Bank7(BSVN) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Bank7 Corp. as of June 30, 2022, and for the three and six-month periods then ended, including balance sheets, statements of comprehensive income, statements of shareholders' equity, and statements of cash flows, along with accompanying notes Unaudited Condensed Consolidated Balance Sheets As of June 30, 2022, total assets grew to $1.49 billion from $1.35 billion at year-end 2021, driven by an increase in net loans, with total deposits also increasing to $1.35 billion from $1.22 billion and total shareholders' equity rising to $131.5 million Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,487,474 | $1,350,549 | | Net Loans | $1,141,497 | $1,018,085 | | Total Deposits | $1,346,291 | $1,217,471 | | Total Liabilities | $1,355,976 | $1,223,141 | | Total Shareholders' Equity | $131,498 | $127,408 | Unaudited Condensed Consolidated Statements of Comprehensive Income For the second quarter of 2022, net income increased to $7.0 million from $6.1 million in the prior-year period, and for the six months ended June 30, 2022, net income was $13.2 million, up from $11.2 million year-over-year, driven by higher net interest income and lower provision for loan losses Key Income Statement Data (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $15,794 | $13,665 | $30,002 | $25,977 | | Provision for Loan Losses | $219 | $1,300 | $495 | $2,575 | | Net Income | $7,024 | $6,105 | $13,208 | $11,209 | | Earnings per share - basic | $0.77 | $0.67 | $1.45 | $1.24 | | Earnings per share - diluted | $0.76 | $0.67 | $1.44 | $1.24 | Unaudited Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased from $127.4 million at the end of 2021 to $131.5 million at June 30, 2022, driven by $13.2 million in net income, partially offset by $2.2 million in cash dividends and a $7.9 million net unrealized loss on securities Changes in Shareholders' Equity - Six Months Ended June 30, 2022 (in thousands) | Component | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2021) | $127,408 | | Net Income | $13,208 | | Cash Dividends Declared | ($2,183) | | Net Change in AOCI (Unrealized Loss) | ($7,927) | | Stock-based Compensation & Options | $992 | | Ending Balance (June 30, 2022) | $131,498 | Unaudited Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, the company experienced a net decrease in cash and cash equivalents of $81.4 million, primarily due to $233.0 million in cash used in investing activities, partially offset by $24.9 million from operating activities and $126.6 million from financing activities Net Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,917 | $17,307 | | Net cash used in investing activities | ($232,972) | ($84,521) | | Net cash provided by financing activities | $126,640 | $101,045 | | (Decrease) Increase in Cash and Cash Equivalents | ($81,415) | $33,831 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide detailed information supporting the financial statements, including the acquisition of Watonga Bancshares, Inc., loan and debt securities portfolios, allowance for loan losses, nonperforming assets, regulatory capital adequacy, and off-balance sheet arrangements - On December 9, 2021, the Company acquired Watonga Bancshares, Inc. for $29.3 million in cash, which added approximately $267.6 million in assets and $245.8 million in liabilities[34][36] - Gross loans increased to $1.16 billion at June 30, 2022, from $1.03 billion at December 31, 2021, with Commercial & Industrial and Construction & Development loans showing significant growth[53] - The allowance for loan losses increased to $10.8 million as of June 30, 2022, from $10.3 million at year-end 2021. The allowance as a percentage of gross loans was 0.94%[56][156] - As of June 30, 2022, the Company and the Bank met all capital adequacy requirements, with the Bank being categorized as well capitalized. The Bank's Tier 1 capital to risk-weighted assets ratio was 11.21%, well above the 8.50% requirement to be considered well-capitalized with the conservation buffer[87][91] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting strong organic loan and deposit growth, with pre-tax income increasing year-over-year for both the second quarter and first six months of 2022, driven by higher net interest income Results of Operations For the second quarter of 2022, pre-tax income rose to $9.3 million from $8.1 million year-over-year, driven by a 15.5% increase in interest income, while net interest margin decreased to 4.47% from 5.38% due to lower loan yields and reduced PPP loan fee income Performance Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Pre-tax Income | $9,304 | $8,069 | $17,491 | $14,899 | | Net Interest Income | $15,794 | $13,665 | $30,002 | $25,977 | | Provision for Loan Losses | $219 | $1,300 | $495 | $2,575 | - Net interest margin decreased to 4.47% in Q2 2022 from 5.38% in Q2 2021, primarily due to a 68 basis point decrease in loan yields and a $1.0 million decrease in nonrecurring PPP loan fee income[141][142] - Noninterest expense for Q2 2022 increased by $2.1 million (42.8%) year-over-year, with salaries and employee benefits rising by $1.2 million due to organic growth and the Watonga acquisition[161] Financial Condition As of June 30, 2022, total assets increased 10.2% to $1.5 billion from year-end 2021, fueled by strong organic loan growth, with gross loans reaching $1.2 billion and deposits growing to $1.3 billion, while nonperforming assets decreased to $9.5 million (0.64% of total assets) Loan Portfolio Composition (in thousands) | Loan Category | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Commercial real estate | $604,047 | $571,948 | | Commercial & industrial | $475,197 | $361,974 | | Agricultural | $59,644 | $73,010 | | Consumer & Other | $85,824 | $87,017 | | Gross Loans | $1,155,445 | $1,030,978 | Nonperforming Assets (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Nonaccrual loans | $9,473 | $9,885 | | Total nonperforming loans | $9,542 | $10,381 | | Total nonperforming assets | $9,542 | $10,381 | | Ratio of NPA to total assets | 0.64% | 0.77% | - Total deposits increased to $1.35 billion, with noninterest-bearing deposits growing to 33.2% of total deposits, up from 30.1% at year-end 2021[202][203] Critical Accounting Policies and Estimates Management identifies the Allowance for Loan and Lease Losses, Goodwill and Intangibles, and Income Taxes as critical accounting policies requiring significant estimates and judgments, and the company has elected to use the extended transition period for new accounting standards under the JOBS Act - The determination of the Allowance for Loan Losses is a critical estimate, involving a comprehensive loan grading system, historical loss factors, and evaluation of economic conditions[229][230] - Goodwill is tested annually for impairment, and a prolonged strain on the U.S. economy could result in impairment of the $8.7 million balance[129][233] - The company has elected to use the extended transition period for new or revised accounting standards as permitted by the JOBS Act for emerging growth companies[227] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no significant changes in its disclosures regarding market risk since its most recent annual report for the year ended December 31, 2021 - There have been no significant changes in market risk disclosures since the Annual Report on Form 10-K for the year ended December 31, 2021[238] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[239] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[240] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine legal actions incidental to its business but believes that none of these, individually or in aggregate, would have a material adverse effect on its financial statements - Management is of the opinion that no existing legal proceedings would have a material adverse effect on the company's financial statements if determined adversely[241] Risk Factors There have been no material changes from the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes were reported from the risks disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[242] Unregistered Sales of Equity Securities and Use of Proceeds The company discusses its stock repurchase plan, noting that a new plan authorizing the repurchase of up to 750,000 shares was approved in October 2021, with no shares repurchased under this plan during the six months ended June 30, 2022 - During the six months ended June 30, 2022, no shares were repurchased under the company's stock repurchase plan[243] - As of the reporting period, 750,000 shares remained available for repurchase under the plan adopted in October 2021[85] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[243] Mine Safety Disclosures The company reported no mine safety disclosures - None[243] Other Information The company reported no other information - None[243] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and XBRL data files - Exhibits filed include certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1) and XBRL Instance Documents (101 series)[246]