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LINKBANCORP, Inc. - Quarter Report: 2021 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to ______

Commission File Number 333-255908

 

LINKBANCORP, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Pennsylvania

82-5130531

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

3045 Market Street

Camp Hill, PA 17011

(Address of principal executive offices)

Registrant’s telephone number, including area code: (855) 569-2265

Former name, former address, and former fiscal year, if changed since last report: NA

 

Securities registered pursuant to Section 12(b) of the Act.

 

 

 

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange
on which registered

 

Not Applicable

Not Applicable

Not Applicable

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-Accelerated Filer

Smaller Reporting Company

 

 

 

 

 

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒.

Indicate the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date: 9,814,447 shares as of November 12, 2021.

 

 


 

 

LINKBANCORP, Inc.

FORM 10-Q

INDEX

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

PAGE

 

Item 1 -

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

1

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020

2

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020

3

 

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020

4

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

6

 

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

Item 3 -

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4 -

Controls and Procedures

50

 

 

PART II - OTHER INFORMATION

 

Item 1 -

Legal Proceedings

50

Item 1A -

Risk Factors

50

Item 2 -

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3 -

Defaults Upon Senior Securities

51

Item 4 -

Mine Safety Disclosures

51

Item 5 -

Other Information

51

Item 6 -

Exhibits

51

SIGNATURES

52

 

 

1


 

PART I - FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

LINKBANCORP, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

 

 

 

September 30, 2021

 

 

December 31, 2020

 

(In Thousands, except share and per share data)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Noninterest-bearing cash equivalents

 

$

17,073

 

 

$

5,709

 

Interest-bearing deposits with other institutions

 

 

86,471

 

 

 

27,453

 

Cash and cash equivalents

 

 

103,544

 

 

 

33,162

 

Certificates of deposit with other banks

 

 

13,077

 

 

 

17,051

 

Securities available for sale, at fair value

 

 

122,748

 

 

 

125,447

 

Loans receivable, net of allowance for loan losses of $3,335 at September 30, 2021,
   and $
2,789 at December 31, 2020

 

 

665,063

 

 

 

233,795

 

Investments in restricted bank stock

 

 

3,586

 

 

 

2,268

 

Premises and equipment, net

 

 

5,250

 

 

 

3,428

 

Right-of-Use Asset – Premises

 

 

4,748

 

 

 

370

 

Bank-owned life insurance

 

 

13,683

 

 

 

8,941

 

Goodwill and other intangible assets

 

 

36,890

 

 

 

2,785

 

Deferred tax asset

 

 

4,382

 

 

 

986

 

Accrued interest receivable and other assets

 

 

6,198

 

 

 

2,297

 

TOTAL ASSETS

 

$

979,169

 

 

$

430,530

 

LIABILITIES

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand, noninterest bearing

 

$

175,609

 

 

$

66,573

 

Interest bearing

 

 

626,986

 

 

 

308,551

 

Total deposits

 

 

802,595

 

 

 

375,124

 

Other Borrowings

 

 

33,034

 

 

 

1,120

 

Subordinated Debt

 

 

20,740

 

 

 

 

Operating Lease Liabilities

 

 

4,748

 

 

 

370

 

Accrued interest payable and other liabilities

 

 

8,091

 

 

 

3,242

 

TOTAL LIABILITIES

 

 

869,208

 

 

 

379,856

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock (At September 30, 2021: $0.00 par value; 5,000,000 shares authorized; no shares issued and outstanding.)

 

 

 

 

 

 

Common stock (At September 30, 2021: $0.01 par value; 25,000,000 shares authorized; 9,814,447 shares issued and outstanding. At December 31, 2020: $0.01 par value; 14,612,800 shares authorized; 5,715,950 shares issued and 5,691,686 shares outstanding)

 

 

98

 

 

 

57

 

Surplus

 

 

82,771

 

 

 

21,604

 

Retained earnings

 

 

24,785

 

 

 

26,009

 

Accumulated other comprehensive income

 

 

2,307

 

 

 

3,192

 

Treasury stock (0 and 3,321 shares at September 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

(188

)

TOTAL SHAREHOLDERS’ EQUITY

 

 

109,961

 

 

 

50,674

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

979,169

 

 

$

430,530

 

 

See accompanying notes to the unaudited consolidated financial statements.

1


 

LINKBANCORP, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

(In Thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

3,267

 

 

$

2,787

 

 

$

8,638

 

 

$

8,570

 

Other

 

 

636

 

 

 

687

 

 

 

1,921

 

 

 

2,152

 

Total interest and dividend income

 

 

3,903

 

 

 

3,474

 

 

 

10,559

 

 

 

10,722

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

504

 

 

 

641

 

 

 

1,470

 

 

 

2,039

 

Other Borrowings

 

 

14

 

 

 

14

 

 

 

25

 

 

 

49

 

Subordinated Debt

 

 

37

 

 

 

 

 

 

37

 

 

 

 

Total interest expense

 

 

555

 

 

 

655

 

 

 

1,532

 

 

 

2,088

 

NET INTEREST INCOME BEFORE PROVISION FOR
   LOAN LOSSES

 

 

3,348

 

 

 

2,819

 

 

 

9,027

 

 

 

8,634

 

Provision for loan losses

 

 

457

 

 

 

44

 

 

 

548

 

 

 

138

 

NET INTEREST INCOME AFTER PROVISION FOR
   LOAN LOSSES

 

 

2,891

 

 

 

2,775

 

 

 

8,479

 

 

 

8,496

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

177

 

 

 

224

 

 

 

517

 

 

 

505

 

Bank-owned life insurance

 

 

54

 

 

 

50

 

 

 

176

 

 

 

137

 

Net realized gains on the sales of debt securities, available for sale

 

 

 

 

 

 

 

 

 

 

 

110

 

Gain on sale of secondary market mortgage loans

 

 

53

 

 

 

199

 

 

 

316

 

 

 

296

 

Other

 

 

87

 

 

 

53

 

 

 

549

 

 

 

122

 

Total noninterest income

 

 

371

 

 

 

526

 

 

 

1,558

 

 

 

1,170

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,151

 

 

 

1,097

 

 

 

3,397

 

 

 

3,265

 

Occupancy

 

 

232

 

 

 

171

 

 

 

507

 

 

 

440

 

Equipment and data processing

 

 

335

 

 

 

205

 

 

 

803

 

 

 

568

 

Professional fees

 

 

75

 

 

 

127

 

 

 

264

 

 

 

301

 

FDIC insurance

 

 

90

 

 

 

13

 

 

 

150

 

 

 

48

 

Bank Shares Tax

 

 

87

 

 

 

74

 

 

 

260

 

 

 

221

 

Advertising

 

 

30

 

 

 

8

 

 

 

57

 

 

 

56

 

Merger Related Expenses

 

 

3,864

 

 

 

 

 

 

3,968

 

 

 

 

Other

 

 

737

 

 

 

391

 

 

 

1,297

 

 

 

1,015

 

Total noninterest expense

 

 

6,601

 

 

 

2,086

 

 

 

10,703

 

 

 

5,914

 

Income (Loss) before income tax (benefit) expense

 

 

(3,339

)

 

 

1,215

 

 

 

(666

)

 

 

3,752

 

Income tax (benefit) expense

 

 

(542

)

 

 

163

 

 

 

(167

)

 

 

513

 

NET INCOME (LOSS)

 

$

(2,797

)

 

$

1,052

 

 

$

(499

)

 

$

3,239

 

EARNINGS (LOSS) PER SHARE, BASIC

 

$

(0.45

)

 

$

0.18

 

 

$

(0.08

)

 

$

0.57

 

EARNINGS (LOSS) PER SHARE, DILUTED

 

$

(0.45

)

 

$

0.18

 

 

$

(0.08

)

 

$

0.57

 

WEIGHTED-AVERAGE COMMON SHARES
   OUTSTANDING,

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

6,274,250

 

 

 

5,691,686

 

 

 

5,888,008

 

 

 

5,691,686

 

DILUTED

 

 

6,274,250

 

 

 

5,691,686

 

 

 

5,888,008

 

 

 

5,691,686

 

 

See accompanying notes to the unaudited consolidated financial statements.

2


 

LINKBANCORP, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(2,797

)

 

$

1,052

 

 

$

(499

)

 

$

3,239

 

Components of other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on available-for-sale securities

 

 

(599

)

 

 

470

 

 

 

(1,120

)

 

 

2,624

 

Tax effect

 

 

126

 

 

 

(99

)

 

 

235

 

 

 

(551

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for debt securities gains realized in net income

 

 

 

 

 

 

 

 

 

 

 

(110

)

Tax effect

 

 

 

 

 

 

 

 

 

 

 

23

 

Total other comprehensive income (loss)

 

 

(473

)

 

 

371

 

 

 

(885

)

 

 

1,986

 

Total comprehensive income (loss)

 

$

(3,270

)

 

$

1,423

 

 

$

(1,384

)

 

$

5,225

 

 

See accompanying notes to the unaudited consolidated financial statements.

3


 

LINKBANCORP, Inc. and Subsidiary

Consolidated Statements of Shareholders’ Equity (Unaudited)

 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Treasury Stock

 

 

Total

 

Balance, June 30, 2021*

 

 

5,715,950

 

 

$

57

 

 

$

21,604

 

 

$

27,823

 

 

$

2,780

 

 

$

(188

)

 

$

52,076

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,797

)

 

 

 

 

 

 

 

 

(2,797

)

Dividends declared ($0.04 per share)*

 

 

 

 

 

 

 

 

 

 

 

(241

)

 

 

 

 

 

 

 

 

(241

)

Impact of merger with GNB Financial Services, Inc.

 

 

4,098,497

 

 

 

41

 

 

 

61,167

 

 

 

 

 

 

 

 

 

188

 

 

 

61,396

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(473

)

 

 

 

 

 

(473

)

Balance, September 30, 2021

 

 

9,814,447

 

 

$

98

 

 

$

82,771

 

 

$

24,785

 

 

$

2,307

 

 

$

0

 

 

$

109,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

 

 

 

Total

 

Balance, June 30, 2020*

 

 

5,715,950

 

 

$

57

 

 

$

21,604

 

 

$

24,890

 

 

$

2,599

 

 

$

(188

)

 

$

48,962

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,052

 

 

 

 

 

 

 

 

 

1,052

 

Dividends declared ($0.04 per share)*

 

 

 

 

 

 

 

 

 

 

 

(233

)

 

 

 

 

 

 

 

 

(233

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

371

 

 

 

 

 

 

371

 

Balance, September 30, 2020

 

 

5,715,950

 

 

$

57

 

 

$

21,604

 

 

$

25,709

 

 

$

2,970

 

 

$

(188

)

 

$

50,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Common Stock Share, Common Stock Amount, Surplus, and Dividends per share amount have been retrospectively adjusted to reflect the effect of the recapitalization due to the Merger, which has been accounted for as a reverse acquisition.

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements

 

4


 

LINKBANCORP, Inc. and Subsidiary

Consolidated Statements of Shareholders’ Equity (Unaudited)

 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Treasury Stock

 

 

Total

 

Balance, December 31,
2020

*

 

5,715,950

 

 

$

57

 

 

$

21,604

 

 

$

26,009

 

 

$

3,192

 

 

$

(188

)

 

$

50,674

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(499

)

 

 

 

 

 

 

 

 

(499

)

Dividends declared ($0.13 per share)

 

 

 

 

 

 

 

 

 

 

 

(725

)

 

 

 

 

 

 

 

 

(725

)

Impact of merger with GNB Financial Services, Inc.

 

 

4,098,497

 

 

 

41

 

 

 

61,167

 

 

 

 

 

 

 

 

 

188

 

 

 

61,396

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(885

)

 

 

 

 

 

(885

)

Balance, September 30, 2021

 

 

9,814,447

 

 

$

98

 

 

$

82,771

 

 

$

24,785

 

 

$

2,307

 

 

$

0

 

 

$

109,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Treasury Stock

 

 

Total

 

Balance, December 31, 2019

*

 

5,715,950

 

 

$

57

 

 

$

21,604

 

 

$

23,249

 

 

$

984

 

 

$

(188

)

 

$

45,706

 

Net income

 

 

 

 

 

 

 

 

 

 

 

3,239

 

 

 

 

 

 

 

 

 

3,239

 

Dividends declared ($0.14 per share)

 

 

 

 

 

 

 

 

 

 

 

(779

)

 

 

 

 

 

 

 

 

(779

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,986

 

 

 

 

 

 

1,986

 

Balance, September 30, 2020

 

 

5,715,950

 

 

$

57

 

 

$

21,604

 

 

$

25,709

 

 

$

2,970

 

 

$

(188

)

 

$

50,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Common Stock Share, Common Stock Amount, Surplus, and Dividends per share amount have been retrospectively adjusted to reflect the effect of the recapitalization due to the Merger, which has been accounted for as a reverse acquisition.

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

5


 

LINKBANCORP, Inc. and Subsidiary

Consolidated Statement of Cash Flows (Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

(In Thousands)

 

2021

 

 

2020

 

OPERATING ACTIVITIES

 

Unaudited

 

Net income (loss)

 

$

(499

)

 

$

3,239

 

Adjustments to reconcile net income to net cash used for operating activities:

 

 

 

 

 

 

Provision for loan losses

 

 

548

 

 

 

138

 

Depreciation

 

 

376

 

 

 

180

 

Amortization of intangible assets

 

 

320

 

 

 

51

 

Amortization of premiums and discounts on investment securities, net

 

 

1,170

 

 

 

609

 

Origination of loans to be sold

 

 

(12,079

)

 

 

(22,111

)

Proceeds from loan sales

 

 

13,192

 

 

 

22,407

 

Gain on sale of loans

 

 

(316

)

 

 

(296

)

Bank-owned life insurance income

 

 

(176

)

 

 

(137

)

Gain on sale of debt securities, available for sale

 

 

 

 

 

(110

)

Change in accrued interest receivable and other assets

 

 

457

 

 

 

(702

)

Change in accrued interest payable and other liabilities

 

 

2,424

 

 

 

(429

)

Net cash provided by operating activities

 

 

5,417

 

 

 

2,839

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

Proceeds from sales

 

 

-

 

 

 

5,706

 

Proceeds from calls and maturities

 

 

1,380

 

 

 

11,399

 

Proceeds from principal repayments

 

 

16,332

 

 

 

9,509

 

Purchases

 

 

(14,192

)

 

 

(70,419

)

Purchase of certificates of deposit with other banks

 

 

(249

)

 

 

(498

)

Proceeds from redemptions of certificates of deposit with other banks

 

 

4,223

 

 

 

2,241

 

Purchase of restricted investment in bank stocks

 

 

(500

)

 

 

(803

)

Redemption of restricted investment in bank stocks

 

 

221

 

 

 

149

 

(Increase) Decrease in loans, net

 

 

(16,708

)

 

 

6,952

 

Purchase of bank-owned life insurance

 

 

-

 

 

 

(2,000

)

Payment of death benefit under bank-owned life insurance

 

 

218

 

 

 

-

 

Purchase of premises and equipment

 

 

(111

)

 

 

(109

)

Net cash acquired through merger and acquisition

 

 

39,885

 

 

 

-

 

Net cash provided by (used for) investing activities

 

 

30,499

 

 

 

(37,873

)

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

Increase in deposits, net

 

 

36,311

 

 

 

50,930

 

Repayments of long-term borrowings

 

 

(1,120

)

 

 

(1,225

)

Dividends paid

 

 

(725

)

 

 

(779

)

Net cash provided by financing activities

 

 

34,466

 

 

 

48,926

 

Increase in cash and cash equivalents

 

 

70,382

 

 

 

13,892

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

33,162

 

 

 

27,708

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

103,544

 

 

$

41,600

 

See accompanying notes to the unaudited consolidated financial statements.

