Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report.
Unless the context indicates otherwise, references in this management’s discussion and analysis to “we”, “our”, and “us,” refer to Bank7 Corp. and its consolidated subsidiaries. All references to “the Bank” refer to Bank7, our wholly owned subsidiary.
General
We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate twelve full-service branches in Oklahoma, the Dallas/Fort Worth, Texas metropolitan area and Kansas. We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed loan and deposit products to meet their financing needs. We intend to grow organically by selectively opening additional branches in our target markets and we will also pursue strategic acquisitions.
As a bank holding company, we generate most of our revenue from interest income on loans and from short-term investments. The primary source of funding for our loans and short-term investments are deposits held by our subsidiary, Bank7. We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, and efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.
As of December 31, 2025, we had total assets of $1.96 billion, total loans of $1.61 billion, total deposits of $1.70 billion and total shareholders’ equity of $251.0 million.
The Federal Reserve aggressively raised the federal funds target rate throughout 2022 and 2023 to combat elevated inflation, reaching a peak range of 5.25% to 5.50% by December 31, 2023. In 2024, the Federal Reserve began to adjust monetary policy, ultimately lowering the federal funds rate three times to end that year with a target range of 4.25% to 4.50%. This easing cycle continued into 2025, with the Federal Reserve implementing three additional 25-basis-point reductions in the second half of the year. As of December 31, 2025, the federal funds target range stood at 3.50% to 3.75%. These monetary policy actions, along with the impact of the transition from a peak-rate environment, compressed our net interest margin while generally supporting stable credit quality throughout 2025.
2025 Overview
We reported total loans of $1.61 billion as of December 31, 2025, an increase of $209.0 million, or 15.0%, from December 31, 2024. Total deposits were $1.70 billion as of December 31, 2025, an increase of $185.4 million, or 12.2%, from December 31, 2024.
Income before taxes was $56.8 million, a decrease of $3.6 million, or 6.0%, for the year ended December 31, 2025 as compared to income before taxes of $60.4 million for the same period in 2024.
Pre-tax return on average assets and return on average equity was 3.12% and 24.39%, respectively, for the year ended December 31, 2025, as compared to 3.50% and 31.41%, respectively, for the same period in 2024. Tax-adjusted return on average assets and return on average equity was 2.37% and 18.51%, respectively, for the year ended December 31, 2025, as compared to 2.65% and 23.78%, respectively, for the same period in 2024. Our efficiency ratio for the year ended December 31, 2025 was 40.24% as compared to 37.90% for the same period in 2024.
The provision for credit losses for the year ended December 31, 2025, was $700,000, an increase of 100% compared to a $0 provision for the year ended December 31, 2024. This provision was primarily attributable to the 15% year-over-year loan growth realized during the period, as total loans increased by $209.0 million to $1.61 billion at December 31, 2025. The 2025 provisioning reflects management’s ongoing assessment of the allowance for credit losses required to support the expanded loan portfolio and incorporates updated economic assumptions relevant to the current environment. We continue to monitor credit metrics and economic indicators to ensure the allowance for credit losses remains at an appropriate level to address potential credit risks within the portfolio. See Note 5 of the financial statements for further disclosure and discussion.
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Results of Operations
Years Ended December 31, 2025, December 31, 2024, and December 31, 2023
Net Interest Income and Net Interest Margin
The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets, and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates; (iii) net interest income; and (iv) the net interest margin.
Net Interest Margin
For the Year Ended December 31,
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
(Dollars in thousands)
Interest-earning assets:
Short-term investments
Debt securities, taxable
Debt securities, tax exempt (1)
Loans held for sale
Total loans (2)
Total interest-earning assets
Noninterest-earning assets
Total assets
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts
Time deposits
Total interest-bearing deposits
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Noninterest-bearing deposits
Other noninterest-bearing liabilities
Total noninterest-bearing liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income
Net interest spread
Net interest margin
Taxable-equivalent yield of 2.69% as of December 31, 2025, applying a 24.1% effective tax rate
Average loan balances include monthly average nonaccrual loans of $5.97 million, $12.4 million and $18.8 million for the years ended December 31, 2025, 2024 and 2023, respectively.
