Bank7(BSVN) - 2020 Q4 - Annual Report

PART I This section outlines Bank7 Corp.'s business operations, strategic focus, competitive landscape, and regulatory environment Item 1 Business Bank7 Corp. is an Oklahoma-based bank holding company operating nine branches, focused on commercial and retail banking with disciplined growth in a regulated, competitive market Company Overview Bank7 Corp. is a bank holding company headquartered in Oklahoma City, Oklahoma, operating nine full-service branches in Oklahoma, the Dallas/Fort Worth metropolitan area, and Kansas - Bank7 Corp. is a bank holding company headquartered in Oklahoma City, Oklahoma, operating nine full-service branches in Oklahoma, the Dallas/Fort Worth metropolitan area, and Kansas[11] Key Financials as of December 31, 2020 | Metric | Amount (Millions) | |:---|:---| | Total Assets | $1,000 | | Total Loans | $836.6 | | Total Deposits | $905.5 | | Shareholders' Equity | $107.3 | Products and Services Bank7 offers full-service commercial banking, focusing on real estate, hospitality, energy, and C&I lending, alongside diverse deposit products - Bank7 is a full-service commercial bank, focusing on deep business relationships with commercial customers[13] - Key loan categories include commercial real estate, hospitality, energy, and commercial & industrial lending. Consumer lending services are also provided[14] - Deposit products include commercial and retail checking, money market, savings, negotiable order of withdrawal, and certificates of deposit[15] Strategic Focus The company emphasizes deep business relationships, disciplined growth, cost efficiency through automation, and organic expansion, while considering strategic acquisitions - The company's success is driven by developing deep business relationships, disciplined growth without compromising asset quality, leveraging executive experience, achieving efficiencies through automated processes, and investing in people and technology[16] - Future focus includes daily execution, sound credit decisions, cost discipline, providing tailored banking products to business owners and entrepreneurs, and pursuing organic growth and strategic acquisitions[17] Cost Discipline and Efficiency Bank7 prioritizes cost discipline and efficiency through automation and technology, operating fewer, smaller branches to drive profitability - Bank7 monitors expenditures and uses automation, technology, and repeatable processes to drive profitability and efficiency[18] - The company operates fewer, smaller, and more cost-efficient branches compared to peers, aiming to scale further and deliver superior customer service through process automation[18] Organic Growth The company's historic asset growth is primarily organic within its current markets, with plans to enhance digital banking while limiting brick-and-mortar expansion - Much of the company's historic asset growth has been organic, primarily within its current markets of Dallas/Fort Worth, Oklahoma City, and Tulsa[19] - While brick-and-mortar expansion will be limited, strategically placed branches are important, and the company plans to enhance internet and mobile banking products[19] Markets Bank7 is headquartered in Oklahoma City, Oklahoma, with additional branches in Oklahoma, Dallas/Fort Worth, and Kansas - Bank7 is headquartered in Oklahoma City, Oklahoma, with four additional branches in Oklahoma, two in the Dallas/Fort Worth metropolitan area, and two in Kansas[20] Competition The banking industry is highly competitive, with Bank7 competing against larger institutions with greater resources and fewer regulatory restrictions - The banking and financial services industry is highly competitive, with Bank7 competing against local, regional, and national commercial banks, credit unions, mortgage companies, and FinTech firms[21] - Many competitors are larger, with greater financial resources and fewer regulatory restrictions. Key competitive factors include interest rates, pricing, product mix, service quality, and community reputation[22] Human Capital Bank7 fosters a corporate culture of integrity, accountability, and community focus, investing in competitive compensation and employee well-being - Bank7's corporate culture is built on integrity, accountability, professionalism, community focus, and efficiency. The company invests in competitive compensation and benefits, fostering a team environment[23] - The company is committed to employee and customer health and safety, implementing COVID-19 safety measures and maintaining a whistleblower hotline[25][26] Supervision and Regulation Bank7 Corp. and its subsidiary are extensively regulated by federal and state agencies, with regulations primarily protecting depositors over shareholders - Bank7 Corp. and its subsidiary Bank7 are extensively regulated by federal and state agencies, including the Federal Reserve, FDIC, OBD, and CFPB. These regulations prioritize depositor protection over shareholder interests[27][28] - Regulatory examinations assess compliance, capital levels, asset quality, management, earnings, and liquidity, with broad discretion for agencies to impose restrictions or enforcement actions[29] General Bank7 Corp. is extensively regulated under U.S. federal and state law by multiple bodies, with laws primarily protecting depositors and the DIF, not shareholders - Bank7 Corp. is extensively regulated under U.S. federal and state law, affecting its growth and earnings performance[27] - Key regulatory bodies include the Oklahoma Banking Department (OBD), the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB)[27] - These laws primarily protect depositors, customers, and the Depositor Insurance Fund (DIF), not shareholders[28] Regulatory Capital Requirements Banking organizations must meet Basel III risk-based capital adequacy requirements, including a capital conservation buffer, with Bank7 exceeding these minimums as of December 31, 2020 - Banking organizations must meet risk-based capital adequacy requirements based on Basel III Capital Rules[31] - Minimum capital standards include a Tier 1 leverage ratio of at least 4.0%, CET1 to risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets of at least 6.0%, and total capital to risk-weighted assets of at least 8.0%[32] - A capital conservation buffer of 2.5% above minimum risk-based capital requirements is also mandated, with shortfalls leading to limitations on dividends, share repurchases, and executive bonuses[33] - As of December 31, 2020, the Company's and the Bank's capital ratios exceeded these minimum requirements[34] Prompt Corrective Action The Federal Deposit Insurance Act mandates prompt corrective action for institutions not meeting minimum capital requirements, categorizing them into five tiers with increasing restrictions - The Federal