 

6


 

LINKBANCORP, Inc. and Subsidiary

Consolidated Statement of Cash Flows (Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

Unaudited

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

1,614

 

 

$

2,206

 

Income taxes

 

$

560

 

 

$

545

 

MERGER AND ACQUISITION CASH FLOW DISCLOSURES

 

 

 

 

 

 

Non-cash assets acquired:

 

 

 

 

 

 

     Securities available for sale

 

 

3,111

 

 

 

 

     Loans

 

 

415,905

 

 

 

 

     Investments in restricted bank stock

 

 

1,039

 

 

 

 

     Premises and equipment

 

 

2,087

 

 

 

 

     Right-to-Use Asset

 

 

4,384

 

 

 

 

     Bank-owned life insurance

 

 

4,784

 

 

 

 

     Goodwill and other intangible assets

 

 

34,425

 

 

 

 

     Deferred tax assets

 

 

3,591

 

 

 

 

     Accrued interest receivable and other assets

 

 

3,868

 

 

 

 

Liabilities assumed:

 

 

 

 

 

 

     Deposits

 

 

391,160

 

 

 

 

     Other borrowings

 

 

33,034

 

 

 

 

     Subordinated debt

 

 

20,740

 

 

 

 

     Operating lease liabilities

 

 

4,384

 

 

 

 

     Accrued interest payable and other liabilities

 

 

2,026

 

 

 

 

Net equity acquired

 

 

61,396

 

 

 

 

Cash and cash equivalents acquired

 

$

49,962

 

 

$

 

See accompanying notes to the unaudited consolidated financial statements.

7


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting and reporting policies applied in the presentation of the accompanying consolidated financial statements follows:

Nature of Operations

LINKBANCORP, Inc. (the “Company”) was incorporated on April 6, 2018, under the laws of the Commonwealth of Pennsylvania. The Company was formed with the intent of becoming a bank holding company through acquisition of a bank.

On September 17, 2018, the Pennsylvania Department of Banking and Securities (the "PADOBS") approved the acquisition of 100 percent of the shares of Stonebridge Bank, subject to recapitalization of the bank and continued compliance with capital ratios outlined in Note 10. On October 5, 2018, LINKBANCORP, Inc. purchased 100 percent of the outstanding shares of Stonebridge Bank, from its former parent company Stonebridge Financial Corp. under section 363 of the Bankruptcy Code. LINKBANCORP subsequently renamed the bank LINKBANK.

On December 10, 2020, the Company and its wholly owned subsidiary, LINKBANK, and GNB Financial Services, Inc. (“GNBF”), and its wholly owned subsidiary, The Gratz Bank (the "Bank”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which GNBF merged with and into the Company, with the Company as the surviving corporation. LINKBANK merged with and into The Gratz Bank, with The Gratz Bank as the surviving institution. The merger was consummated effective September 18, 2021.

The Bank is a full-service commercial bank providing personal and business lending and deposit services. The Bank’s operations are conducted from its ten Solution Centers located in Dauphin, Chester, Cumberland, Lancaster, Northumberland, and Schuylkill Counties within Pennsylvania. The Company’s corporate office resides in Camp Hill, Pennsylvania. As a state chartered, non-Federal Reserve member bank, the Bank is subject to regulation and supervision by the PADOBS and the Federal Deposit Insurance Corporation (the "FDIC"). The Company is regulated by the Federal Reserve Bank of Philadelphia. The Bank’s deposits are insured up to the applicable limits by the FDIC.

Basis of Presentation

 

The merger of GNBF with and into the Company was accounted for as a reverse acquisition using the acquisition method of accounting, in accordance with the provisions of FASB ASC 805 Business Combinations. As such, GNBF was the accounting acquirer and LINKBANCORP was the accounting acquiree. Accordingly, GNBF's historical financial statements are the historical financial statements of the combined company for all periods prior to September 18, 2021 (the "Merger Date").

 

The Company’s results of operations for the third quarter of 2021 include the results of operations of the combined company on and after the Merger Date. Results for periods before the Merger Date reflect only those consolidated results of GNBF and do not include the results of operations of LINKBANCORP, Inc. The number of shares issued and outstanding, earnings per share, additional paid-in capital, dividends paid and all references to share quantities of the Company have been retrospectively adjusted to reflect the equivalent number of shares issued to holders of GNBF common stock in the Merger. The assets and liabilities of LINKBANCORP, Inc. as of the Merger Date have been recorded at their estimated fair value and added to those of GNBF. See Note 2. Merger for further information.

 

The accompanying consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting practices of the Company conform to accounting principles generally accepted in the United States of America (GAAP) and to general practices within the banking industry. The following summarizes the more significant of these policies and practices.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses, and the valuation of deferred tax assets.

8


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2021 are not necessarily indicative of the results for the year ending December 31, 2021. For further information, refer to the GNBF audited consolidated financial statements and notes thereto for the year ended December 31, 2020 contained in the Company’s definitive prospectus dated August 12, 2021 as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on August 12, 2021.

Acquisition Method of Accounting

The Company accounts for acquisitions using the acquisition method of accounting. The acquisition method of accounting requires the Company to estimate the fair value of the tangible assets and identifiable intangible assets acquired and liabilities assumed. The estimated fair values are based on available information and current economic conditions at the date of acquisition. Fair value may be obtained from independent appraisers, discounted cash flow present value techniques, management valuation models, quoted prices on national markets or quoted market prices from brokers. These fair value estimates will affect future earnings through the disposition or amortization of the underlying assets and liabilities. Accounting for business combination under GAAP acquisition method prohibits “carrying over” valuation allowances, such as the allowance for loan losses. Uncertainties relating to the expected future cash flows are reflected in the fair value measurement of the acquired loans and reflected in the purchase price. The Company will establish loan loss allowances for the acquired loans in periods after the acquisition, but only for losses incurred on these loans due to credit deterioration after acquisition.

For business acquisitions, whereby the Company acquires loans that have shown evidence of credit deterioration since origination, the Company will classify these loans as purchased credit-impaired (“PCI”) loans. The Company will determine which loans will be classified as PCI loans based on borrower payment history, past due status, loan credit grading, value of underlying collateral and other factors that affect the collectability of contractual cash flows. Under GAAP, purchasers are permitted to individually evaluate or collectively aggregate PCI loans into pools. PCI loans acquired in the same fiscal quarter may be assembled into one or more pools with common risk characteristics. Once pooled, a single composite interest rate is used to determine aggregate expected cash flows for each respective pool. PCI loans are recorded on the acquisition date at fair value. The Company estimates the amount and timing of expected cash flows for each individually analyzed loan. Estimated cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan.

On a quarterly basis, the Company will update the amount of loan principal and interest cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in expected loan principal cash flows trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related foregone interest cash flows discounted at the loan’s effective interest rate. Impairments that occur after the acquisition date are recognized through the allowance for loan losses. Probable and significant increases in expected cash flows would first reverse any previously recorded allowance for loan losses; any remaining increases are recognized prospectively as interest income. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized prospectively as adjustments to interest income. Disposals of loans, which may include sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of the loan from the PCI portfolio.

Goodwill and Core Deposit Intangible

Goodwill represents the excess of the acquisition cost over the fair value of the net assets acquired in the acquisition. GAAP requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances and written down when impaired. There can be no assurance that future goodwill impairment tests will not result in a charge to income. Core deposit intangible assets (“CDI”) are initially measure at fair value and then amortized over the expected life on an accelerated basis using projected decay rates of the underlying core deposits. The principal factors considered when valuing the CDI consist of the following: (1) the rate and maturity structure of the interest-bearing liabilities, (2) estimated retention rates for each deposit liability category, (3) the current interest rate environment, and (4) estimated noninterest income potential of the acquired relationship. The CDI is evaluated periodically for impairment.

Goodwill and other intangible assets are reviewed for impairment annually as of December 31 and between annual tests when events and circumstances indicate that impairment may have occurred. If there is a goodwill impairment charge, it will be the

9


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

amount by which the reporting unit’s carrying amount exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The same one-step impairment test is applied to goodwill at all reporting units.

The determination of the fair value of the Company incorporates assumptions that marketplace participants would use in their estimates of fair value of the Company in a change of control transaction, as prescribed by ASC Topic 820.

To arrive at a conclusion of fair value, we utilize both the Income and Market Approach and then apply weighting factors to each result. Weighting factors represent our best business judgment of the weightings a market participant would utilize in arriving at a fair value for the Company. In performing our analyses, we also made numerous assumptions with respect to industry performance, business, economic and market conditions, and various other matters, many of which cannot be predicted and are beyond our control. With respect to financial projections, projections reflect the best currently available estimates and judgments as to the expected future financial performance of the Company.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks. Generally, federal funds are purchased and sold for one-day periods. Short-term investments include interest bearing-deposits with banks with an original maturity of less than 90 days.

Investment Securities

Available for sale – Debt securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity, and changes in the availability of and in the yield of alternative investments, are classified as available for sale. These assets are carried at fair value. Fair values of securities available for sale are determined by using Level 2 fair value measures calculated through the use of matrix pricing. Matrix pricing is a common mathematical technique that does not rely exclusively on quoted market prices for specific securities but rather utilizes the security’s relationship to other benchmark quoted prices in determining fair value. The Company uses independent service providers to calculate our Level 2 fair value measures. Unrealized gains and losses are excluded from operations and are reported net of tax as a separate component of other comprehensive income until realized. Realized gains and losses on the sale of investment securities are reported in the consolidated statements of income and determined using the adjusted cost of the specific security sold on the trade date. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

Investment securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the portion of the decline related to credit impairment is charged to earnings.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Bank is generally amortizing these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loans receivable portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: agriculture, commercial and industrial, commercial real estate, and municipal. Consumer loans consist of the following classes: residential real estate, and other consumer.

Loan origination fees are deferred, and certain direct origination costs are capitalized. The net amounts are deferred and are recognized as an adjustment of the yield of the related loan

10


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The accrual of interest on all portfolio classes, including troubled debt restructurings, is discontinued at the time the loan is more than ninety days delinquent unless the loan is well collateralized and in process of collection. Nonaccrual loans are reviewed for charge-off if more than ninety-days past due, except for residential loans and consumer loans. Residential loans are reviewed at 180 days and consumer loans are reviewed at 120 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered unlikely.

All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. In addition, a loan should be in accordance with the contractual terms for a reasonable period, usually requiring a payment history of six months.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to operations. Loan losses are charged against the allowance when management believes the collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. There were no material changes in the Bank’s accounting policies or methodology related to the allowance for loan losses during the three months ended and nine months ended September 30, 2021.

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s periodic review of the collectability of the loans considering historical experience, the size and composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors.

The historical loss component of the allowance is determined by losses recognized by portfolio segment over the preceding sixteen quarters. This is supplemented by the risks for each portfolio segment. Risk factors impacting loans in each of the portfolio segments include broad deterioration of property values, reduced consumer, and business spending as a result of unemployment and reduced credit availability and lack of confidence in the economy. The historical experience is adjusted for the following qualitative factors: (a) the existence and effect of any concentrations of credit and changes in the level of such concentrations; (b) changes in national, regional and local economic conditions that affect the collectability of the loan portfolio; (c) changes in levels or trends in charge-offs and recoveries; (d) changes in the volume and severity of past due loans, nonaccrual loans or loans classified special mention, substandard, doubtful or loss; (e) changes in the nature and volume of the loan portfolio and terms of loans; (f) changes in lending policies and procedures, risk selection and underwriting standards; (g) changes in the experience, ability and depth of lending management and other relevant staff; (h) quality of loan review; (i) the effect of other external factors, trends or uncertainties that could affect management’s estimate of probable losses, such as competition and industry conditions. The Company uses peer data when they have insufficient history to use their own loss data. The peer group is made up of various Bank’s with similar size and geographical location to obtain comparable data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, commercial real estate, and residential mortgage loan segments by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures.

 

11


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Purchased Credit Impaired Loans

 

The Company purchased loans in connection with the Merger. These purchased credit impaired (“PCI”) loans were recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses. Over the life of the loan, expected cash flows continue to be estimated. If this subsequent estimate indicated that the present value of expected cash flows is less than the carrying amount, a charge to the allowance for loan loss is made through a provision. If the estimate indicates that the present value of the expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

 

Such PCI loans are accounted for individually, and the Company estimates the amount and timing of expected cash flows for each loan. The expected cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not amortized over the remaining life of the loan (nonaccretable difference).

 

For loans purchased that did not show evidence of credit deterioration, the difference between the fair value of the loan at the acquisition date and the loan’s face value is being amortized as a yield adjustment over the estimated remaining life of the loan using the effective interest method.

Investment in Restricted Stock, at Cost

The Company holds restricted stock in the Federal Home Loan Bank (“FHLB”) of Pittsburgh and the Atlantic Community Bancshares, Inc. (“ACBB”) which is carried at cost. The Company holds $194 and $170 of ACBB stock at September 30, 2021 and December 31, 2020, respectively. The Company holds $3,392 and $2,062 of FHLB stock at September 30, 2021 and December 31, 2020, respectively. The FHLB stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost, and evaluated for impairment as necessary. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted; (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance; (c) the impact of legislative and regulatory changes on the customer base of the FHLB; and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.

Bank-Owned Life Insurance

The Company invests in bank-owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Company on a chosen group of employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies is included in non-interest income in the Consolidated Statement of Operations, net of expenses.

Premises and Equipment

Leasehold improvements and furniture and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization expense is computed using the straight-line method over the estimated useful lives of the assets. Estimate useful lives for furniture and equipment from three to ten years; leasehold improvements are amortized over the lease term or estimated life of the improvement, if shorter.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control of the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

12


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Income Taxes

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Bank determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. The Bank recognizes interest and penalties on income taxes as a component of income tax expense.

Off-balance Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the consolidated balance sheets when they are funded.

Share-based Compensation

The Bank follows the provisions of ASC 718-10, Compensation – Stock Compensation. This standard requires the Bank to recognize the cost of employee and organizer services received in share-based payment transactions and measure the cost based on the grant-date fair value of the award. The cost will be recognized over the period during which the employee or organizer is required to provide service in exchange for the award.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employee’s service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options, while the fair value of the Company’s common stock as the date of grant is used for restricted stock awards.

