EX-99.3 5 brhc10034329_99-3.htm EXHIBIT 99.3
Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information and accompanying notes show the impact on the historical financial conditions and results of operations of Bank7 Corporation (“Bank7”) and Watonga Bancshares, Inc. (“Watonga”) and have been prepared to illustrate the effects of the Watonga merger under the acquisition method of accounting.

The unaudited pro forma condensed combined balance sheet as of September 30, 2021 and unaudited pro forma combined statements of income for the nine months ended September 30, 2021 and for the year ended December 31, 2020, have been prepared to reflect the merger of Bank7 and Watonga, after giving effect to the adjustments described in the notes to the pro forma condensed combined financial information. In the merger, Watonga common shareholders, in exchange for the shares of Watonga common stock held immediately prior to the merger (other than certain cancelled shares) received cash consideration of approximately $1,700 per share. Total consideration paid was $29.3 million.

The merger was accounted for as an acquisition transaction. Under the acquisition method of accounting, Bank7 recorded the assets and liabilities of the acquired entity at its fair value on the closing date of the merger. The pro forma condensed consolidated balance sheet as of September 30, 2021 has been prepared based on the historical consolidated balance sheets of Bank7 and Watonga, assuming the transaction was consummated on September 30, 2021. The pro forma condensed combined statements of income for the nine months ended September 30, 2021 and for the year ended December 31, 2020 have been prepared based on the historical consolidated statements of income for Bank7 and Watonga, assuming the transaction was consummated on January 1, 2020.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate either the operating results that would have occurred had the merger been consummated as of the date indicated, or future results of operations or financial condition. The unaudited pro forma condensed combined financial information is based upon assumptions and adjustments that Bank7 believes are reasonable. Only such adjustments as have been noted in the accompanying notes have been applied in order to give effect to the merger transaction. Such assumptions and adjustments are subject to change as future events materialize and fair value estimates are refined.

The unaudited pro forma condensed combined financial information should be read in conjunction with:

  •
the accompanying notes to the unaudited pro forma condensed combined financial information;

•
Bank7’s historical audited consolidated financial statements and accompanying footnotes as of and for the year ended December 31, 2020 and its historical unaudited condensed consolidated financial statements and accompanying footnotes as of and for the nine-months ended September 30, 2021;

•
Watonga’s unaudited consolidated financial statements and accompanying notes as of and for the nine months ended September 30, 2021, included as Exhibit 99.3 in Bank7’s Current Report on Form 8-K/A to which this Exhibit 99.3 is attached; and

•
Watonga’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2020, included as Exhibit 99.2 in Bank7’s Current Report on Form 8-K/A to which this Exhibit 99.2 is attached.

Bank7 Corp.
Combined with Watonga Bancshares, Inc.
Pro Forma Condensed Combined Balance Sheet (Unaudited)
September 30, 2021
 
   
Bank7
    
Watonga
    
Pro Forma Adjustments
    
Notes
  
Bank7 and
Watonga Pro
Forma Combined
  
Assets
                              
Cash and due from banks
  
$
205,762
    
$
35,005
    
$
(29,266
)
    
A
  
$
211,501
  
Interest-bearing time deposits in other banks
    
5,229
      
-
      
-
            
5,229
  
Investment securities available-for-sale
    
-
      
90,663
      
-
            
90,663
  
Loans, net of allowance
    
915,393
      
116,882
      
(1,216
)
    
B
    
1,031,059
  
Loans held for sale
    
1,002
      
-
      
-
            
1,002
  
Premises and equipment, net
    
8,775
      
6,510
      
1,505
      
C
    
16,790
  
Nonmarketable equity securities
    
1,193
      
-
      
-
            
1,193
  
Goodwill
    
1,011
      
-
      
5,501
      
D
    
6,512
  
Other intangibles, net
    
435
      
-
      
1,254
      
E
    
1,689
  
Interest receivable and other assets
    
7,430
      
4,697
      
-
            
12,127
  
Total Assets
  
$
1,146,230
    
$
253,757
    
$
(22,222
)
        
