on August 7, 2025, by Thomas L. Travis, Vice Chairman and Chief Executive Officer, and Kelly J. Harris, Executive Vice President and Chief Financial Officer - Signed by Thomas L. Travis, Vice Chairman and CEO, and Kelly J. Harris, EVP and CFO, on August 7, 2025[244]