For the year ended December 31, 2025 compared to the year ended December 31, 2024:
Total interest income on loans decreased $1.9 million, or 1.6%, to $117.5 million, due to decreased loan yields as discussed below;
Yields on our interest-earning assets totaled 7.24%, a decrease of 55 basis points which was attributable to lower loan yields of 64 basis points, a decrease in yield on short term investments of 83 basis points, and a decrease in yield on taxable debt securities of 47 basis points; and
Net interest margin for the years ended 2025 and 2024 was 4.94% and 5.11%, respectively.
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For the year ended December 31, 2024 compared to the year ended December 31, 2023:
Total interest income on loans increased $9.6 million, or 8.7%, to $119.4 million, which was attributable to a $76.0 million increase in the average balance of loans to $1.39 billion during the year ended 2024 as compared with the average balance of loans of $1.32 billion for the year ended 2023, and increased loan yields as discussed below;
Yields on our interest-earning assets totaled 7.79%, an increase of 48 basis points which was attributable to higher loan yields of 21 basis points, an increase in yield on short term investments of 13 basis points, and an increase in yield on taxable debt securities of 96 basis points; and
Net interest margin for the years ended 2024 and 2023 was 5.11% and 4.97%, respectively.
The Federal Reserve (“FED”) influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. For the three-year period between January 1, 2023 and December 31, 2025, the prime rate fluctuated between a high of 8.50%, and a low of 6.75%.
Interest income on short-term investments increased $594,000, or 6.4%, to $9.9 million for year ended December 31, 2025 compared to 2024, due to an increase in the average balances of $50.9 million, or 27.6% and a yield decrease of 83 basis points. Interest income on short-term investments increased $740,000, or 8.6%, to $9.3 million for year ended December 31, 2024 compared to 2023, due to an increase in the average balances of $9.7 million, or 5.6% and a yield increase of 13 basis points.
Interest expense on interest-bearing deposits totaled $40.9 million for the year ended December 31, 2025, compared to $45.3 million for 2024, a decrease of $4.5 million, or 9.8%. The decrease was related to the cost of interest-bearing deposits decreasing to 3.25% for the year ended December 31, 2025 from 3.98% for the year ended December 31, 2024. Interest expense on interest-bearing deposits totaled $45.3 million for the year ended December 31, 2024, compared to $39.0 million for 2023, an increase of $6.3 million, or 16.3%. The increase was related to the cost of interest-bearing deposits increasing to 3.98% for the year ended December 31, 2024 from 3.60% for the year ended December 31, 2023.
Net interest margin for the years ended December 31, 2025, 2024 and 2023 was 4.94%, 5.11% and 4.97%, respectively.
The following table sets forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).
Analysis of Changes in Interest Income and Expenses
For the Year Ended
For the Year Ended
December 31, 2025 vs 2024
December 31, 2024 vs 2023
Change due to:
Change due to:
Volume (1)
Rate (1)
Interest
Volume (1)
Rate (1)
Interest
Variance
Variance
(Dollars in thousands)
(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments
Debt securities
Total loans
Total increase (decrease) in interest income
Increase (decrease) in interest expense:
Deposits:
Transaction accounts
Time deposits
Total interest-bearing deposits
Total increase (decrease) in interest expense
Increase (Decrease) in net interest income
Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances in each category.
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Weighted Average Yield of Debt Securities
The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at December 31, 2025. The following table presents securities at their expected maturities, which may differ from contractual maturities. The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and for pledging requirements for public funds:
As of December 31, 2025
After One Year But
After Five Years But
Within One Year
Within Five Years
Within Ten Years
After Ten Years
Total
Amount
Yield *
Amount
Yield *
Amount
Yield *
Amount
Yield *
Amount
Yield *
Available-for-sale
(Dollars in thousands)
U.S. federal agencies
Mortgage-backed securities
State and political subdivisions
U.S. treasuries
Corporate debt securities
Total
Percentage of total
*Yield is on a taxable-equivalent basis using 21% tax rate
Provision for Credit Losses
For the year ended December 31, 2025 compared to the year ended December 31, 2024:
The provision for credit losses increased from $0 to $700,000, reflecting routine adjustments within our allowance for credit losses estimation methodology; and
The allowance as a percentage of loans decreased by 7 basis points to 1.21%.
For the year ended December 31, 2024 compared to the year ended December 31, 2023:
The provision for credit losses decreased from $21.1 million to $0; and
The allowance as a percentage of loans decreased by 16 basis points to 1.28%.
The decrease in the provision was primarily due to the impact of a single loan customer that filed for bankruptcy in 2023, resulting in a $16.5 million charge-off recorded during that period.
