$$ 2^3 = 1 + 7 \implies 2^{21} = (1+7)^7 \equiv 1 \bmod 7^2 \implies 2^{65536} \equiv 2^{65536 \bmod 21} = 2^{16} \equiv 23 \bmod 7^2. $$ The key point is the binomial expansion of $(1+7)^7$.
$$ 2^3 = 1 + 7 \implies 2^{21} = (1+7)^7 \equiv 1 \bmod 7^2 \implies 2^{65536} \equiv 2^{65536 \bmod 21} = 2^{16} \equiv 23 \bmod 7^2. $$ The key point is the binomial expansion of $(1+7)^7$.