Stock Warrants

The Company issued stock purchase warrants in connection with its initial stock offering via private placement, giving organizers the right to purchase shares of common stock at the initial offering price of $10 per share. For organizers, the warrants serve as a reward for bearing the financial risk of the Company’s organization by advancing “seed money” for its organizational and pre-opening expenses. The organizers’ warrants are non-voting and are exercisable for a period of ten years from the date of grant. All grants were issued during 2019. These warrants are transferable in accordance with the warrant agreement, but are not puttable to the Company. These shares may be issued from previously authorized but unissued shares of stock. The Board has made no additional authorization to issue any further warrants as of September 30, 2021 and has no current plans for future issuance of warrants. To date, organizers have not exercised any warrants since their issuance.

Based on the contractual terms, the warrants do not fall within the scope of ASC 480-10, Distinguishing Liabilities from Equity, and they meet the requirements within ASC 815, Derivatives and Hedging, to be classified within shareholders’ equity. The fair value of these shares upon issuance using the Black-Scholes model was zero, based on the fair value for the stock on the date of grant.

13


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Earnings Per Share

Basic earnings per share (EPS) represents net income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Potential common shares that may be issued related to outstanding stock options are determined using the treasury stock method.

The following table sets forth the composition of earnings per share:

 

(In Thousands, except share and per share data)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net (loss) income

 

$

(2,797

)

 

$

1,052

 

 

$

(499

)

 

$

3,239

 

Basic weighted average common shares outstanding

 

 

6,274,250

 

 

 

5,691,686

 

 

 

5,888,008

 

 

 

5,691,686

 

Net effect of dilutive stock options and warrants

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

6,274,250

 

 

 

5,691,686

 

 

 

5,888,008

 

 

 

5,691,686

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.45

)

 

$

0.18

 

 

$

(0.08

)

 

$

0.57

 

Diluted

 

$

(0.45

)

 

$

0.18

 

 

$

(0.08

)

 

$

0.57

 

 

The following is a summary of securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the three and nine months ended September 30, 2021. There were no anti-dilutive securities in 2020.

 

 

 

 

 

Warrants

 

$

1,537,484

 

Share-based compensation awards

 

 

148,200

 

Total anti-dilutive securities

 

$

1,685,684

 

 

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This Update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which added to ASU 2020-04 on optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a onetime election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon

14


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

issuance through December 31, 2022. The Company has identified our loan receivables that have an interest rate indexed to LIBOR and is currently assessing the appropriate transition path. As such, the Company does not have an estimate of the financial impact of this update but does not expect the impact to be material to the financial statements of the Company.

 

 

 

2. MERGER

 

As described in Note 1. Summary of Significant Accounting Policies, effective September 18, 2021 the Company completed its merger with GNBF.

 

Pursuant to the Merger Agreement, GNBF merged with and into LINKBANCORP, Inc. with LINKBANCORP, Inc. as the surviving corporation. Additionally, LINKBANK, the wholly owned subsidiary of LINKBANCORP, Inc. merged with and into The Gratz Bank, a wholly owned subsidiary of GNBF with The Gratz Bank as the surviving bank subsidiary of the Company. This transaction, in total, is herein referred to as the Merger.

 

The Merger constituted a business combination and was accounted for as a reverse acquisition using the acquisition method of accounting, in accordance with the provisions of FASB ASC 805 Business Combinations. As such, GNBF was the accounting acquirer and LINKBANCORP, Inc. was the accounting acquiree and the historical financial statements of the combined company are the historical financial statements of GNBF.

 

Under the Merger Agreement, GNBF shareholders had the opportunity to elect to receive $87.68 per share in cash or 7.3064 of LINKBANCORP, Inc. common shares for each share they own. The agreement provided for proration procedures intended to ensure that, in the aggregate, at least 80% of the GNBF common shares outstanding will be exchanged for LINKBANCORP, Inc. common stock. The Merger was effective on September 18, 2021, with the GNBF shareholders collectively electing to receive cash for 14.865% of their shares and LINKBANCORP, Inc. common shares for 85.135% of existing GNBF shares. These elections resulted in LINKBANCORP issuing 4.85 million common shares to GNBF shareholders which represented approximately 49.4% of the post-merger outstanding common shares of the Company.

 

In accordance with FASB ASC 805-40-30-2, the fair value consideration of a reverse acquisition is determined based on a number of hypothetical equity interest the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition.

 

The total fair value consideration was $71.5 million which consisted of $54.0 million for the fair value of common stock issued, $10.1 million in cash consideration and $7.4 million for the fair value of LINKBANCORP, Inc. options and warrants. The consideration assigned to cash and common stock in this reverse acquisition was determined based on the hypothetical number of equity interests that GNBF would have had to issue to give LINK shareholders a 50.62% ownership, the same percentage equity interest in the combined entity that results from the reverse acquisition. The allocation of the consideration assigned to cash and common stock was allocated between the actual cash to be paid by the legal acquirer with the resultant amount being assigned to common equity.

 

 

15


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following table summarizes the fair value consideration paid for GNBF as of the date of acquisition:

 

Total GNBF common shares outstanding

 

 

779,000

 

GNBF shares outstanding exchanged for LINKBANCORP, Inc. common stock

 

 

663,240

 

GNBF shares outstanding exchanged for cash

 

 

115,760

 

Exchange Ratio

 

 

7.3064

 

LINKBANCORP, Inc. shares to be issued to GNBF shareholders

 

 

4,845,897

 

LINKBANCORP, Inc. Shares currently outstanding

 

 

4,968,550

 

Total LINKBANCORP, Inc. shares to be outstanding

 

 

9,814,447

 

 

 

 

 

GNBF pro forma common share % ownership

 

 

49.38

%

LINKBANCORP, Inc. pro forma common share % ownership

 

 

50.62

%

 

 

 

 

Reverse Acquisition Hypothetical Purchase Price Consideration

 

 

 

GNBF shares outstanding exchanged for LINKBANCORP, Inc. common stock

 

 

663,240

 

Ownership % to be owned by current GNBF shareholders

 

 

49.38

%

Hypothetical GNBF shares outstanding based on GNBF % ownership

 

 

1,343,267

 

Ownership % by legacy LINKBANCORP, Inc. shareholders

 

 

50.62

%

Hypothetical GNBF shares to be issued as consideration

 

 

680,027

 

Fair value of GNBF shares (LINKBANCORP, Inc. fair value per share of $12.90 as of 9/17/2021 multiplied by the exchange rate)

 

$

94.25

 

Purchase price assigned to hypothetical GNBF shares issued to LINKBANCORP, Inc. shareholders

 

$

64,094

 

 

 

 

 

LINKBANCORP, Inc. options and warrants

 

 

1,962,484

 

Fair value per options and warrants

 

$

3.76

 

Purchase price assigned to LINKBANCORP, Inc. options and warrants

 

 

7,379

 

Total purchase price consideration

 

$

71,473

 

 

 

 

 

Pro Forma Purchase Price Allocation Between Stock & Cash:

 

 

 

Cash consideration

 

$

10,077

 

Common Stock

 

 

61,396

 

Total Purchase Price For Accounting Purposes

 

$

71,473

 

 

 

16


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The Company accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, for each transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition. In conjunction with the adoption of ASU 2015-16, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition date, the Company records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. The Company is continuing to finalize the purchase price allocations related to the Merger. Based on management's preliminary valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Merger is allocated in the table below. These allocations are subject to change.

 

Total Consideration in the Merger

 

 

$

71,473

 

 

 

 

 

 

 

Calculated Fair Value of Assets Acquired

 

 

 

 

 

Cash and cash equivalents

$

49,962

 

 

 

 

Securities available for sale

 

3,111

 

 

 

 

Loans

 

415,905

 

 

 

 

Premises and equipment

 

2,087

 

 

 

 

Intangible assets

 

1,246

 

 

 

 

Investment in bank owned life insurance

 

4,784

 

 

 

 

Deferred taxes

 

3,591

 

 

 

 

Other assets

 

9,351

 

 

 

Total Assets Acquired

 

490,037

 

 

 

 

 

 

 

 

 

Calculated Fair Value of Liabilities Assumed

 

 

 

 

 

Deposits

 

391,160

 

 

 

 

Long term borrowings

 

33,034

 

 

 

 

Subordinated debt

 

20,740

 

 

 

 

Other liabilities

 

6,809

 

 

 

Total Liabilities Assumed

 

451,743

 

 

 

Net Assets Acquired

 

 

 

38,294

 

Goodwill From the Merger

 

 

$

33,179

 

 

The following table summarizes the Merger as of September 18, 2021:

 

Total Consideration in the Merger

 

 

 

$

71,473

 

 

 

 

 

 

 

 

 

 

 

 

LINKBANCORP, Inc. stockholders’ equity

 

$

43,124

 

 

 

LINKBANCORP, Inc. goodwill and intangibles

 

 

(1,353

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

Interest rate

 

 

(1,521

)

 

 

General credit

 

 

(6,346

)

 

 

Credit adjustment for loans acquired with deteriorated credit quality

 

 

(1,243

)

 

 

Remove existing deferred loan fees, net at acquisition

 

 

1,192

 

 

 

Remove the allowance for loan losses present at acquisition

 

 

4,953

 

 

 

Intangible assets

 

 

1,146

 

 

 

Other assets

 

 

(662

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

(231

)

 

 

Subordinated debt

 

 

(765

)

 

 

 

 

 

 

 

38,294

 

Goodwill From the Merger

 

 

$

33,179

 

 

17


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Pursuant to the accounting requirements, the Company assigned a fair value to the assets acquired and liabilities assumed of LINKBANCORP, Inc. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

 

The assets acquired and liabilities assumed in the acquisition of LINKBANCORP, Inc. were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition. The items most susceptible to adjustment are the fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition. Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:

 

Investment securities available-for-sale

 

The estimated fair values of the investment securities available for sale, primarily comprised of U.S. Government agency mortgage-backed securities were determined using Level 1 and Level 2 inputs in the fair value hierarchy. A fair value premium of $96 thousand was recorded and will be amortized over the estimated life of the investments using the interest rate method.

 

Loans

 

Acquired loans (performing and non-performing) are initially recorded at their acquisition-date fair values using Level 3 inputs. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected lifetime losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Company has prepared three separate loan fair value adjustments that it believed a market participant might employ in estimating the entire fair value adjustment for the acquired loan portfolio. The three fair value adjustments employed were for loans acquired without evidence of credit quality deterioration, the Company prepared the interest rate loan fair value and credit fair value adjustments and for ASC 310-30 purchased credit impaired loans a specific credit fair value adjustment was made. The acquired loans were recorded at fair value at the acquisition date without carryover of LINKBANCORP, Inc.’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with an unpaid principal balance of $425.0 million.

 

 

18


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The table below illustrates the fair value adjustments made to the amortized cost basis in order to present the fair value of the loans acquired.

 

Unpaid principal balance at merger

 

$

425,015

 

Interest rate fair value adjustment on pools of homogeneous loans

 

 

(1,520

)

Credit fair value adjustment on pools of homogeneous loans

 

 

(6,347

)

Credit fair value adjustment on purchased credit impaired loans

 

 

(1,243

)

Fair value of acquired loans

 

$

415,905

 

 

For loans acquired without evidence of credit quality deterioration were grouped into homogeneous pools by characteristics such as loan type, term, collateral, and rate. Market rates for similar loans were obtained from various internal and external data sources. From each pool a monthly expected cash flow was prepared that incorporated expected monthly payments, impact of prepayments and expected monthly net charge-offs. A discounted cash flow was calculated for each pool to estimate the fair value. In this analysis the fair value adjustment was bifurcated into two components an interest rate fair value adjustment and a general credit fair value adjustment. Additionally, it is noted the credit fair value adjustment incorporated assumptions for: 1) expected lifetime credit migration losses; and 2) estimated fair value adjustment for certain qualitative factors. Both the interest rate and credit fair value adjustments relate to loans acquired with evidence of credit quality deterioration will be substantially recognized as interest income on a level yield amortization method over the expected life of the loans.

 

For loans acquired with evidence of credit quality deterioration, ASC 310-30 loans, the fair value was calculated with a non-accretable fair value discount based on an adjusted collateral value and if there was a collateral shortfall a non-accretable discount was established. This non-accretable discount would not be amortized for GAAP purposes. In additional an accretable yield fair value discount was created to reflect the time value of money a market participant would discount the loan for the time it would take to recover the adjusted collateral value. The accretable yield fair value will be recognized over the workout period of the loan on a level yield basis as a component of interest income.


The following table presents the acquired purchased credit impaired loans receivable at the merger date:

 

Contractual principal and interest at merger

 

$

8,509

 

Nonaccretable difference

 

 

(2,716

)

Expected cash flows at merger

 

 

5,793

 

Accretable yield

 

 

(409

)

Fair value of purchased credit impaired loans

 

$

5,384

 

 

Facilities Leases

 

The Company assumed leases on four facilities of LINKBANCORP, Inc.. The Company believed that the current lease costs were at market terms therefore no fair value adjustment is needed. It is noted that LINKBANCORP, Inc. did not operate any owned facilities.

 

Core Deposit Intangible

 

The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate commensurate with market participants. To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the higher cost of alternative funding sources available through national brokered CD offering rates and FHLB advance rates. The projected cash flows were developed using expected deposit attrition. The core deposit intangible will be amortized over ten years using the sum-of-years digits method.

 

Time Deposits

 

The fair value adjustment for time deposits was based on a discounted cash flow methodology of the contract rates and contractual repayments of fixed maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit fair value adjustment will be amortized into income on a level yield amortization method over the contractual life of the deposits.

 

Long Term Borrowings

19


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

The Company reviewed the cost of the borrowings to market interest rates for similar instruments and believed that the rates were comparable and that no fair value adjustment was recorded.

 

Subordinated Debt

 

The fair value of the subordinated debt was determined using a discounted cash flow method using a market participant discount rate for similar instruments. The subordinated debt fair value adjustment will be amortized into income on a level yield amortization method based upon the assumed market rate and the term of the subordinated debt.

 

Pro Forma Combined Results of Operations

 

The following pro forma financial information presents the consolidated results of operations of GNBF and LINKBANCORP, Inc. as if the Merger occurred as of January 1, 2020 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of discounts (premiums) associated with the fair value adjustments of acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustments to acquired time deposits and other debt, and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2020. Merger related expenses incurred by the Company during the three and nine months ended September 30, 2021 are not reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had GNBF merged with LINKBANCORP, Inc. at the beginning of 2020. The pro forma amounts for the three and nine months ended September 30, 2021 and 2020 do not reflect the anticipated cost savings that have not yet been realized.