Income Taxes
We file a consolidated income tax return and recognize deferred taxes based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. The process of determining the accruals for income taxes involves the exercise of considerable judgment regarding tax rates, laws, and the implementation of tax planning strategies.
For the years ended December 31, 2025, 2024, and 2023, all of our income before income taxes was generated from domestic operations. We do not currently have exposure to foreign tax jurisdictions; as such, our jurisdictional tax mix remains concentrated within the United States and specific state jurisdictions, primarily Oklahoma.
Our provision for income taxes was $13.7 million for the year ended December 31, 2025, compared to $14.7 million for 2024. This resulted in an effective tax rate of 24.13% in 2025, compared to 24.28% in 2024. The effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the effect of state income taxes (net of federal benefit) and nondeductible expenses. The year-over-year rate change was primarily driven by the impact of Oklahoma state taxes and certain nondeductible reconciling items. Cash taxes paid during 2025 totaled $13.7 million, compared to $15.1 million in 2024, reflecting our domestic jurisdictional profile and the timing of estimated tax payments.
Noninterest Income
The following table sets forth the major components of our noninterest income for the years ended December 31, 2025, 2024 and 2023:
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For the Years Ended
For the Years Ended
December 31,
December 31,
$ Increase
% Increase
$ Increase
% Increase
(Decrease)
(Decrease)
(Decrease)
(Decrease)
(Dollars in thousands)
(Dollars in thousands)
Noninterest income:
Mortgage lending income
Gain (Loss) on sales, prepayments, and calls of available-for-sale debt securities
Service charges on deposit accounts
Other
Total noninterest income
For the year ended December 31, 2025 compared to the year ended December 31, 2024:
Other noninterest income was $6.2 million compared to $9.9 million, a decrease of $3.7 million, or 37.0%. The decrease was primarily attributable to income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.
For the year ended December 31, 2024 compared to the year ended December 31, 2023:
Other noninterest income was $9.9 million compared to $8.1 million, an increase of $1.9 million, or 23.1%. The increase was primarily attributable to income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.
Noninterest Expense
Noninterest expense for the year ended December 31, 2025 was $38.9 million compared to $37.1 million for the year ended December 31, 2024, an increase of $1.8 million or 4.9%. Noninterest expense for the year ended December 31, 2024 was $37.1 million compared to $33.4 million for the year ended December 31, 2023, an increase of $3.7 million or 11.0%. The following table sets forth the major components of our noninterest expense for the years ended December 31, 2025, 2024 and 2023:
For the Years Ended
For the Years Ended
December 31,
December 31,
$ Increase
(Decrease)
% Increase
(Decrease)
$ Increase
(Decrease)
% Increase
(Decrease)
(Dollars in thousands)
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
Furniture and equipment
Occupancy
Data and item processing
Accounting, marketing, and legal fees
Regulatory assessments
Advertising and public relations
Travel, lodging and entertainment
Other expense
Total noninterest expense
For the year ended December 31, 2025 compared to the year ended December 31, 2024:
Salaries and employee benefits expense was $22.6 million compared to $20.8 million, an increase of $1.9 million, or 8.9%. The increase was primarily attributable to overall increases in compensation due to the performance of the Company and to remain competitive.
For the year ended December 31, 2024 compared to the year ended December 31, 2023:
Salaries and employee benefits expense was $20.8 million compared to $17.4 million, an increase of $3.4 million, or 19.6%. The increase was primarily attributable to overall increases in compensation due to the performance of the Company and to remain competitive.
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Financial Condition
The following discussion of our financial condition compares December 31, 2025, 2024, and 2023.
Total Assets
Total assets increased $223.8 million, or 12.9%, to $1.96 billion as of December 31, 2025, as compared to $1.74 billion as of December 31, 2024 and $1.77 billion as of December 31, 2023.
Loan Portfolio
Our loans represent the largest portion of our earning assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. As of December 31, 2025, 2024, and 2023, our gross loans were $1.61 billion, $1.40 billion and $1.36 billion, respectively.
The following table presents the balance and associated percentage of each major category in our loan portfolio as of December 31, 2025, December 31, 2024 and December 31, 2023:
As of December 31,
Amount
% of Total
Amount
% of Total
Amount
% of Total
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Total commercial real estate
Commercial & industrial
Agricultural
Consumer
Gross loans
Less: unearned income, net
Total Loans, net of unearned income
Less: Allowance for credit losses
Net loans
We have established internal concentration limits in the loan portfolio for CRE loans, hospitality loans, energy loans, and construction loans, among others. All loan types are within our established limits. We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur. Discussion of credit risk as it relates to commercial lending, which is primarily comprised of hospitality and energy loans, is discussed under Item 1A. Risk Factors.