Deposit Insurance Act mandates 'prompt corrective action' for institutions not meeting minimum capital requirements, categorizing them into five tiers: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized[35] - An institution is 'well-capitalized' if it has a total risk-based capital ratio of 10.0%+, Tier 1 risk-based capital ratio of 8.0%+, CET1 ratio of 6.5%+, and a leverage ratio of 5.0%+[35] - Lower capital categories result in increased operational restrictions, including limits on capital distributions, asset growth, and, for critically undercapitalized banks, potential conservatorship or receivership[36] - As of December 31, 2020, the Bank met the requirements for being deemed 'well-capitalized'[40] The Company As a bank holding company, Bank7 Corp. is regulated by the Federal Reserve, requiring approval for acquisitions and acting as a 'source of strength' to its subsidiary bank - As a bank holding company, Bank7 Corp. is regulated and supervised by the Federal Reserve under the Bank Holding Company Act of 1956 (BHCA)[41] - The BHCA requires prior Federal Reserve approval for mergers, acquisitions of over 5% of voting securities, or substantial asset acquisitions of other banks/holding companies[42] - The Company is generally prohibited from engaging in non-banking businesses, with exceptions for activities closely related to banking, such as consumer finance or mortgage banking[44] - Federal Reserve policy, codified by the Dodd-Frank Act, requires bank holding companies to act as a 'source of strength' to their subsidiary banks, committing resources during financial stress[45] - The Company's ability to pay dividends is affected by corporate law and Federal Reserve regulations, which generally require dividends to be paid from past year's income and consistent with future needs and financial condition[48][49] The Bank Bank7, an Oklahoma-chartered member bank, is subject to extensive examination and regulation by multiple agencies, with restrictions on dividends, affiliate transactions, and lending limits - Bank7, an Oklahoma-chartered member bank, is subject to examination, supervision, and regulation by the OBD, Federal Reserve, FDIC, and CFPB[51][52] - In the event of liquidation, claims of depositors and the FDIC have priority over other unsecured claims, including the parent bank holding company[53] - The Bank pays FDIC deposit insurance premiums based on its risk classification and assessment base, which could increase due to Dodd-Frank Act changes[55][56] - Oklahoma law and Federal Reserve regulations restrict dividend payments from the Bank to the Company, requiring a portion of net profits to be transferred to a surplus fund until it equals 100% of capital stock[60] - The Bank is subject to sections 23A and 23B of the Federal Reserve Act, limiting transactions with affiliates to 10% of capital and surplus individually, and 20% in aggregate, on market terms[63] - Loans to directors, executive officers, and principal shareholders are subject to substantial restrictions under Regulation O and Sarbanes-Oxley, requiring market terms and no greater than normal risk[64] - As an Oklahoma state-chartered bank, Bank7's legal lending limit to any one borrower was $34.6 million as of December 31, 2020[65] - The Bank must comply with safety and soundness standards, including internal controls, information systems, and credit underwriting, with non-compliance potentially leading to growth restrictions or increased capital requirements[66][67] - New branches require approval from the Federal Reserve and OBD, considering financial history, capital adequacy, and community needs. Interstate branching is permitted under certain conditions[69] - The Community Reinvestment Act (CRA) requires assessment of the Bank's record in meeting community credit needs, including low- and moderate-income neighborhoods. Bank7 had a 'satisfactory' CRA rating[71][72] - The USA PATRIOT Act and OFAC regulations impose significant compliance and due diligence obligations to prevent money laundering and enforce economic sanctions, with non-compliance carrying severe legal and reputational consequences[73][74][75] - The Bank is subject to numerous federal and state consumer protection laws, enforced by the CFPB and other regulators, which govern customer relationships and prohibit unfair, deceptive, and abusive practices (UDAAP)[77][78][79] Item 1A Risk Factors Bank7 Corp. faces significant risks from market concentration, economic downturns, loan portfolio concentrations, regulatory scrutiny, operational vulnerabilities, and common stock-related factors - Bank7's business is concentrated in Oklahoma, Dallas/Fort Worth, and Kansas, making it highly dependent on the economic conditions and growth in these primary markets[86][88] - The company has significant credit exposure to the energy industry ($101.9 million, 12.1% of total loans as of Dec 31, 2020) and the hospitality industry ($194.3 million, 23.2% of total loan portfolio as of Dec 31, 2020), making it vulnerable to downturns in these sectors[90][91] - The COVID-19 pandemic has severely disrupted the U.S. economy, leading to lower interest rates, which adversely affected net interest income and margins, and increased credit losses and allowance for credit losses[94][95][96] - Bank7 has a concentration in commercial real estate (CRE) lending, with Regulatory CRE representing 343.8% of total Bank capital as of December 31, 2020, potentially leading to increased supervisory analysis and growth restrictions from regulators[97] - A substantial portion of the loan portfolio consists of commercial purpose loans (98.8% of gross loan portfolio as of Dec 31, 2020), which carry higher risks due to dependence on business operations and less readily marketable collateral[101][102] - The 20 largest borrowing relationships totaled $363.4 million (34.7% of total outstanding commitments) as of December 31, 2020, posing a risk of material losses if one or more relationships default[103] - The company relies on short-term funding, with 76.6% of deposits being demand, savings, money market, and NOW accounts as of December 31, 2020, making it sensitive to interest rate changes and local/general economic conditions[117] - Cybersecurity risks, including hacking and identity theft, pose a threat to internet-based systems and customer information, potentially leading to revenue loss, reputational damage, and increased costs[123][124][127] - The Haines Family Trusts control approximately 63.7% of common stock as of December 31, 2020, giving them significant influence over shareholder approval matters and potentially conflicting with other shareholders' interests[146] Risks Relating to Our Business and Market Bank7's business is highly concentrated in specific regional markets and sectors like energy and