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(Dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net interest income

 

$

6,751

 

 

$

6,071

 

 

$

20,487

 

 

$

17,432

 

Non-interest income

 

 

514

 

 

 

695

 

 

 

1,970

 

 

 

1,536

 

Net income (loss)

 

 

(78

)

 

 

1,993

 

 

 

6,483

 

 

 

2,960

 

Basic earnings (loss) per common share

 

$

(0.01

)

 

$

0.21

 

 

$

0.66

 

 

$

0.32

 

Diluted earnings (loss) per common share

 

$

(0.01

)

 

$

0.21

 

 

$

0.63

 

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

3.
INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale are summarized as follows:

 

 

 

September 30, 2021

 

(In Thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

$

6,254

 

 

$

72

 

 

$

 

 

$

6,326

 

Small Business Administration loan pools

 

 

6,460

 

 

 

133

 

 

 

(39

)

 

 

6,554

 

Obligations of state and political subdivisions

 

 

47,653

 

 

 

2,316

 

 

 

(51

)

 

 

49,918

 

Mortgage-backed securities in government-sponsored entities

 

 

59,461

 

 

 

651

 

 

 

(162

)

 

 

59,950

 

Total available-for-sale securities

 

$

119,828

 

 

$

3,172

 

 

$

(252

)

 

$

122,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

(In Thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

7,835

 

 

$

198

 

 

$

(39

)

 

$

7,994

 

Obligations of state and political subdivisions

 

 

49,167

 

 

 

2,895

 

 

 

(3

)

 

 

52,059

 

Mortgage-backed securities in government-sponsored entities

 

 

64,406

 

 

 

1,068

 

 

 

(80

)

 

 

65,394

 

Total available-for-sale securities

 

$

121,408

 

 

$

4,161

 

 

$

(122

)

 

$

125,447

 

 

 

21


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time the individual debt securities have been in a continuous unrealized loss position.

 

 

 

 

September 30, 2021

 

 

 

Less Than Twelve Months

 

 

Twelve Months or Greater

 

 

Total

 

(In Thousands)

 

Fair Value

 

 

Gross Unrealized Loss

 

 

Fair Value

 

 

Gross Unrealized Loss

 

 

Fair Value

 

 

Gross Unrealized Loss

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

1,761

 

 

$

(25

)

 

$

1,258

 

 

$

(14

)

 

$

3,019

 

 

$

(39

)

Obligations of state and political subdivisions

 

 

3,644

 

 

 

(51

)

 

 

 

 

 

 

 

 

3,644

 

 

 

(51

)

Mortgage-backed securities in government-sponsored entities

 

 

21,060

 

 

 

(162

)

 

 

 

 

 

 

 

 

21,060

 

 

 

(162

)

Total available-for-sale securities

 

$

26,465

 

 

$

(238

)

 

$

1,258

 

 

$

(14

)

 

$

27,723

 

 

$

(252

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Less Than Twelve Months

 

 

Twelve Months or Greater

 

 

Total

 

(In Thousands)

 

Fair Value

 

 

Gross Unrealized Loss

 

 

Fair Value

 

 

Gross Unrealized Loss

 

 

Fair Value

 

 

Gross Unrealized Loss

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

2,059

 

 

$

(9

)

 

$

1,539

 

 

$

(30

)

 

$

3,598

 

 

$

(39

)

Obligations of state and political subdivisions

 

 

557

 

 

 

(3

)

 

 

 

 

 

 

 

 

557

 

 

 

(3

)

Mortgage-backed securities in government-sponsored entities

 

 

12,245

 

 

 

(80

)

 

 

 

 

 

 

 

 

12,245

 

 

 

(80

)

Total available-for-sale securities

 

$

14,861

 

 

$

(92

)

 

$

1,539

 

 

$

(30

)

 

$

16,400

 

 

$

(122

)

The Company reviews its position quarterly and has asserted that as of September 30, 2021 and December 31, 2020, the declines outlined in the above tables represent temporary declines, and the Company does not intend to sell, and does not believe it will be required to sell, these debt securities before recovery of their cost basis, which may be at maturity. There were thirty-three and nineteen debt securities with unrealized losses at September 30, 2021 and December 31, 2020, respectively. The Company has concluded that the unrealized losses disclosed above are not other than temporary, but are the result of interest rate changes that are not expected to result in the noncollection of principal and interest during the year.

Amortized cost and fair value by contractual maturity, where applicable, are shown below. Actual maturities may differ from contractual maturities because the borrower may have the right to prepay obligations with or without penalty.

 

 

 

September 30, 2021

 

(In Thousands)

 

Amortized
Cost

 

 

Fair
Value

 

Available for Sale:

 

 

 

 

 

 

Due within one year

 

$

3,275

 

 

$

3,280

 

Due after one year through five years

 

 

60,013

 

 

 

60,751

 

Due after five years through ten years

 

 

23,607

 

 

 

24,126

 

Due after ten years

 

 

32,933

 

 

 

34,591

 

 

 

$

119,828

 

 

$

122,748

 

 

 

22


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following table summarizes sales of debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 Proceeds

 

 $

 

 

 

 $

 

5,706

 

 Gross gains

 

 $

 

 

 

 $

 

221

 

 Gross losses

 

 

 

 

 

 

 

(111

)

 Net gain

 

 $

 

 

 

 $

 

110

 

 

The Company had pledged debt securities with a carrying value of $53,069 and $52,100 to secure public monies as of September 30, 2021 and December 31, 2020, respectively.

4.
LOANS RECEIVABLE

The portfolio segments and classes of loans are as follows:

 

(In Thousands)

 

September 30, 2021

 

 

December 31, 2020

 

Agriculture loans

 

$

8,873

 

 

$

11,246

 

Commercial loans

 

 

83,742

 

 

 

21,534

 

Paycheck Protection Program ("PPP") loans

 

 

39,794

 

 

 

 

Commercial real estate loans

 

 

309,079

 

 

 

27,261

 

Residential real estate loans

 

 

216,526

 

 

 

167,536

 

Consumer loans

 

 

4,309

 

 

 

2,514

 

Municipal loans

 

 

6,351

 

 

 

6,749

 

 

 

 

668,672

 

 

 

236,840

 

Less:

 

 

 

 

 

 

Deferred fees

 

 

(274

)

 

 

(256

)

Allowance for loan losses

 

 

(3,335

)

 

 

(2,789

)

Total

 

$

665,063

 

 

$

233,795

 

 

The Company originates commercial, residential, and consumer loans within its primary market areas of southcentral and southeastern Pennsylvania. A significant portion of the loan portfolio is secured by real estate. In the normal course of business, the Company extends loans to officers, directors, and corporations in which they are beneficially interested as stockholders, officers, or directors. The balance of these loans and extensions of credit totaled $7,020 and $2,586 as of September 30, 2021 and December 31, 2020, respectively.

 

5.
ALLOWANCE FOR LOAN LOSSES

The segments of the Company’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The loan segments used are consistent with the internal reports evaluated by the Company’s management and Board of Directors to monitor risk and performance within various segments of its loan portfolio and, therefore, no further disaggregation is considered necessary. The Company’s loan portfolio consists primarily of real estate loans on commercial and residential property. The portfolio also includes agricultural loans, commercial loans, municipal loans, and consumer loans.

The Company’s primary lending activity is the origination of commercial loans extended to small and mid-sized commercial and industrial entities.

Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

23


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Construction and Land loans are to finance the construction of owner-occupied and income producing properties. These loans are categorized within commercial or one-to-four family residential loans based upon the underlying collateral and intended use following the completion of the construction period. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Construction loan funds are disbursed periodically based on the percentage of construction or development completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. The Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

The Company’s commercial real estate loans consist of mortgage loans secured by nonresidential real estate, such as by apartment buildings, small office buildings, and owner-occupied properties. Commercial real estate loans are secured by the subject property and are underwritten based on loan to value limits, cash flow coverage and general creditworthiness of the obligors. These loans tend to involve larger loan balances and their repayment is typically dependent upon the successful operation and management of the underlying real estate.

Residential real estate loans are underwritten based on the borrower’s repayment capacity and source, value of the underlying property, credit history and stability. These loans are secured by a first or second mortgage on the borrower’s principal residence or their second/vacation home (excluding investment/rental property).

In addition to the main types of loans discussed above, the Company also originates agricultural loans, consumer loans, and municipal loans. The agricultural loan portfolio consists of loans to local farmers and agricultural businesses that are generally secured by farmland and equipment. The consumer loan portfolio consists of lending in the form of home equity loans secured by financed property and personal consumer loans, which may be secured or unsecured. The municipal loan portfolio consists of loans to qualified local municipalities, which are generally supported by the taxing authority of the borrowing municipality, and is frequently secured by collateral.

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: agriculture loans, commercial real estate loans, commercial loans, residential real estate loans, consumer loans, and municipal loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a four-year period for all portfolio segments.

Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed for each portfolio segment:

Levels of and trends in delinquencies
Trends in volume and terms
Changes in collateral
Changes in management and lending staff
Economic trends
Concentrations of credit
Changes in lending policies
External factors
Changes in underwriting process
Trends in credit quality ratings

These qualitative factors are reviewed each quarter and adjusted based upon relevant changes within the portfolio.

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the Consolidated Balance Sheet date. The Company considers the allowance for loan losses adequate to cover loan losses inherent in the loan portfolio at September 30, 2021 and December 31, 2020.

24


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following table summarizes the activity in the allowance for loan losses by loan class for the three-month periods ended September 30, 2021 and 2020.

 

 

 

Agriculture
Loans

 

 

Commercial
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

 

 

For the Three Months Ended September 30, 2021

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

98

 

 

$

350

 

 

$

342

 

 

$

1,670

 

 

$

23

 

 

$

16

 

 

$

376

 

 

$

2,875

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

Recoveries

 

 

 

 

 

1

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Provision

 

 

31

 

 

 

107

 

 

 

21

 

 

 

698

 

 

 

(3

)

 

 

13

 

 

 

(410

)

 

 

457

 

Ending balance

 

$

129

 

 

$

458

 

 

$

363

 

 

$

2,370

 

 

$

20

 

 

$

29

 

 

$

(34

)

 

$

3,335

 

 

 

For the Three Months Ended September 30, 2020

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

129

 

 

$

292

 

 

$

264

 

 

$

1,640

 

 

$

33

 

 

$

17

 

 

$

419

 

 

$

2,794

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision

 

 

(5

)

 

 

(1

)

 

 

43

 

 

 

47

 

 

 

(3

)

 

 

2

 

 

 

(39

)

 

 

44

 

Ending balance

 

$

124

 

 

$

291

 

 

$

307

 

 

$

1,687

 

 

$

30

 

 

$

19

 

 

$

380

 

 

$

2,838

 

 

The following table summarizes the activity in the allowance for loan losses by loan class for the nine month periods ended September 30, 2021 and 2020.

 

 

 

Agriculture
Loans

 

 

Commercial
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

 

 

For the Nine Months Ended September 30, 2021

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

120

 

 

$

290

 

 

$

314

 

 

$

1,702

 

 

$

35

 

 

$

18

 

 

$

310

 

 

$

2,789

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

 

 

 

 

 

 

 

 

 

(49

)

Recoveries

 

 

 

 

 

19

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

47

 

Provision

 

 

9

 

 

 

149

 

 

 

49

 

 

 

689

 

 

 

(15

)

 

 

11

 

 

 

(344

)

 

 

548

 

Ending balance

 

$

129

 

 

$

458

 

 

$

363

 

 

$

2,370

 

 

$

20

 

 

$

29

 

 

$

(34

)

 

$

3,335

 

 

 

For the Nine Months Ended September 30, 2020

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

152

 

 

$

312

 

 

$

255

 

 

$

1,707

 

 

$

43

 

 

$

13

 

 

$

220

 

 

$

2,702

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision

 

 

(28

)

 

 

(21

)

 

 

52

 

 

 

(20

)

 

 

(11

)

 

 

6

 

 

 

160

 

 

 

138

 

Ending balance

 

$

124

 

 

$

291

 

 

$

307

 

 

$

1,687

 

 

$

30

 

 

$

19

 

 

$

380

 

 

$

2,838

 

 

25


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The increase in the allowance for loan losses allocated to the residential real estate loans can be attributed to the increase in the carrying value of loans that have been risk rated as Special Mention and Substandard as of September 30, 2021. Please see the "Credit Quality Information" section below for further details.

 

The following table illustrates the balance of loans individually evaluated vs. collectively evaluated for impairment at September 30, 2021 and December 31, 2020. (in thousands)

 

 

 

Agriculture
Loans

 

 

Commercial
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

 

 

As of September 30, 2021

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

129

 

 

$

458

 

 

$

363

 

 

$

2,370

 

 

$

20

 

 

$

29

 

 

$

(34

)

 

$

3,335

 

Ending balance: individually
   evaluated for impairment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Ending balance: collectively evaluated
   for impairment

 

$

129

 

 

$

458

 

 

$

363

 

 

$

2,370

 

 

$

20

 

 

$

29

 

 

$

(34

)

 

$

3,335

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

8,873

 

 

$

123,536

 

 

$

309,079

 

 

$

216,526

 

 

$

4,309

 

 

$

6,351

 

 

 

 

 

$

668,672

 

Ending balance: individually
   evaluated for impairment

 

$

 

 

$

 

 

$

 

 

$

136

 

 

$

 

 

$

 

 

 

 

 

$

136

 

Ending balance: loans acquired with deteriorated credit
   quality

 

$

 

 

$

1,918

 

 

$

3,467

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

5,385

 

Ending balance: collectively evaluated
   for impairment

 

$

8,873

 

 

$

123,536

 

 

$

309,079

 

 

$

216,390

 

 

$

4,309

 

 

$

6,351

 

 

 

 

 

$

668,536

 

 

 

 

Agriculture
Loans

 

 

Commercial
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

 

 

As of December 31, 2020

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

120

 

 

$

290

 

 

$

314

 

 

$

1,702

 

 

$

35

 

 

$

18

 

 

 

310

 

 

$

2,789

 

Ending balance: individually
   evaluated for impairment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Ending balance: collectively evaluated
   for impairment

 

$

120

 

 

$

290

 

 

$

314

 

 

$

1,702

 

 

$

35

 

 

$

18

 

 

 

310

 

 

$

2,789

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

11,246

 

 

$

21,534

 

 

$

27,261

 

 

$

167,536

 

 

$

2,514

 

 

$

6,749

 

 

 

 

 

$

236,840

 

Ending balance: individually
   evaluated for impairment

 

$

 

 

$

2

 

 

$

 

 

$

295

 

 

$

 

 

$

 

 

 

 

 

$

297

 

Ending balance: collectively evaluated
   for impairment

 

$

11,246

 

 

$

21,532

 

 

$

27,261

 

 

$

167,241

 

 

$

2,514

 

 

$

6,749

 

 

 

 

 

$

237,137

 

 

The Company evaluated whether loans acquired in the Merger were within the scope of ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired loans ("PCI") are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral. The carrying value of purchased loans acquired with deteriorated credit quality as a result of the Merger was $5,384 at September 30, 2021.

On the acquisition date, the preliminary estimate of the unpaid principal balance for all PCI loans acquired through the Merger was $6,627 and the estimated fair value of the loans was $5,384. Total contractually required payments on these loans, including interest, at acquisition was $8,509. The Company's preliminary estimate of expected cash flows was $5,793 at the acquisition date. The Company established a credit risk related non-accretable discount of $2,716 relating to these impaired

26


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

loans, reflected in the recorded net fair value. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $409 relating to these impaired loans.

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of September 30, 2021 and December 31, 2020. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all.

The Company’s internally assigned grades are as follows:

Pass – loans that are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. There are four sub-grades within the Pass category to further distinguish the loan.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as Doubtful have all the weaknesses inherent in a Substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a Loss are considered uncollectible and are immediately charged against allowances.