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The following tables show the contractual maturities of our gross loans as of the periods below:
As of December 31, 2025
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Total commercial real estate
Commercial & industrial
Agricultural
Consumer
Gross loans
As of December 31, 2024
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Total commercial real estate
Commercial & industrial
Agricultural
Consumer
Gross loans
As of December 31, 2023
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Total real estate
Commercial & industrial
Agricultural
Consumer
Gross loans
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Allowance for Credit Losses
The allowance is based on management’s estimate of probable losses in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit reviews.
To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type. Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel. In addition to the segment evaluations, substandard loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary. Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment.
The allowance was $19.4 million at December 31, 2025, $17.9 million at December 31, 2024 and $19.7 million at December 31, 2023. See the 2025 Overview for further discussion regarding management’s ongoing assessment of the adequacy of the allowance.
The following table provides an analysis of the activity in our allowance for the periods indicated:
As of December 31,
(Dollars in thousands)
Balance at beginning of the period
Impact of CECL adoption
Provision for credit losses for loans
Charge-offs:
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total charge-offs
Recoveries:
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total recoveries
Net recoveries (charge-offs)
Balance at end of the period
Net recoveries (charge-offs) to average loans
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While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage of allowance in each category, for the periods indicated:
As of December 31,
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total
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Nonaccrual Loans and Nonperforming Assets
Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability of the obligation. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on a nonaccrual loan is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.
Loans are evaluated for expected credit losses over their contractual term, reflecting management’s current estimate. Loans placed on nonaccrual status and loan modifications granted to borrowers experiencing financial difficulty are considered to have elevated credit risk and are carefully considered within our current expected credit loss methodology. Depending on a particular loan’s risk characteristics, we estimate expected credit losses using methods such as present value of expected future cash flows discounted at the loan’s effective interest rate, observable market prices for similar assets if available, or the fair value of collateral less estimated costs to sell for collateral-dependent loans. A loan is considered collateral-dependent when the expected source of repayment is primarily the liquidation of the collateral. Fair value, where utilized, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the estimated fair value may be adjusted based on specific events, such as identified deterioration of collateral quality through our credit risk monitoring, or discussions with the borrower indicating the appraised value may no longer reflect current market conditions. The estimated credit are recognized as an allowance for credit , which is a valuation account. Changes in the allowance for credit , whether increases or decreases, are recorded in current period earnings as provision for credit .
Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.
Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest. Nonperforming assets consist of nonperforming loans plus OREO. Loans accounted for on a nonaccrual basis were $6.5 million as of December 31, 2025, $7.2 million as of December 31, 2024, and $18.9 million as of December 31, 2023. OREO was $461,000, $321,000, and $0 as of December 31, 2025, December 31, 2024, and December 31, 2023, respectively.
The following table presents information regarding nonperforming assets as of the dates indicated:
As of December 31,
(Dollars in thousands)
Nonaccrual loans (1)
Accruing loans 90 or more days past due
Total nonperforming assets (2)
Ratio of nonperforming loans to total loans
Ratio of nonaccrual loans to total loans
Ratio of allowance for credit losses to total loans
Ratio of allowance for credit losses to nonaccrual loans
Ratio of nonperforming assets to total assets
(1) There are no loans modified to borrowers experiencing financial difficulty included in nonaccrual loans as of December 31, 2025 and December 31, 2024, respectively.
(2) Excludes OREO of $461,000, $321,000, and $0 as of December 31, 2025, 2024, and 2023, respectively, as the balances are not considered material for separate disclosure.
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The following tables present an aging analysis of loans as of the dates indicated.
As of December 31, 2025
Loans 30-59
days past
due
Loans 60-89
days past
due
Loans 90+
days past
due
Loans 90+
days past
due and
accruing
Total past due
loans
Current
Gross loans
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total
As of December 31, 2024
Loans 30-59
days past
due
Loans 60-89
days past
due
Loans 90+
days past
due
Loans 90+
days past
due and
accruing
Total Past
Due Loans
Current
Gross loans
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total
As of December 31, 2023
Loans 30-59
days past
due
Loans 60-89
days past
due
Loans 90+
days past
due
Loans 90+
days past
due and
accruing
Total Past
Due Loans
Current
Gross loans
(Dollars in thousands)
Construction & development
1-4 family commercial
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total
In addition to the past due and nonaccrual criteria, the Company also evaluates loans according to its internal risk grading system. Loans are segregated between pass, watch, special mention, and substandard categories. The definitions of those categories are as follows:
Pass : These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.