$
1,377,765
  
Liabilities and Shareholders’ Equity
                                      
Deposits
                                      
Noninterest bearing
  
$
335,633
    
$
170,479
    
$
-
          
$
506,112
  
Interest-bearing
    
682,741
      
57,480
      
62
      
F
    
740,283
  
Total deposits
    
1,018,374
      
227,959
      
62
            
1,246,395
  
Income taxes payable
    
-
      
845
      
-
            
845
  
Interest payable and other liabilities
    
5,447
      
2,130
      
539
      
G
    
8,116
  
Total Liabilities
    
1,023,821
      
230,934
      
601
            
1,255,356
  
Shareholders’ Equity:
                                      
Common stock
    
91
      
170
      
(170
)
    
H
    
91
  
Paid-in capital
    
93,766
      
-
      
-
            
93,766
  
Retained earnings
    
28,552
      
20,005
      
(20,005
)
    
H
    
28,552
  
Accumulated other comprehensive income
    
-
      
2,648
      
(2,648
)
    
H
    
-
  
Total Shareholders’ Equity
    
122,409
      
22,823
      
(22,823
)
          
122,409
  
Total Liabilities and Shareholders’ Equity
  
$
1,146,230
    
$
253,757
    
$
(22,222
)
        
$
1,377,765
  
 
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.

Bank7 Corp.
Combined with Watonga Bancshares, Inc.
Pro Forma Condensed Combined Statements of Income (Unaudited)

   
For the Nine Months Ended September 30, 2021
  
                         
   
Historical
              
(In thousands, except share and per share data)
  
Bank7
    
Watonga
    
Pro Forma Adjustments
    
Notes    
Bank7 and Watonga Pro Forma Combined
  
Interest income
  
$
41,632
    
$
6,128
    
$
182
       A

 
$
47,942
  
Interest expense
    
2,376
      
374
      
23
       B
   
2,773
  
Net interest income
    
39,256
      
5,754
      
159
        
   
45,169
  
Provision for loan losses
    
3,325
      
-
      
-
        
   
3,325
  
Net interest income after provision for loan losses
    
35,931
      
5,754
      
159
        
   
41,844
  
Non-interest income
    
1,493
      
907
      
-
        
   
2,400
  
Non-interest expense
    
14,198
      
5,187
      
407
      
C,D
   
19,792
  
Income before income taxes
    
23,226
      
1,474
      
(248
)
            
24,452
  
Income tax expense
    
5,753
      
234
      
(146
)
     F

   
5,841
  
Net income
  
$
17,473
    
$
1,240
    
$
(102
)
          
$
18,611
  
 
                                        
Net income per common share:
                                        
Basic
  
$
1.93
                            
$
2.06
  
Diluted
  
$
1.92
                            
$
2.05
  
 
                                        
Weighted-average common shares outstanding:
                                        
Basic
    
9,051,112
                              
9,051,112
  
Diluted
    
9,078,671
                              
9,078,671
  
  
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
 
Bank7 Corp.
Combined with Watonga Bancshares, Inc.
Pro Forma Condensed Combined Statements of Income (Unaudited)
 
   
For the Year Ended December 31, 2020
  
                         
   
Historical
              
(In thousands, except share and per share data)
  
Bank7
    
Watonga
    
Pro Forma Adjustments
    
Notes    
Bank7 and Watonga Pro Forma Combined
  
Interest income
  
$
53,314
    
$
8,028
    
$
243
       A

$
61,585
  
Interest expense
    
6,153
      
711
      
31
       B

 
6,895
  
Net interest income
    
47,161
      
7,317
      
212
      


 
54,690
  
Provision for loan losses
    
5,350
      
100
      
-
      


 
5,450
  
Net interest income after provision for loan losses
    
41,811
      
7,217
      
212
      


 
49,240
  
Non-interest income
    
1,665
      
2,056
      
-
      


 
3,721
  
Non-interest expense
    
17,592
      
7,543
      
3,170
      
C,D,E

  28,305  
Income before income taxes
    
25,884
      
1,730
      
(2,958
)
      

 
24,656
  
Income tax expense
    
6,618
      
364
 
    
241
       F

  7,223  
Net income
  
$
19,266
    
$
 1,366    
$
(3,199
)
    
   
$
17,433
  
 
                                        
Net income per common share:
                                        
Basic
  
$
2.05
                            
$
1.86
  
Diluted
  
$
2.05
                            
$
 1.86  
 
                                        
Weighted-average common shares outstanding:
                                        
Basic
    
9,378,769
                              
9,378,769
  
Diluted
    
9,379,154
                              
9,379,154
  
 
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
 
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1. Basis of Presentation

The accompanying unaudited pro form condensed combined financial information and related notes were prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined income statement for the nine months ended September 30, 2021, and for the year ended December 31, 2020, combine the historical consolidated statements of income of Bank7 and Watonga, giving effect to the merger as if it had been completed on January 1, 2020. The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2021 combines the historical consolidated balance sheets of Bank7 and Watonga, giving effect to the merger as if it had been completed on September 30, 2021.