The following table presents the classes of the loan portfolio summarized by the internal risk rating system as of September 30, 2021 and December 31, 2020:

 

(In Thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

As of September 30, 2021

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Agriculture loans

 

$

8,873

 

 

 

 

 

 

 

 

 

 

 

$

8,873

 

Commercial loans

 

$

118,991

 

 

 

2,935

 

 

 

1,610

 

 

 

 

 

$

123,536

 

Commercial real estate loans

 

$

302,878

 

 

 

1,925

 

 

 

4,276

 

 

 

 

 

$

309,079

 

Residential real estate loans

 

$

214,889

 

 

 

310

 

 

 

1,327

 

 

 

 

 

$

216,526

 

Consumer loans

 

$

4,309

 

 

 

 

 

 

 

 

 

 

 

$

4,309

 

Municipal loans

 

$

6,351

 

 

 

 

 

 

 

 

 

 

 

$

6,351

 

Total

 

$

656,289

 

 

$

5,170

 

 

$

7,213

 

 

$

 

 

$

668,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Agriculture loans

 

$

11,246

 

 

 

 

 

 

 

 

 

 

 

$

11,246

 

Commercial loans

 

$

21,259

 

 

 

 

 

 

275

 

 

 

 

 

$

21,534

 

Commercial real estate loans

 

$

27,261

 

 

 

 

 

 

 

 

 

 

 

$

27,261

 

Residential real estate loans

 

$

166,968

 

 

 

 

 

 

568

 

 

 

 

 

$

167,536

 

Consumer loans

 

$

2,514

 

 

 

 

 

 

 

 

 

 

 

$

2,514

 

Municipal loans

 

$

6,749

 

 

 

 

 

 

 

 

 

 

 

$

6,749

 

Total

 

$

235,997

 

 

$

 

 

$

843

 

 

$

 

 

$

236,840

 

 

27


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following tables present an aging analysis of the recorded investment of past-due loans.

 

 

 

September 30, 2021

 

(In Thousands)

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days
or Greater
Past Due

 

 

Total
Past Due

 

 

Current

 

 

Purchased Credit Impaired Loans

 

 

Total
  Loans

 

 

Total > 90
Days and
Accruing

 

Agriculture loans

 

$

161

 

 

$

 

 

$

 

 

$

161

 

 

$

8,712

 

 

$

 

 

$

8,873

 

 

$

 

Commercial loans

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

121,615

 

 

 

1,918

 

 

 

123,536

 

 

 

 

Commercial real estate loans

 

 

2,112

 

 

 

6

 

 

 

147

 

 

 

2,265

 

 

 

303,347

 

 

 

3,467

 

 

 

309,079

 

 

 

147

 

Residential real estate loans

 

 

1,121

 

 

 

387

 

 

 

 

 

 

1,508

 

 

 

215,018

 

 

 

 

 

 

216,526

 

 

 

 

Consumer loans

 

 

46

 

 

 

1

 

 

 

 

 

 

47

 

 

 

4,262

 

 

 

 

 

 

4,309

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,351

 

 

 

 

 

 

6,351

 

 

 

 

Total

 

$

3,443

 

 

$

394

 

 

$

147

 

 

$

3,984

 

 

$

659,303

 

 

$

5,385

 

 

$

668,672

 

 

$

147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

(In Thousands)

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days
or Greater
Past Due

 

 

Total
Past Due

 

 

Current

 

 

Total
  Loans

 

 

Total > 90
Days and
  Accruing

 

 

 

 

Agriculture loans

 

$

171

 

 

$

 

 

$

 

 

$

171

 

 

$

11,075

 

 

$

11,246

 

 

$

 

 

 

 

Commercial loans

 

 

66

 

 

 

 

 

 

6

 

 

 

72

 

 

 

21,462

 

 

 

21,534

 

 

 

 

 

 

 

Commercial real estate loans

 

 

1,297

 

 

 

 

 

 

 

 

 

1,297

 

 

 

25,964

 

 

 

27,261

 

 

 

 

 

 

 

Residential real estate loans

 

 

1,248

 

 

 

831

 

 

 

338

 

 

 

2,417

 

 

 

165,119

 

 

 

167,536

 

 

 

147

 

 

 

 

Consumer loans

 

 

69

 

 

 

26

 

 

 

 

 

 

95

 

 

 

2,419

 

 

 

2,514

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,749

 

 

 

6,749

 

 

 

 

 

 

 

Total

 

$

2,851

 

 

$

857

 

 

$

344

 

 

$

4,052

 

 

$

232,788

 

 

$

236,840

 

 

$

147

 

 

 

 

 

28


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

Impaired Loans

The following tables present the recorded investment and unpaid principal balances for impaired loans and related allowance, if applicable. Also presented are the average recorded investments and the related amount of interest recognized during the time within the period that the impaired loans were impaired.

 

 

 

As of September 30, 2021

 

(In Thousands)

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

136

 

 

 

170

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

136

 

 

 

170

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

$

136

 

 

$

170

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

1

 

 

 

6

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

247

 

 

 

286

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

1

 

 

 

6

 

 

 

 

 

29


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

247

 

 

 

286

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

$

248

 

 

$

292

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

(In Thousands)

 

Average
Recorded
Investment

 

 

Interest Income Recognized

 

 

Average
Recorded Investment

 

 

Interest Income Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

138

 

 

 

 

 

 

326

 

 

 

1

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138

 

 

 

 

 

 

326

 

 

 

1

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

3

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

45

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

 

Total

 

$

138

 

 

$

 

 

$

374

 

 

$

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

(In Thousands)

 

Average
Recorded
Investment

 

 

Interest Income
Recognized

 

 

Average
Recorded
Investment

 

 

Interest Income
Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

141

 

 

 

 

 

 

334

 

 

 

4

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

141

 

 

 

 

 

 

334

 

 

 

4

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

3

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

45

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

 

Total

 

$

141

 

 

$

 

 

$

382

 

 

$

4

 

 

30


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

The following table present nonaccrual loans by classes of the loan portfolio:

 

(In Thousands)

 

September 30,
2021

 

 

December 31,
2020

 

Agriculture loans

 

$

 

 

$

 

Commercial loans

 

 

46

 

 

 

48

 

Commercial real estate loans

 

 

 

 

 

 

Residential real estate loans

 

 

370

 

 

 

421

 

Consumer loans

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

Total

 

$

416

 

 

$

469

 

 

Approximately $309,079 or 46.2% of the Bank’s loan portfolio was in commercial real estate loans at September 30, 2021. While the Bank does not have a concentration of credit risk with any single borrower or industry, repayments on loans in these portfolios can be negatively influenced by decreases in real estate values. The Bank mitigates this risk through conservative underwriting policies and procedures. In addition, $83,334 of real estate-commercial loans were owner occupied properties as of September 30, 2021. These types of loans are generally considered to involve less risk than nonowner-occupied mortgages.

At September 30, 2021 and December 31, 2020, the carrying amount of borrowings secured by loans pledged to the FHLB under its blanket lien was $0 and $1,120, respectively.

Loan Modifications and Troubled Debt Restructurings (TDRs)

A loan is considered to be a TDR loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk.

The Bank may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring (TDR). The Bank may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Bank’s allowance for loan losses.

The Bank identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future. As of September 30, 2021 and December 31, 2020, the Company had no loans identified as TDRs. There were also no new loan modifications during the periods that were considered TDRs.

COVID-19 Loan Forbearance Programs

Section 4013 of the CARES Act provides that banks may elect not to categorize a loan modification as a TDR if the loan modification is (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020, under the National Emergencies Act terminates, or (B) January 1, 2022.

On April 7, 2020, federal banking regulators issued a revised interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented.

31


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

According to the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by the federal bank regulatory agencies on April 7, 2020, short-term loan modifications not otherwise eligible under Section 4013 that are made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. As of September 30, 2021, the Company had 3 loans totaling $8,558 that remain on a CARES Act modification.

In addition, the risk-rating on COVID-19 modified loans did not change, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume. The credit quality of these loans will be reevaluated after the deferral period ends.

6.
DEPOSITS

Deposit accounts are summarized as follows:

 

 

 

September 30,
2021

 

 

December 31,
2020

 

(In Thousands)

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Demand, noninterest-bearing

 

$

175,609

 

 

 

21.88

%

 

$

66,573

 

 

 

17.75

%

Demand, interest-bearing

 

 

217,857

 

 

 

27.14

 

 

 

158,708

 

 

 

42.31

 

Money market and savings

 

 

207,460

 

 

 

25.85

 

 

 

69,188

 

 

 

18.44

 

Time deposits, $250 and over

 

 

55,844

 

 

 

6.96

 

 

 

33,853

 

 

 

9.02

 

Time deposits, other

 

 

145,825

 

 

 

18.17

 

 

 

46,802

 

 

 

12.48

 

 

 

$

802,595

 

 

 

100.0

%

 

$

375,124

 

 

 

100.0

%

 

The scheduled maturities of time deposits are as follows:

 

(In Thousands)

 

September 30,
2021

 

 

December 31,
2020

 

One year or less

 

$

138,330

 

 

$

46,325

 

More than one year to two years

 

 

30,789

 

 

 

12,414

 

More than two years to three years

 

 

17,103

 

 

 

9,904

 

More than three years to four years

 

 

7,612

 

 

 

3,980

 

More than four years to five years

 

 

7,224

 

 

 

7,542

 

More than five years

 

 

611

 

 

 

490

 

Total

 

$

201,669

 

 

$

80,655

 

 

There were $20,000 brokered deposits outstanding at September 30, 2021 maturing in November 2021 and no brokered deposits as of December 31, 2020.

7.
STOCK-BASED COMPENSATION

On May 14, 2019, the Company’s shareholders approved the LINKBANCORP, Inc. 2019 Equity Incentive Plan (the “Plan”).The Plan authorizes the issuance or delivery to participants of up to 450,000 shares of LINKBANCORP, Inc. common stock pursuant to grants of incentive and non-statutory stock options. The Plan is administered by the members of LINKBANCORP, Inc.’s Compensation Committee (the "Committee"). Unless the Committee specifies a different vesting schedule, awards under the Plan shall be granted with a vesting rate of 20 percent per year. Vesting may be accelerated under certain conditions or at the discretion of the Committee at any time. Employees and directors of LINKBANCORP, Inc. or its subsidiaries are eligible to receive awards under the plan, except that nonemployees may not be granted incentive stock options. Stock options are either “incentive” stock options or “nonqualified” stock options. Incentive stock options have certain tax advantages and must comply with the requirements of Section 422 of the Internal Revenue Code. The table below provides details of the Company's stock options at September 30, 2021.

32


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

 

 

Number
of Stock
Options

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Term in
Years

 

 

Aggregate
Intrinsic
Value
(in ‘000s)

 

Outstanding, September 30, 2021

 

 

405,000

 

 

$

10.22

 

 

 

7.9

 

 

$

1,286

 

Exercisable at period end

 

 

145,900

 

 

$

10.00

 

 

 

7.7

 

 

$

496

 

 

The exercise prices for options outstanding as of September 30, 2021 ranged from $10.00 to $11.78. Because the stock options issued by the Company historically relate to LINKBANK employees and given the reverse acquisition accounting described in Note 1 paired with the timing of the Merger between the Company and GNBF, the Company recognized no compensation expense during the three and nine months ended September 30, 2021 and 2020. At September 30, 2021, the total unrecognized stock-based compensation costs totaled $276 and will be recognized ratably as expense through December 31, 2026.

8.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making and monitoring commitments and conditional obligations as it does for on-balance sheet instruments. As of September 30, 2021, and December 31, 2020, the Company has a reserve related to credit losses for off-balance sheet instruments totaling $54, which is included in other liabilities.

At September 30, 2021 and December 31, 2020, the following financial instruments were outstanding whose contract amounts represent credit risk:

 

(In Thousands)

 

September 30,
2021

 

 

December 31,
2020

 

Unfunded commitments under lines of credit:

 

 

 

 

 

 

Home equity loans

 

$

16,917

 

 

$

6,815

 

Commercial real estate, construction, and land development

 

 

23,297

 

 

 

3,801

 

Commercial and industrial

 

 

113,347

 

 

 

35,517

 

Other

 

 

4,663

 

 

 

1,081

 

Total

 

$

158,224

 

 

$

47,214

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory, and equipment.

 

33


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

9.
LEASE COMMITMENTS AND CONTINGENCIES

The following table presents the lease cost associated with leases for the three and nine months ending September 30, 2021. Total rent expense recorded during the three and nine months ended September 30, 2020 was $16, and $49, respectively. The Company leases its administration and operating facility and six offices under lease agreements with various expirations through March 2031.

 

Lease cost (In Thousands)

 

Three Months Ended
September 30, 2021

 

 

Nine Months Ended
September 30, 2021

 

Amortization of right-of-use asset

 

$

14

 

 

$

43

 

Interest expense

 

 

2

 

 

 

6

 

Total lease cost

 

$

16

 

 

$

49

 

Weighted-average remaining term (years)

 

 

 

 

 

13.1

 

Weighted-average discount rate

 

 

 

 

 

4.9

%

 

Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease.

 

The following table presents the undiscounted cash flows due related to operating leases as of September 30, 2021:

 

(In Thousands)

 

Amount

 

 2021

 

$

126

 

 2022

 

 

510

 

 2023

 

 

511

 

 2024

 

 

502

 

2025 and thereafter

 

 

4,937

 

Total Undiscounted Cash Flows

 

$

6,586

 

Discount on Cash Flows

 

 

(1,838

)

Total lease liabilities

 

$

4,748

 

 

10.
REGULATORY CAPITAL REQUIREMENTS

The Company is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

The Bank and Company are subject to regulatory capital requirements administered by banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. As of September 30, 2021, the Bank has met all capital adequacy requirements to which they are subject.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, under-capitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is adequately capitalized, regulatory approval is required before the institution may accept brokered deposits. If an institution is undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.

 

34


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face limitations on dividends, stock repurchases and certain discretionary bonus payments to management based on the amount of the shortfall. Under Basel III rules, banks must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The required capital conservation buffer is 2.50%.

