Bank7(US:BSVN)2023-05-14 16:00PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements, management's analysis, market risk disclosures, and controls for the reporting period Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q1 2023 report increased net income and total assets, reflecting the adoption of the CECL methodology Unaudited Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,660,539 | $1,584,169 | | Loans, net | $1,263,911 | $1,255,722 | | Total Deposits | $1,491,559 | $1,429,300 | | Total Liabilities | $1,506,533 | $1,440,069 | | Total Shareholders' Equity | $154,006 | $144,100 | Unaudited Condensed Consolidated Statements of Comprehensive Income This section outlines the company's financial performance, including net interest income, provision for credit losses, and net income for the reporting periods Statements of Comprehensive Income Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net Interest Income | $20,006 | $14,208 | | Provision for Credit Losses | $475 | $276 | | Net Income | $9,607 | $6,184 | | Earnings per common share - basic | $1.05 | $0.68 | | Earnings per common share - diluted | $1.04 | $0.67 | Unaudited Condensed Consolidated Statements of Shareholders' Equity This section details changes in shareholders' equity, including net income, dividends, and the impact of accounting principle changes - Total shareholders' equity increased from $128.6 million at March 31, 2022, to $154.0 million at March 31, 2023, driven by net income of $9.6 million, partially offset by cash dividends of $1.5 million and a CECL adoption impact of ($572,000)39 - Cash dividends declared increased to $0.16 per share for the quarter ended March 31, 2023, up from $0.12 per share for the same period in 202239 Unaudited Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,573 | $12,160 | | Net cash used in investing activities | ($6,168) | ($147,368) | | Net cash provided by financing activities | $60,869 | $64,642 | | Net Increase/(Decrease) in Cash | $68,274 | ($70,566) | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations of significant accounting policies, estimates, and financial statement line items, including CECL adoption - On January 1, 2023, the Company adopted ASU 2016-13 (CECL), resulting in a net decrease to retained earnings of $572,0002548 - The adoption of CECL increased the allowance for credit losses on loans by $250,000 and established a new allowance for credit losses on off-balance sheet credit exposures of $500,000 as of January 1, 20232649 - The Company's loan portfolio is segmented into Commercial & Industrial, Real Estate, Agricultural, and Consumer categories for risk assessment, utilizing both asset-specific and pooled component methodologies for credit loss estimation5495116 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights strong Q1 2023 performance with increased pre-tax income, expanded net interest margin, and robust asset growth, while maintaining strong capital levels Results of Operations This section analyzes the company's financial performance, focusing on income, expenses, and key profitability metrics for the reporting period - Pre-tax income for Q1 2023 was $12.6 million, a significant increase from $8.2 million in Q1 2022, with return on average equity improving to 26.15% from 19.26%236237 - Net interest margin expanded to 5.14% in Q1 2023 from 4.42% in Q1 2022, driven by a $267.2 million increase in average loans and a rise in loan yields to 8.09% from 5.81%215240 - The provision for credit losses was $475,000 for Q1 2023, compared to $276,000 for Q1 2022212 - Noninterest expense increased by 19.1% to $7.6 million in Q1 2023, primarily due to a 16.2% rise in salaries and employee benefits to remain competitive223224 Financial Condition This section reviews the company's balance sheet, including asset growth, loan portfolio composition, credit quality, and capital adequacy - Total assets increased by 4.8% to $1.66 billion as of March 31, 2023, from $1.58 billion at year-end 2022, driven by organic growth226 Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2023 | % of Total | Dec 31, 2022 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial real estate | $703,546 | 54.9% | $679,132 | 53.3% | | Commercial & industrial | $502,282 | 39.2% | $513,011 | 40.3% | | Agricultural | $60,870 | 4.7% | $66,145 | 5.2% | | Consumer | $15,135 | 1.2% | $14,949 | 1.2% | | Gross loans | $1,281,833 | 100.0% | $1,273,237 | 100.0% | - The allowance for credit losses increased to $15.5 million at March 31, 2023, from $14.7 million at December 31, 2022, representing 1.21% of total loans at quarter-end229246 - Total deposits grew to $1.49 billion at March 31, 2023, from $1.43 billion at year-end 2022, with noninterest-bearing deposits constituting 28.6% of total deposits266292 - The Company and the Bank exceeded all regulatory capital requirements and were considered "well-capitalized" as of March 31, 2023270311 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, managed by ALCO through balance sheet structuring and simulation modeling, showing sensitivity of net interest income to rate changes - The primary component of market risk for the company is interest rate volatility, managed by the Asset/Liability Committee (ALCO) in accordance with board-approved policies143146 Simulated Change in Net Interest Income & Fair Value of Equity (12-Month Horizon) | Change in Interest Rates (Basis Points) | % Change in Net Interest Income (Mar 2023) | % Change in Fair Value of Equity (Mar 2023) | | :--- | :--- | :--- | | +400 | 16.07% | 18.57% | | +300 | 12.04% | 17.77% | | +200 | 7.98% | 16.79% | | +100 | 3.88% | 15.55% | | Base | -0.50% | 14.16% | | -100 | -5.21% | 12.53% | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective153 - No changes occurred in the company's internal control over financial reporting during the first quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls154 PART II. OTHER INFORMATION This section addresses legal proceedings, key risk factors, equity security sales, defaults, and required exhibits Item 1. Legal Proceedings The company is party to routine legal actions incidental to its business but does not expect any to have a material adverse effect on its financial statements - The company is involved in routine legal actions incidental to its business but does not expect any to have a material adverse effect on its financial statements155 Item 1A. Risk Factors The company faces significant risks from its high concentration in Commercial Real Estate lending and potential adverse impacts from broader banking industry developments - The company has a significant concentration in Commercial Real Estate (CRE) lending, with Regulatory CRE representing 290.49% of total Bank capital as of March 31, 2023, nearing the 300% regulatory guidance threshold for additional supervisory analysis157159 - Recent bank failures in the industry are cited as a risk factor, potentially decreasing customer confidence and leading to deposit outflows, which could adversely impact liquidity and results of operations160161162 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a stock repurchase plan authorizing the buyback of up to 750,000 shares of its common stock, approved on October 28, 2021, with no shares repurchased during Q1 2023 - The company has a board-approved repurchase plan authorizing up to 750,000 shares, but no shares were purchased under this plan during the three months ended March 31, 2023163 Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None164308 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable164 Item 5. Other Information There was no other information to report for the period - None164 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and XBRL data files - The report includes required certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1) and XBRL instance documents165