The unaudited pro forma condensed combined financial information and explanatory notes have been prepared to illustrate the effects of the merger involving Bank7 and Watonga under the acquisition method of accounting with Bank7 treated as the acquirer. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined company had the companies actually been combined at the beginning of each period presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined company. Under the acquisition method of accounting, the assets and liabilities of Watonga, as of the effective time of the merger, will be recorded by Bank7 at their respective fair values, and the excess of the merger consideration over the fair value of the net assets acquired will be allocated to goodwill.

Watonga common shareholders, in exchange for the shares of Watonga common stock held immediately prior to the merger (other than certain cancelled shares), received cash consideration of approximately $1,700 per share. Total consideration was $29.3 million.

Note 2. Purchase Price Allocation for Watonga
 
The following table summarizes the purchase price allocation of the merger consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of Watonga as of September 30, 2021.

(In thousands)
      
Assets Acquired:
      
Cash and cash equivalents
  
$
35,005
  
Investment securities available-for-sale
    
90,663
  
Loans
    
115,666
  
Premises and equipment
    
8,015
  
Core deposit intangible
    
1,254
  
Prepaid expenses and other assets
    
4,697
  
Total assets acquired
    
255,300
  
Liabilities Assumed:
        
Deposits
    
228,021
  
Accounts payable and accrued expenses
    
3,514
  
Total liabilities assumed
    
231,535
  
Net assets acquired
    
23,765
  
Consideration transferred
    
29,266
  
Goodwill
  
$
5,501
  

Note 3. Pro Forma Adjustments to the Unaudited Condensed Combined Balance Sheet

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined balance sheet. All taxable adjustments were calculated using a 25% tax rate, which represents Bank7’s statutory rate, to arrive at deferred tax asset or liability adjustments. All adjustments are based on preliminary assumptions and valuations, which are subject to change.


 A.
Reflects cash consideration paid at closing of approximately $29.3 million.


B.
Reflects estimated fair value adjustments to Watonga’s acquired loan portfolio, which include credit loss expectations for loans, current interest rates and liquidity.
 

 C.
Reflects estimated fair value adjustments of Watonga’s premises and equipment based on updated appraisals.
 

 D.
Pro forma adjustment to record estimated goodwill associated with the acquisition.
 

 E.
Pro forma adjustment to record core deposit intangible asset.
 

 F.
Pro forma adjustment to reflect current market rate of interest on deposits.
 

 G.
Pro forma adjustment to reflect estimated deferred income tax liability associated with the acquisition.
 

 H.
Pro forma adjustment to eliminate Watonga’s stockholders’ equity.

Note 4. Pro Forma Adjustments to the Unaudited Condensed Combined Statements of Income

Pro forma net income includes one-time estimated merger-related transaction costs but does not reflect potential synergies and other estimated cost savings that may arise from the acquisition.


 A.
Pro forma cash adjustment to reflect the estimated accretion of the discount on acquired loans. For purposes of calculating the pro forma impact, the discount accretion was estimated using a period of five years.


B.
Pro forma adjustment to reflect the estimated amortization of the discount on deposits. For purposes of calculating the pro forma impact, amortization was calculated using a straight-line amortization over a weighted-average life of two years.


C.
Pro forma adjustment to reflect estimated amortization of the core deposit intangible. For purposes of calculating the pro forma impact, amortization was calculated using an accelerated amortization method over an estimated ten-year useful life.
 

 D.
Pro forma adjustment to reflect estimated depreciation for acquired premises and equipment.
 

 E.
Pro forma adjustment to reflect non-recurring merger-related transaction costs of $3 million.
 

 F.
Pro forma adjustment to reflect the income tax effect of pro forma adjustments at the estimated statutory income tax rate of 25%.