hospitality, making it vulnerable to economic downturns, interest rate changes, and liquidity risks - Business is concentrated in Oklahoma, Dallas/Fort Worth, and Kansas, making it highly dependent on regional economic conditions[86][88] - Credit exposure to the energy industry was $101.9 million (12.1% of total loans) as of December 31, 2020, and to the hospitality industry was $194.3 million (23.2% of total loan portfolio) as of December 31, 2020[90][91] - The COVID-19 pandemic caused severe economic disruptions, leading to significant declines in market interest rates, adversely affecting net interest income and margins[94][95](index=95&type=chunk] - Regulatory CRE represented 343.8% of total Bank capital as of December 31, 2020, potentially leading to supervisory restrictions on growth[97] - Commercial purpose loans constitute 98.8% of the gross loan portfolio, carrying higher risks due to dependence on business cash flow and less liquid collateral[101][102] - The 20 largest borrowing relationships totaled $363.4 million (34.7% of total outstanding commitments) as of December 31, 2020, posing a concentration risk[103] - Approximately 43.2% of gross loans were maturing within one year as of December 31, 2020, creating reinvestment risk[108] - The allowance for loan losses may not be adequate to cover actual losses, especially with a significant portion of commercial and commercial real estate loans[109] - Profitability is highly dependent on interest rates, and changes can adversely affect net interest income and loan origination[112][115] - Reliance on short-term funding (76.6% of deposits as of Dec 31, 2020) makes the company vulnerable to economic conditions and competitive pressures on deposit rates[117] - Liquidity risk could impair the ability to fund operations and meet obligations, especially if access to deposits or wholesale funding sources is restricted[119][120][121] - Cybersecurity risks, including data breaches and system failures, could negatively impact revenue, customer retention, reputation, and lead to increased costs or litigation[123][124][127] - Dependence on third-party service providers for core systems and processing creates operational interruption risks if providers experience difficulties or fail to comply with regulations[128][129] Risks Relating to Our Regulatory Environment Extensive regulation increases compliance costs, limits activities, and monetary policy changes significantly affect Bank7's operating results and data protection obligations - Extensive regulation increases compliance costs and can limit or restrict activities, adversely impacting earnings and growth[131][132] - Monetary policy of the Federal Reserve significantly affects operating results, influencing interest rates and credit conditions[134][135] - Regulations related to privacy, information security, and data protection (e.g., Gramm-Leach-Bliley Act) increase costs and may limit how personal information is collected and used[136][137][139] Risks Related to Our Common Stock Common stock risks include potential price declines from large shareholder sales, anti-takeover provisions, control by the Haines Family Trusts, and exemptions as a 'controlled company' - Sales of a substantial number of shares by principal shareholders (Haines Family Trusts) could cause the market price of common stock to decline[141][142] - Oklahoma law and corporate governance provisions (certificate of incorporation, bylaws) may have an anti-takeover effect, making acquisitions more difficult[143][144] - The Haines Family Trusts control approximately 63.7% of common stock, allowing them to determine the outcome of shareholder approval matters, potentially conflicting with other shareholders' interests[145][146] - As a 'controlled company' under NASDAQ rules, Bank7 Corp. is exempt from certain corporate governance requirements, which may reduce protections for shareholders[148][149][150] - An exclusive forum provision in the bylaws limits shareholders' ability to choose a judicial forum for disputes, potentially discouraging lawsuits[151][152] - As a bank holding company, the only source of cash (other than securities issuances) is distributions from the Bank, which are subject to regulatory limits and the Bank's financial performance[153] - Claims from taxing authorities related to its prior S Corporation status could result in significant tax liabilities, although the Haines Family Trusts have an indemnity agreement[155][156][157][158] Item 1B Unresolved Staff Comments There are no unresolved staff comments applicable to the company - No unresolved staff comments are applicable[159] Item 2 Properties Bank7 Corp. owns its Oklahoma City corporate offices and operates nine full-service branches across three states, with five owned and four leased, all equipped with ATMs - The Company's corporate offices are located at 1039 N.W. 63rd Street, Oklahoma City, Oklahoma 73116, owned by the Bank's wholly-owned subsidiary[160] - The Bank operates nine full-service branch offices: five in Oklahoma, two in southwest Kansas, and two in the Dallas/Fort Worth metropolitan area[160] - Of these nine locations, five are owned by the Bank and four are leased. All branches have ATMs, and all Oklahoma branches provide drive-up access[160] Item 3 Legal Proceedings Bank7 Corp. is involved in ordinary course legal proceedings, but management believes no current litigation will materially adversely affect its business or financial condition - The Company or the Bank is a party to claims and legal proceedings arising in the ordinary course of business[162] - Management does not believe any present litigation will have a material adverse effect on the business, consolidated financial condition, or results of operations[162] Item 4 Mine Safety Disclosures Mine Safety Disclosures are not applicable to Bank7 Corp - Mine Safety Disclosures are not applicable[163] PART II This section covers Bank7 Corp.'s market for common equity, selected financial data, management's discussion and analysis, and market risk disclosures Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Bank7 Corp.'s common stock trades on NASDAQ, with the company paying quarterly dividends, repurchasing shares, and managing equity compensation plan rights - Bank7 Corp.'s common stock trades on The NASDAQ Global Select Market under the symbol 'BSVN' since September 20, 2018[165] - The company paid quarterly dividends of $0.10 per share for the first three quarters of 2020, increasing to $0.11 per share in the fourth quarter, and expects to continue this rate[166] Common Stock Repurchases (Q4 2020) | Period | Number of Shares Purchased | Average Price Per Share | |:---|:---|:---| | October 1, 2020 to October 31, 2020 | 150,400 | $9.45 | | November 1, 2020 to November 30, 2020 | 46,524 | $9.25 | | December 1, 2020 to December 31, 2020 | — | — | | For the Three Months Ended Dec 31, 2020 | 196,924 | $9.43 | - As of December 31, 2020, 717,822 shares remained available for repurchase under the program[169] Equity Compensation Plan Data (as of December 31, 2020) | Plan Type | Number of Rights/Options Outstanding | Average Exercise Price | Number of Shares Remaining for Future Issuance | |:---|:---|:---|:---| | Equity compensation plans approved by shareholders | 303,250 | $18.48 | 694,750 | Item 6 Selected Financial Data Bank7 Corp.'s 2020 selected financial data shows increased net income and total assets, with improved profitability and a compressed net interest margin, supplemented by non-GAAP measures Selected Income Statement Data (in thousands) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Total interest income | $53,314 | $51,709 | $46,800 | | Total interest expense | $6,153 | $9,516 | $7,169 | | Net interest income | $47,161 | $42,193 | $39,631 | | Provision for loan losses | $5,350 | $- | $200 | | Total noninterest income | $1,665 | $1,308 | $1,331 | | Total noninterest expense | $17,592 | $28,432 | $14,965 | | Provision for income taxes | $6,618 | $6,844 | $797 | | Net income | $19,266 | $8,225 | $25,000 | Selected Balance Sheet Data (in thousands) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Cash and due from banks | $153,901 | $117,128 | $128,090 | | Total loans | $836,613 | $707,304 | $599,910 | | Allowance for loan losses | $9,639 | $7,846 | $7,832 | | Total assets | $1,016,669 | $866,392 | $770,511 | | Total deposits | $905,514 | $757,483 | $675,903 | | Total shareholders' equity | $107,319 | $100,126 | $88,466 | Selected Ratios | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Earnings per share (basic) | $2.05 | $0.81 | $3.08 | | Dividends per share | $0.41 | $0.60 | $7.71 | | Book value per share | $11.87 | $9.96 | $8.68 | | Return on average assets | 2.03% | 1.03% | 3.53% | | Return on average shareholders' equity | 18.82% | 8.42% | 33.01% | | Net interest margin | 5.01% | 5.35% | 5.49% | | Efficiency ratio | 36.03% | 65.39% | 37.04% | | Nonperforming assets to total assets | 1.63% | 0.38% | 0.35% | | Allowance for loan losses to total loans | 1.15% | 1.11% | 1.31% | - The company provides non-GAAP financial measures, such as tangible book value per share and net interest margin excluding loan fee income, to offer additional insights into performance[182][185][188] Selected Historical Consolidated Financial and Operating Data This section presents Bank7 Corp.'s selected historical consolidated financial and operating data, including income statement, balance sheet, and key ratios for 2018-2020 Selected Income Statement Data (in thousands) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Total interest income | $53,314 | $51,709 | $46,800 | | Total interest expense | $6,153 | $9,516 | $7,169 | | Net interest income | $47,161 | $42,193 | $39,631 | | Provision for loan losses | $5,350 | $- | $200 | | Total noninterest income | $1,665 | $1,308 | $1,331 | | Total noninterest expense | $17,592 | $28,432 | $14,965 | | Provision for income taxes | $6,618 | $6,844 | $797 | | Net income | $19,266 | $8,225 | $25,000 | Selected Balance Sheet Data (in thousands) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Cash and due from banks | $153,901 | $117,128 | $128,090 | | Total loans | $836,613 | $707,304 | $599,910 | | Allowance for loan losses | $9,639 | $7,846 | $7,832 | | Total assets | $1,016,669 | $866,392 | $770,511 | | Total deposits | $905,514 | $757,483 | $675,903 | | Total shareholders' equity | $107,319 | $100,126 | $88,466 | Selected Ratios | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Earnings per share (basic) | $2.05 | $0.81 | $3.08 | | Dividends per share | $0.41 | $0.60 | $7.71 | | Book value per share | $11.87 | $9.96 | $8.68 | | Return on average assets | 2.03% | 1.03% | 3.53% | | Return on average shareholders' equity | 18.82% | 8.42% | 33.01% | | Net interest margin | 5.01% | 5.35% | 5.49% | | Efficiency ratio | 36.03% | 65.39% | 37.04% | | Nonperforming assets to total assets | 1.63% | 0.38% | 0.35% | | Allowance for loan losses to total loans | 1.15% | 1.11% | 1.31% | GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures The company uses non-GAAP financial measures like tangible book value and net interest margin excluding loan fees to provide clearer insights into core performance, alongside GAAP results - The company evaluates performance using non-GAAP financial measures in addition to GAAP, classifying them as such if they exclude or include amounts different from the most directly comparable GAAP measure[182] - Non-GAAP measures should not be considered in isolation or as a substitute for GAAP measures, and comparison with other companies requires understanding their calculation methods[184] - Tangible book value per share and tangible shareholders' equity to tangible assets are presented to show changes in shareholders' equity exclusive of intangible assets, which are important to many investors[185][186][187] - Yield on loans (excluding loan fee income) and net interest margin (excluding loan fee income) are calculated to provide a clearer view of core lending profitability[188] - A one-time, non-cash executive stock transfer in 2019, which included a $11.8 million compensation expense, had a virtual net-zero impact on shareholders' equity but significantly affected reported net income and efficiency ratio for that year[188][189][190] Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Bank7 Corp. achieved significant asset growth and increased net income in 2020, driven by loan and deposit growth, despite net interest margin compression, while maintaining strong capital and liquidity - Bank7 Corp. is a bank holding company focused on serving business owners and entrepreneurs with loan and deposit products, measuring performance by return on average assets, return on average equity, EPS, capital ratios, and efficiency ratio[200][201] Key Financials as of December 31, 2020 | Metric | Amount (Millions) | |:---|:---| | Total Assets | $1,000 | | Total Loans | $836.6 | | Total Deposits | $905.5 | | Shareholders' Equity | $107.3 | - The U.S. economy experienced widespread volatility in 2020 due to COVID-19, with the Federal Reserve lowering the target federal funds rate to near zero, leading to net interest margin compression for the banking industry[204][205] - The company's conversion from an S Corporation to a C Corporation in September 2018 significantly impacts the comparability of net income and EPS data due to the recognition of federal and state income taxes[206] - For 2020, pre-tax net income increased to $25.9 million (from $15.0 million in 2019), average loans grew by 29.4% to $823.2 million, and the efficiency ratio improved to 