The following tables present actual and required capital ratios as of September 30, 2021 and December 31, 2020 under the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

(In Thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total capital

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

78,409

 

 

 

11.78

%

 

$

36,484

 

 

 

14.33

%

For capital adequacy purposes

 

 

53,237

 

 

 

8.00

 

 

 

20,367

 

 

 

8.00

 

To be well capitalized

 

 

66,546

 

 

 

10.00

 

 

 

24,459

 

 

 

10.00

 

Tier 1 capital

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

75,020

 

 

 

11.27

%

 

$

33,666

 

 

 

13.22

%

For capital adequacy purposes

 

 

39,928

 

 

 

6.00

 

 

 

15,275

 

 

 

6.00

 

To be well capitalized

 

 

53,237

 

 

 

8.00

 

 

 

20,367

 

 

 

8.00

 

Common equity

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

75,020

 

 

 

11.27

%

 

$

33,666

 

 

 

13.22

%

For capital adequacy purposes

 

 

29,946

 

 

 

4.50

 

 

 

11,456

 

 

 

4.50

 

To be well capitalized

 

 

43,255

 

 

 

6.50

 

 

 

16,548

 

 

 

6.50

 

Tier 1 capital

 

 

 

 

 

 

 

 

 

 

 

 

(to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

75,020

 

 

 

17.80

%

 

$

33,666

 

 

 

7.90

%

For capital adequacy purposes

 

 

16,856

 

 

 

4.00

 

 

 

17,054

 

 

 

4.00

 

To be well capitalized

 

 

21,071

 

 

 

5.00

 

 

 

21,317

 

 

 

5.00

 

 

The federal banking agencies, including the FDIC, issued a rule pursuant to The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 to establish for institutions with assets of less than $10 billion a “community bank leverage ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) of 9% that qualifying institutions may elect to use in lieu of the generally applicable leverage and risk-based capital requirements under Basel III. Pursuant to the CARES Act, the federal banking agencies issued a final rule in August 2020 to lower the community bank leverage ratio to 8% beginning in the second calendar quarter of 2020 through the end of 2020. In 2021, the community bank leverage ratio increased to 8.5% for the calendar year. The community bank leverage ratio requirement will return to 9% effective January 1, 2022. If an election to use the community bank leverage ratio capital framework is made, a qualifying bank with less than $10 billion in assets with capital exceeding the specified community bank leverage ratio is considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well capitalized.” As of September 30, 2021, the Bank had not elected to be subject to the alternative framework.

Federal and state banking regulations place certain restrictions on dividends paid by the Bank. The Pennsylvania Banking Code provides that cash dividends may be declared and paid out of accumulated net earnings. In addition, dividends paid by the Bank would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. Loans or advances by the Bank to the Company are limited to 10 percent of the Bank’s capital stock and surplus and must have collateral securing the loans or advances.

11.
FAIR VALUE MEASUREMENTS

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in an estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts The Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated

35


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the fair value measurements accounting guidance (FASB ASC 820, Fair Value Measurements), the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The Company uses a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing are as follows:

 

 

Level I:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

 

 

 

 

Level II:

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

 

 

 

 

Level III:

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

This hierarchy requires the use of observable market data when available.

The estimated fair values of the Company’s financial instruments that are not required to be measured or reported at fair value are as follows:

 

 

 

At September 30, 2021

 

 

At December 31, 2020

 

(In Thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (Level 1)

 

$

103,544

 

 

$

103,544

 

 

$

33,162

 

 

$

33,162

 

Certificates of deposit with other banks

 

 

13,077

 

 

 

13,077

 

 

 

17,051

 

 

 

17,051

 

Loans (Level 3)

 

 

665,063

 

 

 

666,764

 

 

 

233,795

 

 

 

236,030

 

Accrued interest receivable (Level 1)

 

 

4,202

 

 

 

4,202

 

 

 

1,675

 

 

 

1,675

 

Restricted investments in bank stock (Level 1)

 

 

3,586

 

 

 

3,586

 

 

 

2,268

 

 

 

2,268

 

Cash surrender value of life insurance (Level 1)

 

 

13,683

 

 

 

13,683

 

 

 

8,941

 

 

 

8,941

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits (Level 1)

 

 

600,926

 

 

 

600,926

 

 

 

294,469

 

 

 

294,469

 

Time Deposits (Level 3)

 

 

201,669

 

 

 

201,450

 

 

 

80,655

 

 

 

81,164

 

Long-term borrowings (Level 3)

 

 

33,034

 

 

 

33,034

 

 

 

1,120

 

 

 

1,116

 

Subordinated Notes (Level 3)

 

 

20,740

 

 

 

20,740

 

 

 

 

 

 

 

Accrued interest payable (Level 1)

 

 

477

 

 

 

477

 

 

 

233

 

 

 

233

 

 

36


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

The following tables present the assets reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2021 and December 31, 2020, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company’s available-for-sale investment securities are reported at fair value. These securities are valued by an independent third party. The valuations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their evaluated pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

 

 

 

September 30, 2021

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Agency securities

 

$

 

 

$

6,326

 

 

$

 

 

$

6,326

 

Small Business Administration loan pools

 

 

 

 

 

6,554

 

 

 

 

 

 

6,554

 

Obligations of state and political subdivisions

 

 

 

 

 

49,918

 

 

 

 

 

 

49,918

 

Mortgage backed securities

 

 

 

 

 

59,950

 

 

 

 

 

 

59,950

 

Total

 

$

 

 

$

122,748

 

 

$

 

 

$

122,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

 

 

$

7,994

 

 

$

 

 

$

7,994

 

Obligations of state and political subdivisions

 

 

 

 

 

52,059

 

 

 

 

 

 

52,059

 

Mortgage backed securities

 

 

 

 

 

65,394

 

 

 

 

 

 

65,394

 

Total

 

$

 

 

$

125,447

 

 

$

 

 

$

125,447

 

 

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used as of September 30, 2021 are presented in the table below. There were no impaired loans measured at their fair value on a nonrecurring basis as of December 31, 2020.

 

 

 

September 30, 2021

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Impaired loans

 

$

 

 

$

 

 

$

136

 

 

$

136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following tables provide information describing the valuation processes used to determine nonrecurring fair value measurements categorized within Level III of the fair value hierarchy:

 

 

 

September 30, 2021

 

 

 

Quantitative Information About Level III Fair Value Measurements

 

(In Thousands)

 

Fair Value

 

 

Valuation
Techniques

 

 

 

 

Unobservable
Input

 

Range (Weighted
Average)

 

Impaired loans

 

$

136

 

 

Appraisal of
collateral

 

 

(1

)

 

Liquidation
expenses

 

 

10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Fair value is generally determined through independent appraisals of the underlying collateral, which include various Level III inputs that are not identifiable.

37


LINKBANCORP, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Appraisals may be adjusted by management for qualitative factors, such as economic conditions, aging, and/or estimated liquidation expenses incurred when selling the collateral. The range and weighted average of appraisal adjustments and liquidation expenses are presented as a percentage of the appraisal.

38


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis reflects the Company’s consolidated financial statement and other relevant statistical data and is intended to enhance your understanding of the Company’s consolidated financial condition and results of operations. This Management’s Discussion and Analysis is presented in the following sections:

Overview and Strategy
Comparison of Financial Condition at September 30, 2021 and December 31, 2020
Comparison of Operating Results for the Three Months Ended September 30, 2021 and 2020
Comparison of Operating Results for the Nine Months Ended September 30, 2021 and 2020
Liquidity, Commitments, and Capital Resources
Off-Balance Sheet Arrangements
Critical Accounting Policies
Recently Issued Accounting Standards

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” or words of similar meaning, or future or conditional verbs, such as “will,” “would,” “should,” “could,” or “may.” A forward-looking statement is neither a prediction nor a guarantee of future events. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

risks and uncertainties related to the Coronavirus Disease 2019 (“COVID-19”) pandemic and resulting governmental and societal response and its effects on our business and operations, including vaccination mandates and their effects on our workforce, human capital resources, and infrastructure;
risks that COVID-19 may adversely impact our customers and lead to a long-term economic recession and continuing a severe disruption in the U.S. economy, and could potentially create business continuity issues for us;
general economic conditions, either nationally or in our market area, that are worse than expected;
competition within our market area that is stronger than expected;
changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;
our ability to access cost-effective funding;
fluctuations in real estate values and both residential and commercial real estate market conditions;
demand for loans and deposits in our market area;
our ability to continue to implement our business strategies;

39


 

competition among depository and other financial institutions;
inflation and changes in market interest rates that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make, whether held in portfolio or sold in the secondary market;
adverse changes in the securities markets;
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
our ability to manage market risk, credit risk and operational risk;
our ability to enter new markets successfully and capitalize on growth opportunities;
the imposition of tariffs or other domestic or international governmental polices impacting the value of the products of our borrowers;
our ability to successfully integrate into our operations GNBF’s assets, liabilities or systems we acquired, as well as new management personnel or customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
changes in consumer spending, borrowing and savings habits;
our ability to maintain our reputation;
our ability to prevent or mitigate fraudulent activity;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
our ability to retain key employees;
our ability to evaluate the amount and timing of recognition of future tax assets and liabilities;
our compensation expense associated with equity benefits allocated or awarded to our employees; and
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. We disclaim any obligation to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect future events or developments.

 

Completion of Merger

 

On September 18, 2021, LINKBANCORP, Inc. ("LINKBANCORP" or the "Company"), completed its previously announced merger with GNB Financial Services, Inc. ("GNBF") (the “Merger”), with LINKBANCORP as the surviving corporation. Immediately following the Merger, LINKBANK, a wholly-owned subsidiary of LINKBANCORP, merged with and into The Gratz Bank, a wholly-owned subsidiary of GNBF, with The Gratz Bank as the surviving bank. LINKBANK's banking offices will continue to operate as LINKBANK, a division of The Gratz Bank.

 

Under the Merger Agreement, GNBF shareholders had the opportunity to elect to receive $87.68 per share in cash or 7.3064 of LINKBANCORP common shares for each share they own. The agreement provided for proration procedures intended to ensure that, in the aggregate, at least 80% of the GNBF common shares outstanding would be exchanged for LINKBANCORP common stock. The Merger was effective on September 18, 2021, with the GNBF shareholders collectively electing to receive cash for 14.865% of their shares and LINKBANCORP common shares for 85.135% of existing GNBF shares. These elections resulted in LINKBANCORP issuing 4.85 million common shares to GNBF which represented approximately 49.4% of the post-merger outstanding common shares of LINKBANCORP.

 

As described in Note 2. "Merger," the Merger has been accounted for as a reverse acquisition and, accordingly, the historical financial information of the Company for all periods prior to the Merger Date is that of GNBF and Subsidiaries. For all periods beginning on September 18, 2021 and thereafter, the financial information is that of the combined company. See Note 2. “Merger” of the Notes to the Consolidated Financial Statements for further information.

40


 

Overview and Strategy

The Company’s core strategy is to further its mission of “positively impacting lives” through community banking by building strong relationships that bring value to its customers, employees, the communities it serves and its shareholders. In pursuing this mission, the Company specifically desires to invest in the development of strong future leaders for the banking industry and our communities, to contribute to economically and socially flourishing communities, and to demonstrate the continued viability and integral role of community banking for our economic and social development.

The Company operates primarily through its sole subsidiary, The Gratz Bank and LINKBANK, a division of The Gratz Bank (collectively, the "Bank"), which provides traditional lending, deposit gathering and cash services to retail customers, small businesses and nonprofit organizations. The Bank focuses its lending activities on small businesses, targeted to create a diverse loan portfolio in relation to its underlying collateral and different business segments with unique cash flow generation and varied interest rate sensitivity. The Bank offers a full suite of deposit products and cash management services focused on the small business and nonprofit segments.

Our revenues consist primarily of interest income earned on loans and investments. Interest income is partially offset by interest expense incurred on deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the balances of interest-earning assets and interest-bearing liabilities and their relative interest rates. Net interest income is typically further reduced by a provision for loan losses.

Non-interest income also contributes to our operating results, consisting of service charges on deposit accounts, earnings on bank-owned life insurance, and revenue from the sale of residential mortgage loans to the secondary market and related servicing fees. Non-interest expenses, which include salaries and employee benefits, occupancy and equipment costs, data processing, professional services, advertising and other general and administrative expenses, are the Company’s primary expenditures incurred as a result of operations.

Financial institutions, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are concentrated in South Central Pennsylvania in Dauphin, Chester, Cumberland, Lancaster, Northumberland, and Schuylkill Counties, and are influenced by local economic conditions. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in our primary market area. Operations are also significantly impacted by government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact the Company.

Recent Market Conditions

The Company’s financial condition and performance are all highly dependent on the business environment in the market area in which we operate and in the United States as a whole. During the first quarter of 2020, there was an outbreak of a novel strain of coronavirus (COVID-19) which spread to numerous countries around the world, including the United States, while becoming a global pandemic. As the spread of COVID-19 increased during the first and second quarters of 2020, federal, state, and local governments implemented various restrictive measures such as quarantines, restrictions on travel, school closings, “stay at home” rules and restrictions on certain business operations. These restrictions have slowly been lifted as people had begun to gain access to vaccines during the fourth quarter of 2020. Throughout the first half of 2021, the COVID pandemic continued to negatively affect our economy but started to wane towards the end of the second quarter only to see a national resurgence in cases during July 2021 as a result of variant strains of COVID. All of these restrictions had adversely affected and will likely continue to adversely affect the economy on a national, state, and local level, including the geographical areas in which the Company operates.

Overall, real GDP decreased by 3.5% for 2020 as compared to an increase of 2.2% in 2019. As a result of the global pandemic, market interest rates have declined significantly during 2020 with the 10-year Treasury bond falling from a high yield of 1.88% on January 2, 2020 to a low of .52% on August 4, 2020. During the third quarter of 2021 U.S. GDP grew at an annualized rate of 2.0%, which is a sizable decrease compared to the second quarter of 2021 which grew at an annualized rate of 6.7%. This slowdown during the third quarter can be attributed to an increase in COVID cases during the quarter as well as continued supply chain bottlenecks which affected consumer spending during the quarter. Additionally, at the beginning of 2020 the Federal Reserve had set the target range for the Fed Funds rate at 1.50% to 1.75% and by March 31, 2020, the Fed Funds target range had been reduced to 0% to 0.25%. The Fed Funds rate has been left unchanged through the remainder of 2020 and through September 30, 2021. Expectations are mixed regarding when the Federal Reserve will begin to increase the Fed Funds rate from its current level and at what increments and frequency. The low interest rate environment and other effects of the COVID-19 pandemic may adversely affect the Company’s financial condition and results of operations in future periods. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company. It is reasonably foreseeable that estimates made in the

41


 

financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Total assets at September 30, 2021, were $979.2 million, an increase of $548.7 million, or 127.4%, from $430.5 million at December 31, 2020. The increase in total assets was primarily due to the assets acquired in the Merger, which totaled $523.2 million and consisted of:

(amounts in thousands)

 

 

Cash and cash equivalents

$

49,962

 

Securities available for sale

 

3,111

 

Loans

 

415,905

 

Premises and equipment

 

2,087

 

Intangible assets

 

1,246

 

Goodwill

 

33,179

 

Investment in bank owned life insurance

 

4,784

 

Deferred taxes

 

3,591

 

Other assets

 

9,351

 

Excluding the assets acquired through the Merger, assets would have increased $25.6 million from December 31, 2020.

Cash and cash equivalents increased $70.4 million, or 212.2%, from $33.2 million at December 31, 2020 to $103.5 million at September 30, 2021. The increase was primarily due to:

Primary Cash Inflows

Cash provided by operating activities of $5.7 million;
Net cash acquired through the Merger of $39.9 million;
Net increase in deposits of $36.3 million;
Net cash from investment securities (calls, maturities, and principal repayments less purchases) of $3.5 million; and
Net proceeds from redemption of certificates of deposits with other banks of $4.0 million

Primary Cash Outflows

Repayments of borrowings of $1.1 million;
Net increase in loans receivable of $16.7 million; and
Payment of dividends of $725 thousand

Securities available-for-sale decreased by $2.7 million, or 2.2%, to $122.7 million at September 30, 2021 from $125.4 million at December 31, 2020. The decrease was due to a decrease in fair value of our holdings of $1.1 million and net amortization of premiums and discounts of $1.2 million. Throughout the year, management attempted to reinvest proceeds from call, maturities, and principal repayments into new securities.

