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LINKBANCORP, Inc. - Quarter Report: 2022 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, 2022

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 001-41505

 

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.)

 

1250 Camp Hill Bypass, Suite 202

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: 3045 Market St., Camp Hill, PA 17011

 

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

 

 

 

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange
on which registered

 

Common Stock, $0.01 par value per share

LNKB

The NASDAQ Stock Market LLC

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: 14,939,640 shares as of November 9, 2022.

 

 


 

 

LINKBANCORP, Inc.

FORM 10-Q

INDEX

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

PAGE

 

Item 1 -

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

1

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021

2

 

Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2022 and 2021

3

 

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021

4

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

6

 

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2 -

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

38

Item 3 -

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4 -

Controls and Procedures

50

 

 

PART II - OTHER INFORMATION

 

Item 1 -

Legal Proceedings

51

Item 1A -

Risk Factors

51

Item 2 -

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3 -

Defaults Upon Senior Securities

51

Item 4 -

Mine Safety Disclosures

51

Item 5 -

Other Information

51

Item 6 -

Exhibits

52

SIGNATURES

53

 

 

1


 

PART I - FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

LINKBANCORP, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

 

 

 

September 30, 2022

 

 

December 31, 2021

 

(In Thousands, except share and per share data)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Noninterest-bearing cash equivalents

 

$

8,711

 

 

$

8,620

 

Interest-bearing deposits with other institutions

 

 

66,085

 

 

 

13,970

 

Cash and cash equivalents

 

 

74,796

 

 

 

22,590

 

Certificates of deposit with other banks

 

 

8,358

 

 

 

12,828

 

Securities available for sale, at fair value

 

 

78,698

 

 

 

103,783

 

Securities held to maturity (Fair value of $30,915 and $0, respectively)

 

 

32,571

 

 

 

 

Loans held for sale

 

 

 

 

 

3,860

 

Loans receivable

 

 

863,969

 

 

 

714,816

 

Less: Allowance for loan losses

 

 

(4,569

)

 

 

(3,152

)

Net loans

 

 

859,400

 

 

 

711,664

 

Investments in restricted bank stock

 

 

3,327

 

 

 

2,685

 

Premises and equipment, net

 

 

9,087

 

 

 

5,289

 

Right-of-Use Asset – Premises

 

 

8,920

 

 

 

4,680

 

Bank-owned life insurance

 

 

19,127

 

 

 

18,787

 

Goodwill and other intangible assets

 

 

36,955

 

 

 

37,152

 

Deferred tax asset

 

 

6,378

 

 

 

4,038

 

Accrued interest receivable and other assets

 

 

7,256

 

 

 

5,407

 

TOTAL ASSETS

 

$

1,144,873

 

 

$

932,763

 

LIABILITIES

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand, noninterest bearing

 

$

184,857

 

 

$

129,243

 

Interest bearing

 

 

766,853

 

 

 

642,422

 

Total deposits

 

 

951,710

 

 

 

771,665

 

Other borrowings

 

 

 

 

 

19,814

 

Subordinated debt

 

 

40,526

 

 

 

20,696

 

Operating lease liabilities

 

 

8,921

 

 

 

4,680

 

Accrued interest payable and other liabilities

 

 

6,774

 

 

 

6,285

 

TOTAL LIABILITIES

 

 

1,007,931

 

 

 

823,140

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock (At September 30, 2022 and December 31, 2021: no par value; 5,000,000 shares authorized; no shares issued and outstanding.)

 

 

 

 

 

 

Common stock (At September 30, 2022 and December 31, 2021: $0.01 par value; 25,000,000 shares authorized; 14,939,640 and 9,826,435 shares issued and outstanding, respectively.)

 

 

149

 

 

 

99

 

Surplus

 

 

117,698

 

 

 

82,910

 

Retained earnings

 

 

27,525

 

 

 

24,836

 

Accumulated other comprehensive (loss) income

 

 

(8,430

)

 

 

1,778

 

TOTAL SHAREHOLDERS’ EQUITY

 

 

136,942

 

 

 

109,623

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,144,873

 

 

$

932,763

 

 

See accompanying notes to the unaudited consolidated financial statements.