36.03% (from 65.39% in 2019), largely due to the absence of a one-time executive stock transaction expense in 2019[211][212] - Total assets increased by 17.4% to $1.0 billion as of December 31, 2020, driven by organic loan and retail deposit growth, and the addition of PPP loans[238] - Gross loans grew to $839.1 million as of December 31, 2020, including $44.9 million in PPP loans, with real estate loans comprising 50.9% and commercial & industrial 41.9%[240][241] - The allowance for loan losses increased to $9.6 million at December 31, 2020 (from $7.8 million in 2019), reflecting loan growth and economic uncertainty from COVID-19[254] - Nonperforming loans increased to $16.5 million as of December 31, 2020 (from $3.3 million in 2019), with a nonperforming loans to total loans ratio of 1.98%[266] - Total deposits increased by 19.5% to $905.5 million as of December 31, 2020, primarily due to organic growth, with noninterest-bearing demand deposits accounting for 27.2%[286][287] - The Bank was categorized as 'well-capitalized' by the FDIC as of December 31, 2020, exceeding all regulatory capital requirements under Basel III[296][297] - Total contractual obligations were $906.4 million as of December 31, 2020, primarily consisting of deposits without a stated maturity and time deposits[300] - Off-balance sheet arrangements include commitments to extend credit ($206.5 million) and standby letters of credit ($2.4 million) as of December 31, 2020[305] General Bank7 Corp. is an Oklahoma-based bank holding company generating revenue primarily from interest income, experiencing economic volatility and interest rate declines in 2020 due to COVID-19 - Bank7 Corp. is a bank holding company headquartered in Oklahoma City, Oklahoma, operating nine full-service branches in Oklahoma, Dallas/Fort Worth, and Kansas[200] - The company generates most revenue from interest income on loans and short-term investments, funded primarily by deposits[201] Key Financials as of December 31, 2020 | Metric | Amount (Millions) | |:---|:---| | Total Assets | $1,000 | | Total Loans | $836.6 | | Total Deposits | $905.5 | | Shareholders' Equity | $107.3 | - The U.S. economy experienced widespread volatility in 2020 due to COVID-19, leading the Federal Reserve to lower the target federal funds rate to 0.00%-0.25%[204] - The decline in interest rates adversely affected the company's net interest income and margins due to its asset-sensitive balance sheet[205] Factors Affecting Comparability of Financial Results The company's 2018 conversion from an S Corporation to a C Corporation significantly impacts the comparability of net income and EPS due to federal income tax provisions - The company's conversion from an S Corporation to a C Corporation on September 24, 2018, means net income and EPS data prior to this date are not comparable due to the absence of federal income tax provision[206] - Deferred tax assets and liabilities were recognized upon conversion, reflecting future tax consequences of temporary differences between financial statement and tax bases[207] Pro Forma C Corporation Income Tax and Net Income (in thousands) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Net income before taxes | $25,884 | $15,069 | $25,797 | | Combined effective income tax rate | 25.57% | 45.42% | 22.19% | | Income tax provision | $6,618 | $6,844 | $5,720 | | Net income | $19,266 | $8,225 | $20,077 | 2020 Highlights Bank7's 2020 highlights include increased pre-tax net income and average loans, improved efficiency ratio, and growth in total loans, deposits, and tangible book value per share - Pre-tax net income increased to $25.9 million in 2020 from $15.0 million in 2019, primarily due to the absence of a one-time non-cash executive stock transaction expense in 2019[211] - Average loans increased by $187.0 million (29.4%) to $823.2 million in 2020[211] - Loan yields, excluding loan fee income, decreased by 112 basis points to 5.76% in 2020 due to decreasing interest rates[211] - Pre-tax return on average assets was 2.73% and return on average equity was 25.29% in 2020, up from 1.88% and 15.44% respectively in 2019[212] - The efficiency ratio improved to 36.03% in 2020 from 65.39% in 2019, also due to the one-time stock transaction in 2019[212] - Total loans increased by $129.3 million (18.3%) to $836.6 million, and total deposits increased by $148.0 million (19.5%) to $905.5 million as of December 31, 2020[213] - Tangible book value per share increased by $1.91 (19.6%) to $11.69 as of December 31, 2020[213] Results of Operations Bank7's 2020 results show increased net interest income driven by loan growth, but compressed yields due to lower interest rates, alongside higher loan loss provisions and lower noninterest expense Net Interest Income and Net Interest Margin (in thousands) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Net interest income | $47,161 | $42,193 | $39,631 | | Net interest spread | 4.61% | 4.67% | 4.94% | | Net interest margin | 5.01% | 5.35% | 5.49% | | Net interest margin (excluding loan fee income) | 4.48% | 4.78% | 4.78% | - Total interest income on loans increased by $4.3 million (8.8%) to $52.5 million in 2020, driven by a $187.0 million increase in average loan balances[220] - Yields on interest-earning assets decreased by 88 basis points to 5.67% in 2020, primarily due to lower loan rates and short-term investment yields impacted by pandemic-related market interest rate changes[220] - Interest expense on interest-bearing deposits decreased by $3.4 million (35.3%) to $6.2 million in 2020, as the cost of interest-bearing deposits fell to 1.05% from 1.89% in 2019[224] - The provision for loan losses increased from zero in 2019 to $5.4 million in 2020, attributed to loan growth, economic uncertainty from COVID-19, and $3.6 million in net charge-offs[229] - Noninterest income increased by $357,000 (27.3%) to $1.7 million in 2020, driven by increases in secondary market income, service charges on deposit accounts, and other income and fees[231] - Noninterest expense decreased by $10.8 million (38.1%) to $17.6 million in 2020, primarily due to the absence of the one-time non-cash executive stock transaction expense from 2019[235] Financial Condition Bank7's financial condition as of December 31, 2020, reflects increased total assets, loan portfolio growth including PPP loans, higher allowance for loan losses, and strong capital ratios - Total assets increased by $150.3 million (17.4%) to $1.0 billion as of December 31, 2020, driven by strong organic loan and retail deposit growth and the addition of PPP loans[238] Gross Loan Portfolio by Category (in thousands) | Loan Category | Dec 31, 2020 | % of Total | Dec 31, 2019 | % of Total | Dec 31, 2018 | % of Total | |:---|:---|:---|:---|:---|:---|:---| | Construction & development | $107,855 | 12.8% | $70,628 | 10.0% | $87,267 | 14.5% | | 1-4 family real estate | $29,079 | 3.5% | $34,160 | 4.8% | $33,278 | 5.5% | | Commercial real estate - other | $290,489 | 34.6% | $273,278 | 38.5% | $156,396 | 26.0% | | Total real estate | $427,423 | 50.9% | $378,066 | 53.3% | $276,941 | 46.0% | | Commercial & industrial | $351,248 | 41.9% | $260,762 | 36.8% | $248,394 | 41.3% | | Agricultural | $50,519 | 6.0% | $57,945 | 8.2% | $62,844 | 10.4% | | Consumer | $9,898 | 1.2% | $11,895 | 1.7% | $13,723 | 2.3% | | Gross loans | $839,088 | 100.0% | $708,668 | 100.0% | $601,902 | 100.0% | - The loan portfolio included $44.9 million of PPP loans as of December 31, 2020[241] Allowance for Loan Losses Activity (in thousands) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Balance at beginning of period | $7,846 | $7,832 | $7,654 | | Provision for loan losses | $5,350 | $- | $200 | | Total charge-offs | $(3,590) | $(18) | $(98) | | Total recoveries | $33 | $32 | $76 | | Net charge-offs | $(3,557) | $14 | $(22) | | Balance at end of period | $9,639 | $7,846 | $7,832 | Nonperforming Assets (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |:---|:---|:---|:---| | Nonaccrual loans | $14,575 | $1,809 | $2,615 | | Troubled debt restructurings | $- | $912 | $- | | Accruing loans 90+ days past due | $1,960 | $612 | $- | | Total nonperforming loans | $16,535 | $3,333 | $2,615 | | Other real estate owned | $- | $- | $110 | | Total nonperforming assets | $16,535 | $3,333 | $2,725 | | Ratio of nonperforming loans to total loans | 1.98% | 0.47% | 0.44% | | Ratio of nonperforming assets to total assets | 1.63% | 0.38% | 0.35% | - Substandard loans totaled $23.1 million as of December 31, 2020, an increase of $12.0 million from 2019, primarily due to two commercial and industrial relationships and two commercial real estate relationships[273] - As of December 31, 2020, eight loans totaling $33.0 million were modified due to COVID-19 but were not considered troubled debt restructurings under CARES Act provisions[280] Troubled Debt Restructurings (TDRs) (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |:---|:---|:---|:---| | Number of Contracts | 3 | 3 | 1 | | Total Recorded Investment | $12,977 | $2,721 | $501 | | Specific Reserves Allocated | $- | $26 | $- | Total Deposits by Category (in thousands) | Deposit Category | Dec 31, 2020 | % of Total | Dec 31, 2019 | % of Total | Dec 31, 2018 | % of Total | |:---|:---|:---|:---|:---|:---|:---| | Noninterest-bearing demand | $246,569 | 27.2% | $219,221 | 29.0% | $201,159 | 29.8% | | NOW deposits | $232,676 | 25.6% | $112,420 | 14.8% | $91,896 | 13.6% | | Money market | $160,108 | 17.7% | $150,554 | 19.9% | $118,150 | 17.5% | | Savings deposits | $54,008 | 6.0% | $72,750 | 9.6% | $69,548 | 10.3% | | Time deposits (more than $100,000) | $187,964 | 20.8% | $176,998 | 23.3% | $167,304 | 24.8% | | Time deposits ($100,000 or less) | $24,189 | 2.7% | $25,540 | 3.4% | $27,846 | 4.1% | | Total deposits | $905,514 | 100.0% | $757,483 | 100.0% | $675,903 | 100.0% | - Liquidity is supported by liquid assets (cash, interest-bearing deposits, fed funds sold) and access to wholesale deposits and borrowings from correspondent banks and FHLB[292] - As of December 31, 2020, the Bank had $64.8 million in borrowing availability with the FHLB[294] - The Bank was categorized as 'well-capitalized' by the FDIC as of December 31, 2020, exceeding all regulatory capital requirements under Basel III[296][297] Contractual Obligations (in thousands) | Obligation Category | Within One Year | One to Three Years | Three to Five Years | After Five Years | Total | |:---|:---|:---|:---|:---|:---| | Deposits without a stated maturity | $693,361 | $- | $- | $- | $693,361 | | Time deposits | $164,753 | $46,563 | $822 | $- | $212,138 | | Borrowings | $- | $- | $- | $- | $- | | Operating lease commitments | $470 | $390 | $49 | $- | $909 | | Total contractual obligations | $858,599 | $46,953 | $871 | $- | $906,423 | Off-Balance Sheet Commitments (in thousands) | Commitment Category | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |:---|:---|:---|:---| | Commitments to extend credit | $206,520 | $191,459 | $135,015 | | Standby letters of credit | $2,366 | $3,338 | $1,078 | | Total | $208,886 | $194,797 | $136,093 | Critical Accounting Policies and Estimates Key accounting policies and estimates include the allowance for loan losses, goodwill impairment, income taxes, and fair value measurements, all requiring significant management judgment - The allowance for loan and lease losses is a critical estimate based on management's assessment of probable losses, considering historical experience, loan portfolio composition, economic conditions, and individual impaired loans[309][310] - Goodwill and other intangibles are evaluated annually for impairment; no impairment was determined as of December 31, 2020, 2019, and 2018[312] - Income taxes involve estimates for current and deferred taxes, with changes in tax rates, laws, and planning strategies impacting accruals. Management believes all tax positions will be utilized[317][318][319] - Fair value of financial instruments is determined using observable market prices or management judgment when such prices are unavailable, with a hierarchy of inputs (Level 1, 2, 3) to measure fair value[320] Item 7A Quantitative and Qualitative Disclosures about Market Risk Bank7 Corp.'s primary market risk is interest rate volatility, managed by ALCO through balance sheet structuring and simulation models to assess impacts on net interest income and equity fair value - Bank7 Corp.'s primary market risk is interest rate volatility, which impacts net interest income and the market value of interest-earning assets and liabilities[321][322] - The Asset/Liability Committee (ALCO) manages interest rate risk by structuring the balance sheet and using interest rate risk simulation models and shock analyses[324][325] - The company's internal policy specifies limits for estimated net interest income decline under gradual parallel shifts of the yield curve (e.g., not more than 10% for a -100 basis point shift)[327] Simulated Change in Net Interest Income and Fair Value of Equity (12-month horizon) | Change in Interest Rates (Basis Points) | Dec 31, 2020: % Change in Net Interest Income | Dec 31, 2020: % Change in Fair Value of Equity | Dec 31, 2019: % Change in Net Interest Income | Dec 31, 2019: % Change in Fair Value of Equity | |:---|:---|:---|:---|:---| | +400 | 80.57% | 19.41% | 69.65% | 21.41% | | +300 | 60.55% | 17.53% | 51.57% | 19.84% | | +200 | 40.46% | 15.51% | 33.39% | 18.15% | | +100 | 20.16% | 13.36% | 14.91% | 16.34% | | Base | (0.29)% | 11.06% | (3.81)% | 14.39% | | -100 | (6.32)% | 10.35% | (13.68)% | 12.34% | - The company's assets and liabilities are primarily monetary, making