42


 

Net loans receivable increased during the nine months ended September 30, 2021 as shown in the table below:

 

(dollars in thousands)

 

September 30,
2021

 

 

December 31,
2020

 

 

Change

 

 

%

 

Agriculture loans

 

$

8,873

 

 

$

11,246

 

 

$

(2,373

)

 

 

(21.10

)%

Commercial loans

 

 

83,742

 

 

 

21,534

 

 

 

62,208

 

 

 

288.88

%

Paycheck Protection Program ("PPP") loans

 

 

39,794

 

 

 

 

 

 

39,794

 

 

N/A

 

Commercial real estate loans

 

 

309,079

 

 

 

27,261

 

 

 

281,818

 

 

 

1033.78

%

Residential real estate loans

 

 

216,526

 

 

 

167,536

 

 

 

48,990

 

 

 

29.24

%

Consumer loans

 

 

4,309

 

 

 

2,514

 

 

 

1,795

 

 

 

71.39

%

Municipal loans

 

 

6,351

 

 

 

6,749

 

 

 

(398

)

 

 

(5.90

)%

Total Loans

 

 

668,672

 

 

 

236,840

 

 

 

431,832

 

 

 

182.33

%

Deferred (fees) costs

 

 

(274

)

 

 

(256

)

 

 

(18

)

 

 

7.03

%

Allowance for loan losses

 

 

(3,335

)

 

 

(2,789

)

 

 

(546

)

 

 

19.58

%

Net Loans

 

$

665,063

 

 

$

233,795

 

 

$

431,268

 

 

 

184.46

%

 

The majority of the growth in net loans was a result of the loans acquired through the Merger which totaled $415.9 million.

Consistent with regulatory guidance to work with borrowers during the unprecedented situation caused by the COVID-19 pandemic and as outlined in the CARES Act, the Company established a formal payment deferral program in April 2020 for borrowers that have been adversely affected by the pandemic. In accordance with Section 4013 of the CARES Act and the interagency guidance issued on April 7, 2020, these short-term deferrals are not considered troubled debt restructurings. As of September 30, 2021, the Company has 3 loan relationships totaling $8.6 million that remain on a CARES Act modification.

The allowance for loan losses increased $546 thousand from $2.8 million at December 31, 2020 to $3.3 million at September 30, 2021. The primary driver of the increased allowance for loan losses was a provision for loan losses recognized during the nine months ended September 30, 2021 of $548 thousand. During the three and nine months ended September 30, 2021, management noted that a total of 10 loans with an outstanding principal balance of $1.4 million had migrated from the Pass risk rating category to the Substandard category resulting in a need to increase the provision for loan losses. Additionally, management adjusted the qualitative allowance factors to reflect a change in management over the credit portfolio, also adding to the current quarter provision when compared to the same period in the prior year.

Asset quality remained strong at September 30, 2021 with non-performing assets, which is defined as non-accrual loans, loans delinquent greater than 90 days and still accruing interest, and other real estate owned, was $563 thousand or 0.08% of total gross loans. This is compared to $616 thousand of non-performing assets at December 31, 2020, which equated to 0.26%. Additionally, to compare our allowance for loan losses as a percentage of our gross loans outstanding, the Company also considers the credit fair value adjustment that was made to the loans acquired through the Merger, which totaled $7.6 million at September 30, 2021, in order to capture a truer picture of our overall coverage related to potential loan losses. Our allowance for loan losses and our credit fair value adjustment total $10.9 million at September 30, 2021 and represent 1.62% to our total gross loans, which is an increase from 1.19% at December 31, 2020.

Deposits grew by $427.5 million or 114.0%, from a total of $375.1 million at December 31, 2020 to $802.6 million at September 30, 2021. Changes in the deposit types are presented in the table below:

 

(dollars in thousands)

 

September 30,
2021

 

 

December 31,
2020

 

 

Change

 

 

%

 

Demand, noninterest-bearing

 

$

175,609

 

 

$

66,573

 

 

$

109,036

 

 

 

62.1

%

Demand, interest-bearing

 

 

217,857

 

 

 

158,708

 

 

 

59,149

 

 

 

27.2

%

Money market and savings

 

 

207,460

 

 

 

69,188

 

 

 

138,272

 

 

 

66.6

%

Time deposits, $250,000 and over

 

 

55,884

 

 

 

33,853

 

 

 

22,031

 

 

 

39.4

%

Time deposits, other

 

 

145,785

 

 

 

46,802

 

 

 

98,983

 

 

 

67.9

%

Total deposits

 

$

802,595

 

 

$

375,124

 

 

$

427,471

 

 

 

53.3

%

 

Of the increase in total deposits of $427.5 million, the deposits assumed in the Merger contributed $391.2 million resulting in deposit growth outside of the Merger of $36.3 million or 9.7% from December 31, 2020. This growth can be partially attributed to the cyclical nature of our municipal deposits, which typically experience a peak in balance at the end of the third quarter of the year. Included in the time deposits balance above were brokered time deposits with a balance of $20.0 million, and $0 as of September 30, 2021 and December 31, 2020, respectively.

43


 

At September 30, 2021, other borrowings consisted of $33.0 million in borrowings under the Paycheck Protection Program Liquidity Facility (“PPPLF”), which were assumed as part of the Merger. The PPPLF is a program designated to facilitate lending by financial institutions to small businesses under the PPP provision of the CARES Act. At December 31, 2020, other borrowings consisted of $1.1 million in FHLB fixed rate advances. Additionally, subordinated debt with a fair value of $20.7 million was assumed as part of the Merger. These notes bear interest at a fixed interest rate of 5.0% per year for five years and then float at an index tied to the Secured Overnight Finance Rate ("SOFR"). The notes have a term of ten years, with a maturity date of October 1, 2030. The notes are redeemable at the option of the Company, in whole or in part, subject to any required regulatory approvals after five years.

Total shareholders’ equity increased by $59.3 million, or 127.5%, from $50.7 million at December 31, 2020, to $110.0 million at September 30, 2021. The increase was primarily attributable to the Merger which added $61.4 million to shareholders' equity. This addition to equity was partially offset by net loss for the nine months ended September 30, 2021 of $499 thousand, dividends paid of $725 thousand and other comprehensive loss for the nine months ended September 30, 2020 of $885 thousand.

Comparison of Results of Operations for the Three Months Ended September 30, 2021 and 2020

General: Net loss was $2.8 million for the three months ended September 30, 2021, or $(0.45) per diluted share, a decrease in income of $3.8 million compared to net income of $1.1 million, or $0.18 per diluted share, for the three months ended September 30, 2020.

Net loss for the three months ended September 30, 2021, reflected the results of GNBF for the period from July 1, 2021 through September 17, 2021 and the results of the combined company following the completion of the Merger on September 18, 2021 through September 30, 2021.

Net loss for the three months ended September 30, 2021, as compared to the same prior year period was the result of an increase in noninterest expenses of $4.5 million, an increase in the provision for loan losses of $413 thousand and a decrease in non-interest income of $155 thousand, partially offset by an increase in net interest income before provision for loan losses of $529 thousand, and an increase in income tax benefit of $705 thousand.

Analysis of Net Interest Income

Net interest income represents the difference between the interest the Company earns on its interest-earning assets, such as loans and investment securities, and the expense the Company pays on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates the Company earns or pays on them.

44


 

Average Balances, Interest and Average Yields: The following table sets forth certain information relating to average balance sheets and reflects the average annualized yield on interest-earning assets and average annualized cost of interest-bearing liabilities, interest earned and interest paid for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for loan losses, but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

 

 

 

For the Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

Avg Bal

 

 

Interest

 

 

Yield/Rate

 

 

Avg Bal

 

 

Interest

 

 

Yield/Rate

 

Int. Earn. Cash

 

$

53,214

 

 

$

134

 

 

 

1.00

%

 

$

48,051

 

 

$

117

 

 

 

0.97

%

Investments

 

 

120,684

 

 

 

502

 

 

 

1.65

%

 

 

116,075

 

 

 

570

 

 

 

1.95

%

Total Cash Equiv. and Investments

 

 

173,898

 

 

 

636

 

 

 

1.45

%

 

 

164,126

 

 

 

687

 

 

 

1.66

%

Total Loans

 

 

313,636

 

 

 

3,267

 

 

 

4.13

%

 

 

229,663

 

 

 

2,787

 

 

 

4.81

%

Total Earning Assets

 

 

487,534

 

 

 

3,903

 

 

 

3.18

%

 

 

393,789

 

 

 

3,474

 

 

 

3.50

%

Other Assets

 

 

30,471

 

 

 

 

 

 

 

 

 

18,783

 

 

 

 

 

 

 

Total Assets

 

$

518,005

 

 

 

 

 

 

 

 

$

412,572

 

 

 

 

 

 

 

Interest bearing demand

 

$

168,662

 

 

$

264

 

 

 

0.62

%

 

$

149,925

 

 

$

327

 

 

 

0.87

%

Money market demand

 

 

96,450

 

 

 

37

 

 

 

0.15

%

 

 

71,371

 

 

 

17

 

 

 

0.09

%

Time deposits

 

 

71,219

 

 

 

203

 

 

 

1.13

%

 

 

82,748

 

 

 

297

 

 

 

1.42

%

Total Borrowings

 

 

8,172

 

 

 

51

 

 

 

2.48

%

 

 

1,776

 

 

 

14

 

 

 

3.13

%

Total Interest-Bearing Liabilities

 

 

344,503

 

 

 

555

 

 

 

0.64

%

 

 

305,820

 

 

 

655

 

 

 

0.85

%

Non Int Bearing Deposits

 

 

90,429

 

 

 

 

 

 

 

 

 

64,528

 

 

 

 

 

 

 

Total Cost of Funds

 

$

434,932

 

 

$

555

 

 

 

0.51

%

 

$

370,348

 

 

$

655

 

 

 

0.70

%

Other Liabilities

 

 

4,459

 

 

 

 

 

 

 

 

 

5,193

 

 

 

 

 

 

 

Total Liabilities

 

$

439,391

 

 

 

 

 

 

 

 

$

375,541

 

 

 

 

 

 

 

Equity

 

$

78,614

 

 

 

 

 

 

 

 

$

48,206

 

 

 

 

 

 

 

Total Liabilities & Equity

 

$

518,005

 

 

 

 

 

 

 

 

$

423,747

 

 

 

 

 

 

 

Net Interest Income

 

 

 

 

$

3,348

 

 

 

 

 

 

 

 

$

2,819

 

 

 

 

Net Interest Spread

 

 

 

 

 

 

 

 

2.67

%

 

 

 

 

 

 

 

 

2.80

%

Net Interest Margin

 

 

 

 

 

 

 

 

2.72

%

 

 

 

 

 

 

 

 

2.84

%

 

Rate/Volume Analysis

The following table reflects the sensitivity of the Company’s interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated.

 

 

 

Three Months Ended September 30, 2021 vs. 2020
Increase (Decrease) Due To:

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net

 

Interest Income:

 

 

 

 

 

 

 

 

 

Int. Earn. Cash

 

$

4

 

 

$

13

 

 

$

17

 

Investments

 

 

(97

)

 

 

29

 

 

 

(68

)

Total Loans

 

 

(206

)

 

 

686

 

 

 

480

 

Total Earning Assets

 

 

(299

)

 

 

728

 

 

 

429

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

(113

)

 

 

50

 

 

 

(63

)

Money market demand

 

 

13

 

 

 

7

 

 

 

20

 

Time deposits

 

 

(56

)

 

 

(38

)

 

 

(94

)

Total Borrowings

 

 

(3

)

 

 

40

 

 

 

37

 

Total Interest-Bearing Liabilities

 

 

(159

)

 

 

59

 

 

 

(100

)

Change in Net Interest Income

 

$

(140

)

 

$

669

 

 

$

529

 

 

Net Interest Income: Net interest income before provision for loan losses increased by $529 thousand, or 18.8%, to $3.3 million for the three months ended September 30, 2021, compared to $2.8 million for the three months ended September 30, 2020. This increase can be mostly attributed to an increase in interest income resulting from a higher average balance in loans, as well as a decrease in

45


 

interest expense resulting from decreased rates paid on interest-bearing liabilities. The provision for loan losses increased by $413 thousand from $44 thousand for the three months ended September 30, 2020 to $457 thousand for the same period in 2021.

Interest Income: Interest income increased to $3.9 million for the three months ended September 30, 2021, compared with $3.5 million for the three months September 30, 2020. The growth in average balance of earning assets which increased $93.7 million to $487.5 million for the three months ended September 30, 2021 compared to $393.8 million for the comparable period in 2020 contributed $728 thousand in growth of interest income. This growth was partially offset by a decrease in average yield on earning assets which decreased 32 basis points on an annualized basis from 3.50% for the three months ended September 30, 2020 to 3.18% for the three months ended September 30, 2021. In general, the Company experienced a decrease in most all rates on earning assets as a result of the Federal Reserve decreasing the range for the Fed Funds target rate to 0% to 0.25% as of March 31, 2020. This rate reduction along with increased competition for loan originations has resulted in new loans originated since September 30, 2020, generally, earning a lower percentage of interest compared to the loan portfolio existing at September 30, 2020.

Interest Expense: Interest expense decreased by $100 thousand or 15.3% to $555 thousand for the three months ended September 30, 2021, compared to $655 thousand for the three months ended September 30, 2020. The decrease in interest expense was primarily due to the decrease in rates paid on interest bearing liabilities, which decreased 21 basis points on an annualized basis from 0.85% for the three months ended September 30, 2020 to 0.64% for the three months ended September 30, 2021. This decrease in rates was partially offset by an increase in average balances of interest bearing liabilities, which increased $38.7 million to $344.5 million for the three months ended September 30, 2021 compared to $305.8 million for the comparative period in 2020. While the aforementioned lower rate environment has helped the Company reduce overall cost of funds, the evolution of our business has also played a role in this reduction of cost. As the Company continues to grow and mature, we have been able to continue to foster customer relationships that grow core deposits and decrease its reliance upon higher cost time deposits.

Provision for Loan Losses: The provision for loan losses increased by $413 thousand from $44 thousand for the three months ended September 30, 2020 to $457 thousand for the three months ended September 30, 2021. During the three months ended September 30, 2021, management noted that a total of 10 loans with an outstanding principal balance of $1.4 million had migrated from the Pass risk rating category to the Substandard category resulting in a need to increase the provision for loan losses. Additionally, management adjusted the qualitative allowance factors to reflect a change in management over the credit portfolio, also adding to the current quarter provision when compared to the same period in the prior year.

The Company completes a comprehensive quarterly evaluation to determine its provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, and changes in net loan balances, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors.

Refer to Note 4 of the Notes to the Consolidated Financial Statement for additional details on the provision for loan losses.