Watch : These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or deficiencies in loan documentation, or other risk issues determined by the lending officer, Commercial Loan Committee or Credit Quality Committee warrant a heightened sense and frequency of monitoring.
Special mention : These loans have observable weaknesses or evidence imprudent handling or structural issues. The weaknesses require close attention, and the remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade.
Substandard : These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured. The loans have defined weaknesses relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated.
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Substandard loans totaled $7.9 million as of December 31, 2025, a decrease of $7.3 million compared to December 31, 2024. Substandard loans totaled $15.2 million as of December 31, 2024, a decrease of $15.9 million compared to December 31, 2023. The total net decrease in substandard loans in 2025 as compared to 2024, is comprised of a net decrease in commercial and industrial substandard loans primarily related to one note totaling $3.9 million with no specific reserve, and a net decrease in commercial real estate primarily related to one note totaling $3.0 million with a $0.2 million specific reserve.
Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:
As of December 31, 2025
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total
As of December 31, 2024
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total
As of December 31, 2023
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
1-4 family real estate
Commercial real estate - other
Commercial & industrial
Agricultural
Consumer
Total
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Deposits
We gather deposits primarily through our twelve branch locations and online through our website. We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such as savings accounts and certificates of deposit. We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with community networks. Some of our interest-bearing deposits were obtained through brokered transactions. We participate in the CDARS program, where customer funds are placed into multiple certificates of deposit, each in an amount under the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States. We also participate in the One-Way Buy Insured Cash Sweep service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements.
Of our interest-bearing deposits, some were obtained through brokered transactions. As of December 31, 2025, 2024, and 2023, brokered deposits were $205.6 million, $225.5 million, and $50.1 million, respectively. To manage liquidity and provide insurance for customer funds, the Company participates in reciprocal deposit programs, such as CDARS and ICS. At December 31, 2025, reciprocal deposits totaled $576.5 million.
Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes. Total uninsured deposits were $391.7 million and $354.2 million as of December 31, 2025 and December 31, 2024, respectively, as calculated per regulatory guidance. This was approximately 23.2% and 23.4% of deposits as of December 31, 2025 and December 31, 2024, respectively.
Total deposits as of December 31, 2025, 2024, and 2023 were $1.70 billion, $1.52 billion and $1.59 billion, respectively. The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.
For the Year Ended December 31,
Amount
Percentage of
Total
Amount
Percentage of
Total
Amount
Percentage of
Total
(Dollars in thousands)
Noninterest-bearing demand
Interest-bearing transaction deposits
Savings deposits
Time deposits (less than $250,000)
Time deposits ($250,000 or more)
Total interest-bearing deposits
Total deposits
The following table summarizes our average deposit balances and weighted average rates for the years ended December 31, 2025, 2024, and 2023:
For the Year Ended December 31,
Average
Balance
Weighted
Average Rate
Average
Balance
Weighted
Average Rate
Average
Balance
Weighted
Average Rate
(Dollars in thousands)
Noninterest-bearing demand
Interest-bearing transaction deposits
Savings deposits
Time deposits
Total interest-bearing deposits
Total deposits
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The following tables set forth the maturity of time deposits as of the dates indicated below:
As of December 31, 2025 Maturity Within:
Three Months
Three to Six
Months
Six to 12
Months
After 12
Months
Total
(Dollars in thousands)
Time deposits (less than $250,000)
Time deposits ($250,000 or more)
Total time deposits
As of December 31, 2024 Maturity Within:
Three Months
Three to Six
Months
Six to 12
Months
After 12
Months
Total
(Dollars in thousands)
Time deposits (less than $250,000)
Time deposits ($250,000 or more)
Total time deposits
Liquidity
Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.
Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks and fed funds sold. Other available sources of liquidity include wholesale deposits and borrowings from correspondent banks and FHLB advances.
Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.
As of December 31, 2025, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced. In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $213.8 million as of December 31, 2025 and $190.9 million as of December 31, 2024, and we had access to approximately $288.6 million in liquidity with the Federal Reserve Bank as of December 31, 2025 and $336.1 million as of December 31, 2024.