1


 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

(In Thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

9,410

 

 

$

3,267

 

 

$

25,287

 

 

$

8,638

 

Investment securities and certificates of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

745

 

 

 

202

 

 

 

1,608

 

 

 

649

 

Exempt from federal income tax

 

 

268

 

 

 

300

 

 

 

857

 

 

 

906

 

Other

 

 

157

 

 

 

134

 

 

 

306

 

 

 

366

 

Total interest and dividend income

 

 

10,580

 

 

 

3,903

 

 

 

28,058

 

 

 

10,559

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,389

 

 

 

504

 

 

 

2,872

 

 

 

1,470

 

Other borrowings

 

 

82

 

 

 

14

 

 

 

106

 

 

 

25

 

Subordinated debt

 

 

439

 

 

 

37

 

 

 

1,080

 

 

 

37

 

Total interest expense

 

 

1,910

 

 

 

555

 

 

 

4,058

 

 

 

1,532

 

NET INTEREST INCOME BEFORE PROVISION FOR
   LOAN LOSSES

 

 

8,670

 

 

 

3,348

 

 

 

24,000

 

 

 

9,027

 

Provision for loan losses

 

 

515

 

 

 

457

 

 

 

1,190

 

 

 

548

 

NET INTEREST INCOME AFTER PROVISION FOR
   LOAN LOSSES

 

 

8,155

 

 

 

2,891

 

 

 

22,810

 

 

 

8,479

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

216

 

 

 

177

 

 

 

644

 

 

 

517

 

Bank-owned life insurance

 

 

156

 

 

 

54

 

 

 

381

 

 

 

176

 

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

 

 

 

 

 

 

 

 

13

 

 

 

 

Gain on sale of loans

 

 

420

 

 

 

53

 

 

 

753

 

 

 

316

 

Other

 

 

249

 

 

 

87

 

 

 

658

 

 

 

549

 

Total noninterest income

 

 

1,041

 

 

 

371

 

 

 

2,449

 

 

 

1,558

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

4,234

 

 

 

1,151

 

 

 

11,612

 

 

 

3,397

 

Occupancy

 

 

596

 

 

 

232

 

 

 

1,503

 

 

 

507

 

Equipment and data processing

 

 

666

 

 

 

335

 

 

 

1,858

 

 

 

803

 

Professional fees

 

 

330

 

 

 

75

 

 

 

865

 

 

 

264

 

FDIC insurance

 

 

141

 

 

 

90

 

 

 

483

 

 

 

150

 

Bank shares tax

 

 

201

 

 

 

87

 

 

 

585

 

 

 

260

 

Merger Related Expenses

 

 

 

 

 

3,864

 

 

 

 

 

 

3,968

 

Other

 

 

877

 

 

 

767

 

 

 

2,481

 

 

 

1,354

 

Total noninterest expense

 

 

7,045

 

 

 

6,601

 

 

 

19,387

 

 

 

10,703

 

Income (Loss) before income tax expense (benefit)

 

 

2,151

 

 

 

(3,339

)

 

 

5,872

 

 

 

(666

)

Income tax expense (benefit)

 

 

379

 

 

 

(542

)

 

 

970

 

 

 

(167

)

NET INCOME (LOSS)

 

$

1,772

 

 

$

(2,797

)

 

$

4,902

 

 

$

(499

)

EARNINGS (LOSS) PER SHARE, BASIC

 

$

0.17

 

 

$

(0.45

)

 

$

0.49

 

 

 

(0.08

)

EARNINGS (LOSS) PER SHARE, DILUTED

 

$

0.17

 

 

$

(0.45

)

 

$

0.48

 

 

 

(0.08

)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING,

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

10,590,079

 

 

 

6,274,250

 

 

 

10,087,341

 

 

 

5,888,008

 

DILUTED

 

 

10,590,079

 

 

 

6,274,250

 

 

 

10,136,457

 

 

 

5,888,008

 

 

See accompanying notes to the unaudited consolidated financial statements.

2


 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,772

 

 

$

(2,797

)

 

$

4,902

 

 

$

(499

)

Components of other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(4,484

)

 

 

(599

)

 

 

(12,909

)

 

 

(1,120

)

Tax effect

 

 

943

 

 

 

126

 

 

 

2,711

 

 

 

235

 

Net of tax amount

 

 

(3,541

)

 

 

(473

)

 

 

(10,198

)

 

 

(885

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for debt securities gains realized in net income

 

 

 

 

 

 

 

 

(13

)

 

 

 

Tax effect

 

 

 

 

 

 

 

 

3

 

 

 

 

Net of tax amount

 

 

 

 

 

 

 

 

(10

)

 

 

 

Total other comprehensive (loss) income

 

 

(3,541

)

 

 

(473

)

 

 

(10,208

)

 

 

(885

)

Total comprehensive (loss) income

 

$

(1,769

)

 

$

(3,270

)

 

$

(5,306

)

 

$

(1,384

)

 

See accompanying notes to the unaudited consolidated financial statements.