Non-interest Income: Non-interest income decreased by $155 thousand to $371 thousand for the three months ended September 30, 2021, from the $526 thousand recognized during the same period of 2020. The decrease was the result of the Company earning $146 thousand less in gains on sale of residential mortgages to the secondary market for the three months ended September 30, 2021 compared to the same period in 2020.

Non-interest Expenses: Non-interest expenses increased $4.5 million or 216.4%, from $2.1 million for the three months ended September 30, 2020, to $6.6 million for the three months ended September 30, 2021. The increase was largely due to Merger related expenses which totaled $3.9 million and represent one-time expenses that have been specifically incurred as a result of the Merger and management would not expect to incur these expenses in future periods where a merger is not present. Additionally, the Company noted (1) an increase of $61 thousand in occupancy expense related to increased property maintenance costs and lease costs for LINKBANK locations post-merger; (2) an increase of $130 thousand in equipment and data processing expenses related to the additional costs contributed to maintaining two operating systems until our system conversion was completed on October 15, 2021; and (3) an increase in FDIC insurance costs of $77 thousand.

Income Tax Benefit/Expense: Income tax benefit for the three months ended September 30, 2021 totaled $542 thousand compared to income tax expense of $163 thousand for the same period in 2020. The income tax benefit recognized for the three months ended September 30, 2021 was the direct result of our net loss adjusted for tax free income and non-deductible expenses including merger related expenses. Since the tax free income did not exceeded our estimated non-deductible expenses for the three months ended September 30, 2021, the Company recognized an income tax benefit at an effective tax rate of 16% which is less than our statutory tax

46


 

rate of 21%. This is compared to income tax expense for the three months ended September 30, 2020 which resulted in an effective tax rate of 13.6%.

Comparison of Results of Operations for the Nine Months Ended September 30, 2021 and 2020

General: Net loss was $499 thousand for the nine months ended September 30, 2021, or $(0.08) per diluted share, a decrease in income of $3.7 million, compared to net income of $3.2 million, or $0.57 per diluted share, for the nine months ended September 30, 2020.

Net loss for the nine months ended September 30, 2021, reflected the results of GNBF for the period from January 1, 2021 through September 17, 2021 and the results of the combined company following the completion of the Merger on September 18, 2021 through September 30, 2021.

Net loss for the nine months ended September 30, 2021, as compared to the same prior year period, was driven by an increase in noninterest expenses of $4.8 million and an increase in provision for loan losses of $410 thousand. These increases in expense were partially offset by an increase in net interest income before provision for loan losses of $393 thousand, an increase in non-interest income of $388 thousand, and an increase in income tax benefit of $680 thousand.

Analysis of Net Interest Income

Net interest income represents the difference between the interest the Company earns on its interest-earning assets, such as loans and investment securities, and the expense the Company pays on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates the Company earns or pays on them.

Average Balances, Interest and Average Yields: The following table sets forth certain information relating to average balance sheets and reflects the average annualized yield on interest-earning assets and average annualized cost of interest-bearing liabilities, interest earned and interest paid for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for loan losses, but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

 

 

 

For the Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

Avg Bal

 

 

Interest

 

 

Yield/Rate

 

 

Avg Bal

 

 

Interest

 

 

Yield/Rate

 

Int. Earn. Cash

 

$

51,665

 

 

$

362

 

 

 

0.94

%

 

$

44,105

 

 

$

411

 

 

 

1.25

%

Investments

 

 

128,202

 

 

 

1,559

 

 

 

1.63

%

 

 

107,307

 

 

 

1,741

 

 

 

2.17

%

Total Cash Equiv. and Investments

 

 

179,867

 

 

 

1,921

 

 

 

1.43

%

 

 

151,412

 

 

 

2,152

 

 

 

1.90

%

Total Loans

 

 

262,051

 

 

 

8,638

 

 

 

4.41

%

 

 

232,174

 

 

 

8,570

 

 

 

4.94

%

Total Earning Assets

 

 

441,919

 

 

 

10,559

 

 

 

3.19

%

 

 

383,586

 

 

 

10,722

 

 

 

3.74

%

Other Assets

 

 

21,729

 

 

 

 

 

 

 

 

 

20,263

 

 

 

 

 

 

 

Total Assets

 

$

463,647

 

 

 

 

 

 

 

 

$

403,849

 

 

 

 

 

 

 

Interest bearing demand

 

$

162,587

 

 

$

800

 

 

 

0.66

%

 

$

136,311

 

 

$

1,010

 

 

 

0.99

%

Money market demand

 

 

79,637

 

 

 

73

 

 

 

0.12

%

 

 

64,745

 

 

 

47

 

 

 

0.10

%

Time deposits

 

 

83,495

 

 

 

597

 

 

 

0.96

%

 

 

87,824

 

 

 

982

 

 

 

1.49

%

Total Borrowings

 

 

2,236

 

 

 

62

 

 

 

3.71

%

 

 

2,148

 

 

 

49

 

 

 

3.05

%

Total Interest-Bearing Liabilities

 

 

327,954

 

 

 

1,532

 

 

 

0.62

%

 

 

291,028

 

 

 

2,088

 

 

 

0.96

%

Non Int Bearing Deposits

 

 

78,770

 

 

 

 

 

 

 

 

 

60,914

 

 

 

 

 

 

 

Total Cost of Funds

 

$

406,724

 

 

$

1,532

 

 

 

0.50

%

 

$

351,942

 

 

$

2,088

 

 

 

0.79

%

Other Liabilities

 

 

4,152

 

 

 

 

 

 

 

 

 

3,487

 

 

 

 

 

 

 

Total Liabilities

 

$

410,876

 

 

 

 

 

 

 

 

$

355,429

 

 

 

 

 

 

 

Equity

 

$

52,771

 

 

 

 

 

 

 

 

$

48,420

 

 

 

 

 

 

 

Total Liabilities & Equity

 

$

463,647

 

 

 

 

 

 

 

 

$

403,849

 

 

 

 

 

 

 

Net Interest Income

 

 

 

 

$

9,027

 

 

 

 

 

 

 

 

$

8,634

 

 

 

 

Net Interest Spread

 

 

 

 

 

 

 

 

2.69

%

 

 

 

 

 

 

 

 

2.94

%

Net Interest Margin

 

 

 

 

 

 

 

 

2.73

%

 

 

 

 

 

 

 

 

3.01

%

 

47


 

 

Rate/Volume Analysis

The following table reflects the sensitivity of the Company’s interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated.

 

 

 

Nine Months Ended September 30, 2021 vs. 2020
Increase (Decrease) Due To:

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net

 

Interest Income:

 

 

 

 

 

 

 

 

 

Int. Earn. Cash

 

$

(102

)

 

$

53

 

 

$

(49

)

Investments

 

 

(436

)

 

 

254

 

 

 

(182

)

Total Loans

 

 

(917

)

 

 

985

 

 

 

68

 

Total Earning Assets

 

 

(1,455

)

 

 

1,292

 

 

 

(163

)

Interest Expense:

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

(339

)

 

 

129

 

 

 

(210

)

Money market demand

 

 

12

 

 

 

14

 

 

 

26

 

Time deposits

 

 

(354

)

 

 

(31

)

 

 

(385

)

Total Borrowings

 

 

11

 

 

 

2

 

 

 

13

 

Total Interest-Bearing Liabilities

 

 

(670

)

 

 

114

 

 

 

(556

)

Change in Net Interest Income

 

$

(784

)

 

$

1,177

 

 

$

393

 

 

Net Interest Income: Net interest income before provision for loan losses increased by $393 thousand, or 4.6%, to $9.0 million for the nine months ended September 30, 2021, compared to $8.6 million for the nine months ended September 30, 2020. This increase can be mostly attributed to a decrease in interest expense resulting from decreased rates paid on interest-bearing liabilities. The provision for loan losses increased by $410 thousand from $138 thousand for the nine months ended September 30, 2020 to $548 thousand for the same period in 2021.

Interest Income: Interest income decreased to $10.6 million for the nine months ended September 30, 2021, compared with $10.7 million for the nine months ended September 30, 2020. The average yield on the earning assets decreased 54 basis points on an annualized basis from 3.73% for the nine months ended September 30, 2020 to 3.19% for the nine months ended September 30, 2021. This decrease in rates was partially offset by the growth in average balance of earning assets which increased $58.3 million to $441.9 million for the nine months ended September 30, 2021 compared to $383.6 million for the comparable period in 2020. In general, the Company experienced a decrease in most all rates on earning assets as a result of the Federal Reserve decreasing the range for the Fed Funds target rate to 0% to 0.25% as of March 31, 2020. This rate reduction along with increased competition for loan originations has resulted in new loans originated since September 30, 2020, generally, earning a lower percentage of interest compared to the loan portfolio existing at September 30, 2020.

Interest Expense: Interest expense decreased by $556 thousand or 26.6% to $1.5 million for the nine months ended September 30, 2021, compared to $2.1 million for the nine months ended September 30, 2020. The decrease in interest expense was primarily due to the decrease in average rates paid on interest bearing liabilities, which decreased 34 basis points on an annualized basis from 0.96% for the nine months ended September 30, 2020 to 0.62% for the nine months ended September 30, 2021. This decrease in average rates was partially offset by an increase in average balances of interest bearing liabilities, which increased $37.0 million to $328.0 million for the nine months ended September 30, 2021 compared to $291.0 million for the comparative period in 2020. While the aforementioned lower interest rate environment has helped the Company reduce overall cost of funds, the evolution of our business has also played a role in this reduction of cost. As the Company continues to grow and mature, we have been able to continue to foster customer relationships that grow core deposits and decrease its reliance upon higher cost time deposits.

Provision for Loan Losses: The provision for loan losses increased by $410 thousand from $138 thousand for the nine months ended September 30, 2020 to $548 thousand for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, management noted that a total of 10 loans with an outstanding principal balance of $1.4 million had migrated from the Pass risk rating category to the Substandard category resulting in a need to increase the provision for loan losses. Additionally, management adjusted the qualitative allowance factors to reflect a change in management over the credit portfolio, also adding to the current period provision when compared to the same period in the prior year.

The Company completes a comprehensive quarterly evaluation to determine its provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, and changes in net loan balances, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors.

48


 

Refer to Note 4 of the Notes to the Consolidated Financial Statement for additional details on the provision for loan losses.

Non-interest Income: Non-interest income increased by $388 thousand to $1.6 million for the nine months ended September 30, 2021, from the $1.2 million recognized during the same period of 2020. The increase was mostly attributable to growth in fee income related to mortgage servicing fees as well as an increase in gains on sale of mortgage loans for the nine months ended September 30, 2021 compared to the same period 2020.

Non-interest Expenses: Non-interest expenses increased $4.8 million or 81.0%, from $5.9 million for the nine months ended September 30, 2020, to $10.7 million for the nine months ended September 30, 2021. The increase was largely due to Merger related expenses which totaled $4.0 million and represent one-time expenses that have been specifically incurred as a result of the Merger and management would not expect to incur these expenses in future periods where a merger is not present. Additionally, the Company noted (1) an increase of $67 thousand in occupancy expense related to increased property maintenance costs and lease costs for LINKBANK locations post-merger; (2) an increase of $235 thousand in equipment and data processing expenses mostly related to the additional costs attributed to maintaining two operating systems until our system conversion was completed on October 15, 2021; and (3) an increase in FDIC insurance costs of $102 thousand.

Income Tax Benefit/Expense: Income tax benefit for the nine months ended September 30, 2021 totaled $167 thousand compared to income tax expense of $513 thousand for the same period in 2020. The income tax benefit recognized for the nine months ended September 30, 2021 was the direct result of our net loss adjusted for tax free income and non-deductible expenses including Merger related expenses. Since the tax free income exceeded our estimated non-deductible expenses the Company recognized an income tax benefit at an effective tax rate of 25% compared to income tax expense for the same period in 2020 at an effective rate of 13.6%.

 

Liquidity, Commitments, and Capital Resources

The Company’s liquidity, represented by cash and due from banks, is a product of our operating, investing and financing activities. The Company’s primary sources of funds are deposits, principal repayments of securities and outstanding loans, and funds provided from operations. In addition, the Company invests excess funds in short-term interest-earnings assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities.

The Company strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Company is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Our attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of the Company’s business management. We manages our liquidity in accordance with a board of directors-approved asset liability policy, which is administered by the Company’s asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Company’s board of directors.

The Company reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. Certificates of deposit due within one year of September 30, 2021, totaled $138.3 million, or 68.6% of our certificates of deposit, and 17.2% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered. While deposits are the Company’s primary source of funds, when needed the Company is also able to generate cash through borrowings from the Federal Home Loan Bank of Pittsburgh (“FHLB”). At September 30, 2021, the Company had remaining available capacity with FHLB, subject to certain collateral restrictions, of approximately $146.6 million.

Consistent with the Company’s goals to operate as a sound and profitable financial institution, the Company actively seeks to maintain the Bank's status as a well-capitalized institution in accordance with regulatory standards. As of September 30, 2021 and December 31, 2020, the Bank met the capital requirements to be considered “well capitalized.” See Note 10 within the Notes to the Consolidated Financial Statements for more information regarding our capital resources.

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Off-Balance Sheet Arrangements and Contractual Obligations

See Note 8 within the Notes to the Consolidated Financial Statements beginning for more information regarding the Company’s off-balance sheet arrangements.

For disclosures of the Company’s future obligations under operating leases, please see Note 9 within the Notes to the Consolidated Financial Statements. For disclosures of the Company’s contractual obligations related to certificates of deposits, please see Note 6 within the Notes to the Consolidated Financial Statements.

Critical Accounting Policies

It is management’s opinion that accounting estimates covering certain aspects of the Company’s business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity required in making such estimates. See Note 1 of the Notes to the Consolidated Financial Statements for our accounting policies.

Recently Issued Accounting Standards

Recently issued accounting standards are included in Note 1 of the Notes to the Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2021.

Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

At September 30, 2021, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. In addition, no material proceedings are pending or known to be threatened or contemplated against the Company or its subsidiary by governmental authorities.

Item 1A – Risk Factors

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

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Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

EXHIBIT INDEX

 

 

 

Exhibit
Number

 

Description

 

 

 

3.1

Articles of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to Form S-4 Registration Statement, filed May 7, 2021

 

 

3.2

Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to Form S-4 Registration Statement, filed May 7, 2021

 

 

31.1

Certification of Principal Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

 

 

31.2

Certification of Principal Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

 

 

32

Section 1350 Certification

 

 

101 INS**

The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document

 

 

101 SCH**

Inline XBRL Taxonomy Extension Schema Document

 

 

101 CAL**

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101 DEF**

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

101 LAB**

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

101 PRE**

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

104

Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive date file because its XBRL tags are embedded with the inline XBRL document.

** Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Condition as of September 30, 2021 and December 31, 2020; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020; (v) Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020; and (vi) Notes to Unaudited Consolidated Financial Statements.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 15, 2021

LINKBANCORP, INC.

 

By:

/s/ Andrew Samuel

 

Andrew Samuel

 

Vice Chairman and Chief Executive Officer

 

(Principal Executive Officer)

 

 

By:

/s/ Kristofer Paul

 

Kristofer Paul

 

Chief Financial Officer

 

(Principal Financial Officer)

 

(Principal Accounting Officer)

 

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