interest rates a more significant impact on performance than general inflation[330] Item 8 Financial Statements and Supplementary Data This section presents Bank7 Corp.'s audited consolidated financial statements, including balance sheets, income statements, equity, and cash flows, with an unqualified opinion and detailed notes - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Shareholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[333] - BKD, LLP, the independent registered public accounting firm, issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the financial position as of December 31, 2020 and 2019, and results of operations and cash flows for the three-year period ended December 31, 2020[337] Consolidated Balance Sheets (in thousands) | Asset/Liability Category | Dec 31, 2020 | Dec 31, 2019 | |:---|:---|:---| | Assets: | | | | Cash and due from banks | $153,901 | $117,128 | | Interest-bearing time deposits | $16,412 | $30,147 | | Loans, net of allowance | $826,974 | $699,458 | | Loans held for sale | $324 | $1,031 | | Premises and equipment, net | $9,151 | $9,624 | | Nonmarketable equity securities | $1,172 | $1,100 | | Goodwill and other intangibles, net | $1,583 | $1,789 | | Interest receivable and other assets | $7,152 | $6,115 | | Total assets | $1,016,669 | $866,392 | | Liabilities: | | | | Noninterest-bearing deposits | $246,569 | $219,221 | | Interest-bearing deposits | $658,945 | $538,262 | | Total deposits | $905,514 | $757,483 | | Income taxes payable | $9 | $357 | | Interest payable and other liabilities | $3,827 | $8,426 | | Total liabilities | $909,350 | $766,266 | | Shareholders' Equity: | | | | Common stock | $90 | $101 | | Additional paid-in capital | $93,162 | $92,391 | | Retained earnings | $14,067 | $7,634 | | Total shareholders' equity | $107,319 | $100,126 | | Total liabilities and shareholders' equity | $1,016,669 | $866,392 | Consolidated Statements of Income (in thousands, except per share data) | Income Statement Item | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Total Interest Income | $53,314 | $51,709 | $46,800 | | Total Interest Expense | $6,153 | $9,516 | $7,169 | | Net Interest Income | $47,161 | $42,193 | $39,631 | | Provision for Loan Losses | $5,350 | $- | $200 | | Net Interest Income After Provision | $41,811 | $42,193 | $39,431 | | Total Noninterest Income | $1,665 | $1,308 | $1,331 | | Total Noninterest Expense | $17,592 | $28,432 | $14,965 | | Income Before Taxes | $25,884 | $15,069 | $25,797 | | Income tax expense | $6,618 | $6,844 | $797 | | Net Income | $19,266 | $8,225 | $25,000 | | Earnings per common share - basic | $2.05 | $0.81 | $3.08 | | Earnings per common share - diluted | $2.05 | $0.81 | $3.03 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Category | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Net cash provided by operating activities | $25,235 | $19,180 | $27,001 | | Net cash used in investing activities | $(119,614) | $(108,070) | $(37,573) | | Net cash provided by financing activities | $131,152 | $77,928 | $38,608 | | Increase (Decrease) in Cash and Due from Banks | $36,773 | $(10,962) | $28,036 | | Cash and Due from Banks, End of Period | $153,901 | $117,128 | $128,090 | Report of Independent Registered Public Accounting Firm BKD, LLP issued an unqualified opinion on Bank7 Corp.'s consolidated financial statements for 2018-2020, affirming fair presentation in accordance with GAAP - BKD, LLP, the independent registered public accounting firm, issued an unqualified opinion on Bank7 Corp.'s consolidated financial statements for the years ended December 31, 2020, 2019, and 2018[337] - The audit was conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and significant management estimates[340][342] Consolidated Balance Sheets This section presents Bank7 Corp.'s consolidated balance sheets as of December 31, 2020 and 2019, detailing assets, liabilities, and shareholders' equity Consolidated Balance Sheets (in thousands) | Asset/Liability Category | Dec 31, 2020 | Dec 31, 2019 | |:---|:---|:---| | Assets: | | | | Cash and due from banks | $153,901 | $117,128 | | Interest-bearing time deposits | $16,412 | $30,147 | | Loans, net of allowance | $826,974 | $699,458 | | Loans held for sale | $324 | $1,031 | | Premises and equipment, net | $9,151 | $9,624 | | Nonmarketable equity securities | $1,172 | $1,100 | | Goodwill and other intangibles, net | $1,583 | $1,789 | | Interest receivable and other assets | $7,152 | $6,115 | | Total assets | $1,016,669 | $866,392 | | Liabilities: | | | | Noninterest-bearing deposits | $246,569 | $219,221 | | Interest-bearing deposits | $658,945 | $538,262 | | Total deposits | $905,514 | $757,483 | | Income taxes payable | $9 | $357 | | Interest payable and other liabilities | $3,827 | $8,426 | | Total liabilities | $909,350 | $766,266 | | Shareholders' Equity: | | | | Common stock | $90 | $101 | | Additional paid-in capital | $93,162 | $92,391 | | Retained earnings | $14,067 | $7,634 | | Total shareholders' equity | $107,319 | $100,126 | | Total liabilities and shareholders' equity | $1,016,669 | $866,392 | Consolidated Statements of Income This section presents Bank7 Corp.'s consolidated statements of income for the years ended December 31, 2020, 2019, and 2018, including net income and EPS Consolidated Statements of Income (in thousands, except per share data) | Income Statement Item | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Total Interest Income | $53,314 | $51,709 | $46,800 | | Total Interest Expense | $6,153 | $9,516 | $7,169 | | Net Interest Income | $47,161 | $42,193 | $39,631 | | Provision for Loan Losses | $5,350 | $- | $200 | | Net Interest Income After Provision | $41,811 | $42,193 | $39,431 | | Total Noninterest Income | $1,665 | $1,308 | $1,331 | | Total Noninterest Expense | $17,592 | $28,432 | $14,965 | | Income Before Taxes | $25,884 | $15,069 | $25,797 | | Income tax expense | $6,618 | $6,844 | $797 | | Net Income | $19,266 | $8,225 | $25,000 | | Earnings per common share - basic | $2.05 | $0.81 | $3.08 | | Earnings per common share - diluted | $2.05 | $0.81 | $3.03 | Consolidated Statements of Shareholders' Equity This section presents Bank7 Corp.'s consolidated statements of shareholders' equity for the years ended December 31, 2020, 2019, and 2018, detailing changes in capital Consolidated Statements of Shareholders' Equity (in thousands, except share data) | Shareholders' Equity Item | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Common Stock (Shares): | | | | | Balance at beginning of period | 10,057,506 | 10,187,500 | 7,287,500 | | Shares acquired and canceled | (1,032,178) | (149,425) | - | | Balance at end of period | 9,044,765 | 10,057,506 | 10,187,500 | | Common Stock (Amount): | | | | | Balance at beginning of period | $101 | $102 | $73 | | Shares