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Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), the Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy required the Bank to maintain minimum amounts and ratios of Common Equity Tier 1, or CET1, capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” For further information, see “Supervision and Regulation – Regulatory Capital Requirements” and “Supervision and Regulation – Prompt Corrective Action Framework.”
In the wake of the global financial crisis of 2008 and 2009, the role of capital has become fundamentally more important, as banking regulators have concluded that the amount and quality of capital held by banking organizations was insufficient to absorb losses during periods of severely distressed economic conditions. The Dodd-Frank Act and banking regulations promulgated by the U.S. federal banking regulators to implement Basel III have established strengthened capital standards for banks and bank holding companies and require more capital to be held in the form of common stock. In addition, the Basel III regulations implement a concept known as the “capital conservation buffer.” In general, banks, bank holding companies with more than $3.0 billion in assets and bank holding companies with publicly-traded equity are required to hold a buffer of CET1 capital equal to 2.5% of risk-weighted assets over each minimum capital ratio in order to avoid being subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers.
As of December 31, 2025, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action framework. There have been no conditions or events since December 31, 2025 that management believes would change this classification.
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The table below also summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of December 31, 2025, 2024, and 2023. The Bank exceeded all regulatory capital requirements under Basel III and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.
Actual
With Capital
Conservation Buffer
Minimum to be “Well-
Capitalized” Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2025
Total capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to risk-weighted assets)
Company
Bank
CET 1 capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to average assets)
Company
Bank
Actual
With Capital
Conservation Buffer
Minimum to be “Well-
Capitalized” Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2024
Total capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to risk-weighted assets)
Company
Bank
CET 1 capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to average assets)
Company
Bank
Actual
With Capital
Conservation Buffer
Minimum to be “Well-
Capitalized” Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2023
Total capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to risk-weighted assets)
Company
Bank
CET 1 capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to average assets)
Company
Bank
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Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments. Total shareholders’ equity increased to $251.0 million as of December 31, 2025, compared to $213.2 million as of December 31, 2024 and $170.3 million as of December 31, 2023. The increases were driven by retained capital from net income during the periods.
Contractual Obligations
The following tables contain supplemental information regarding our total contractual obligations as of December 31, 2025 and December 31, 2024:
Payments Due as of December 31, 2025
Within One
Year
One to Three
Years
Three to Five
Years
After Five
Years
Total
(Dollars in thousands)
Deposits without a stated maturity
Time deposits
Operating lease commitments
Total contractual obligations
Payments Due as of December 31, 2024
Within One
Year
One to Three
Years
Three to Five
Years
After Five
Years
Total
(Dollars in thousands)
Deposits without a stated maturity
Time deposits
Operating lease commitments
Total contractual obligations
We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance sheet.
Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of the customer to a third party. They are intended to be disbursed, subject to certain conditions, upon request of the borrower.
The following table summarizes commitments as of the dates presented:
As of December 31,
(Dollars in thousands)
Commitments to extend credit
Standby letters of credit
Total
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Critical Accounting Policies and Estimates
Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Additional information about these policies can be found in Note 1 of the Company’s consolidated financial statements included in the Annual Report on the Form 10-K.
Allowance for Credit Losses
The allowance is based on management’s estimate of probable losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and changes in the composition of the loan portfolio. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit reviews.
To estimate the allowance for credit losses, the loan portfolio is segmented based on shared risk characteristics, primarily by loan type. Historical credit loss experience for each segment, adjusted for relevant current conditions and reasonable and supportable forecasts, is a significant input in determining the expected credit losses for each portfolio segment under the current expected credit loss methodology. These historical loss factors and adjustments are regularly evaluated and updated based on the evolving composition of each loan segment. Other considerations in our current expected credit loss estimation process include current volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, trends in criticized and classified loans, expected losses on real estate secured loans, impact of new credit products and policies, current and forecasted economic conditions, concentrations of credit risk, and the experience and abilities of our lending personnel in the current environment. In addition to these segment-level estimations, loans with larger balances or unique risk profiles may be further analyzed based on specific facts and circumstances to refine the overall expected credit estimate. This individual analysis helps ensure the allowance for credit appropriately reflects the expected inherent in the portfolio. Adjustments to the segment-level or portfolio-level expected credit estimates may be necessary when specific loan characteristics warrant a different expectation than indicated by the segment risk factors.
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