acquired and canceled | $(11) | $(1) | $- | | Balance at end of period | $90 | $101 | $102 | | Additional Paid-in Capital: | | | | | Balance at beginning of period | $92,391 | $80,275 | $6,987 | | Stock-based compensation expense | $771 | $12,116 | $154 | | Balance at end of period | $93,162 | $92,391 | $80,275 | | Retained Earnings: | | | | | Balance at beginning of period | $7,634 | $8,089 | $62,116 | | Net income | $19,266 | $8,225 | $25,000 | | Common stock acquired and canceled | $(9,065) | $(2,645) | $- | | Cash dividends declared | $(3,768) | $(6,035) | $(56,155) | | Balance at end of period | $14,067 | $7,634 | $8,089 | | Total shareholders' equity | $107,319 | $100,126 | $88,466 | Consolidated Statements of Cash Flows This section presents Bank7 Corp.'s consolidated statements of cash flows for the years ended December 31, 2020, 2019, and 2018, detailing operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Cash Flow Category | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Net cash provided by operating activities | $25,235 | $19,180 | $27,001 | | Net cash used in investing activities | $(119,614) | $(108,070) | $(37,573) | | Net cash provided by financing activities | $131,152 | $77,928 | $38,608 | | Increase (Decrease) in Cash and Due from Banks | $36,773 | $(10,962) | $28,036 | | Cash and Due from Banks, End of Period | $153,901 | $117,128 | $128,090 | Notes to Consolidated Financial Statements These notes provide detailed information on Bank7 Corp.'s operations, significant accounting policies, capital structure, loan portfolio, income taxes, and other financial disclosures Note 1: Nature of Operations and Summary of Significant Accounting Policies This note details Bank7 Corp.'s operations as a bank holding company and outlines its significant accounting policies, including estimates for loan losses, goodwill, and income taxes - Bank7 Corp. is a bank holding company, with its principal activity being the ownership and management of its wholly-owned subsidiary, Bank7, which provides banking and financial services in Oklahoma, Kansas, and Texas[360] - The financial statements are prepared in conformity with GAAP, requiring management to make estimates and assumptions, particularly for allowance for loan losses, valuation of OREO, income taxes, goodwill, and fair values of financial instruments[362][363] - Loans are reported at outstanding principal balances, adjusted for unearned income, charge-offs, allowance for loan losses, and deferred fees/costs. Interest accrual is discontinued for loans 90 days past due or when collectability is doubtful[368][369][370] - The allowance for loan losses is established based on management's estimate of probable losses, evaluated regularly considering historical experience, portfolio nature, borrower ability to repay, collateral value, and economic conditions[373][376] - Goodwill is tested annually for impairment, and other intangible assets (core deposit intangibles) are amortized over 10 years. No goodwill impairment was recognized for 2020, 2019, or 2018[387][388][385] - The company converted from an S Corporation to a C Corporation on September 24, 2018, becoming subject to federal and state income taxes. Deferred taxes are recognized for temporary differences[392] - Revenue from service and transaction fees on depository accounts and interchange fees is recognized when transactions occur or services are performed[396][397] - Recent accounting pronouncements include ASU 2016-02 (Leases, effective 2021), ASU 2016-13 (CECL, effective 2023), and ASU 2017-04 (Goodwill Impairment, adopted 2020)[400][401][402] - The CARES Act, enacted in response to COVID-19, created the Paycheck Protection Program (PPP); as of December 31, 2020, the company had 166 PPP loans totaling $44.9 million[404][407] Note 2: Change in Capital Structure This note details changes in Bank7 Corp.'s capital structure, including its name change, stock split, initial public offering, and conversion to a C Corporation - On June 26, 2018, the Company amended its Certificate of Incorporation, changing its name to Bank7 Corp. and authorizing 50,000,000 shares of common stock, 20,000,000 shares of non-voting common stock, and 1,000,000 shares of preferred stock[409] - A 24-to-1 stock split was completed on July 6, 2018, retroactively adjusted in all financial statements[410] - The company completed its initial public offering on September 20, 2018, selling 2,900,000 shares at $19 per share, generating $50.1 million in net proceeds[411] - In connection with the IPO, the company terminated its S Corporation status and became a C Corporation on September 24, 2018, recognizing an initial deferred tax asset of $863,000[412] Note 3: Restriction on Cash and Due from Banks This note explains the requirement for Bank7 to maintain reserve funds with the Federal Reserve Bank, with no required reserve as of December 31, 2020 - The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank, with the required reserve being $0 as of December 31, 2020[413] Note 4: Earnings Per Share This note details the computation of basic and diluted earnings per share for Bank7 Corp., including adjustments for dilutive potential common shares - Basic EPS is calculated as net income divided by the weighted average number of common shares outstanding. Diluted EPS adjusts for the effect of dilutive potential common shares, such as restricted stock awards and nonqualified stock options[416][417] Earnings Per Share Computation (in thousands, except per share amounts) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Net income | $19,266 | $8,225 | $25,000 | | Weighted-average shares outstanding for basic | 9,378,769 | 10,145,032 | 8,105,856 | | Dilutive effect of stock compensation | 385 | 2,279 | 131,782 | | Denominator for diluted EPS | 9,379,154 | 10,147,311 | 8,237,638 | | Earnings per common share - Basic | $2.05 | $0.81 | $3.08 | | Earnings per common share - Diluted | $2.05 | $0.81 | $3.03 | - Nonqualified stock options outstanding were not included in diluted EPS for the periods presented because they would have been antidilutive[418] Note 5: Loans and Allowance for Loan Losses This note provides a detailed summary of Bank7's loan portfolio, including categories, allowance for loan losses activity, credit risk profile, and nonperforming assets Summary of Loans (in thousands) | Loan Category | Dec 31, 2020 | Dec 31, 2019 | |:---|:---|:---| | Construction & development | $107,855 | $70,628 | | 1-4 family real estate | $29,079 | $34,160 | | Commercial real estate - other | $290,489 | $273,278 | | Total commercial real estate | $427,423 | $378,066 | | Commercial & industrial | $351,248 | $260,762 | | Agricultural | $50,519 | $57,945 | | Consumer | $9,898 | $11,895 | | Gross loans | $839,088 | $708,668 | | Less allowance fo