3


 

LINKBANCORP, Inc. and Subsidiaries

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)

 

 

Total

 

 

 

 

Balance, June 30, 2022

 

 

9,838,435

 

 

$

99

 

 

$

83,070

 

 

$

26,491

 

 

$

(4,889

)

 

$

104,771

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,772

 

 

 

 

 

 

1,772

 

 

 

 

Dividends declared ($0.075 per share)

 

 

 

 

 

 

 

 

 

 

 

(738

)

 

 

 

 

 

(738

)

 

 

 

Issuance of shares of common stock, net proceeds

 

 

5,101,205

 

 

 

50

 

 

 

34,609

 

 

 

0

 

 

 

 

 

 

34,659

 

 

 

 

Stock option expense

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

19

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,541

)

 

 

(3,541

)

 

 

 

Balance, September 30, 2022

 

 

14,939,640

 

 

$

149

 

 

$

117,698

 

 

$

27,525

 

 

$

(8,430

)

 

$

136,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

$

 

 

$

109,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* 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


 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total

 

 

 

 

Balance, December 31, 2021

 

 

9,826,435

 

 

$

99

 

 

$

82,910

 

 

$

24,836

 

 

$

1,778

 

 

$

109,623

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,902

 

 

 

 

 

 

4,902

 

 

 

 

Dividends declared ($0.225 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,213

)

 

 

 

 

 

(2,213

)

 

 

 

Issuance of shares of common stock, net proceeds

 

 

5,101,205

 

 

 

50

 

 

 

34,609

 

 

 

 

 

 

 

 

 

34,659

 

 

 

 

Exercise of stock options

 

 

12,000

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

120

 

 

 

 

Stock option expense

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

59

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,208

)

 

 

(10,208

)

 

 

 

Balance, September 30, 2022

 

 

14,939,640

 

 

$

149

 

 

$

117,698

 

 

$

27,525

 

 

$

(8,430

)

 

$

136,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

$

 

 

$

109,961

 

 

* Common Stock Shares, 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 Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

(In Thousands)

 

2022

 

 

2021

 

OPERATING ACTIVITIES

 

 

 

Net income

 

$

4,902

 

 

$

(499

)

Adjustments to reconcile net income to net cash (used for) provided by operating activities:

 

 

 

 

 

 

Provision for loan losses

 

 

1,190

 

 

 

548

 

Depreciation

 

 

607

 

 

 

376

 

Amortization of intangible assets

 

 

197

 

 

 

320

 

(Accretion) amortization of premiums and (discounts), net

 

 

(903

)

 

 

1,170

 

Origination of loans to be sold

 

 

(9,362

)

 

 

(12,079

)

Proceeds from loan sales

 

 

10,115

 

 

 

13,192

 

Gain on sale of loans

 

 

(753

)

 

 

(316

)

Share-based and deferred compensation

 

 

493

 

 

 

 

Bank-owned life insurance income

 

 

(381

)

 

 

(176

)

Gain on sale of debt securities, available for sale

 

 

(13

)

 

 

 

Change in accrued interest receivable and other assets

 

 

(1,397

)

 

 

457

 

Change in accrued interest payable and other liabilities

 

 

56

 

 

 

2,424

 

Net cash provided by operating activities

 

 

4,751

 

 

 

5,417

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

Proceeds from sales

 

 

513

 

 

 

-

 

Proceeds from calls and maturities

 

 

1,150

 

 

 

1,380

 

Proceeds from principal repayments

 

 

9,748

 

 

 

16,332

 

Purchases

 

 

 

 

 

(14,192

)

Investment securities held to maturity

 

 

 

 

 

 

Proceeds from principal repayments

 

 

1,826

 

 

 

 

Purchases

 

 

(34,389

)

 

 

 

Purchase of certificates of deposit with other banks

 

 

 

 

 

(249

)

Proceeds from redemptions of certificates of deposit with other banks

 

 

4,470

 

 

 

4,223

 

Purchase of restricted investment in bank stocks

 

 

(4,525

)

 

 

(500

)

Redemption of restricted investment in bank stocks

 

 

3,883

 

 

 

221

 

Increase in loans, net

 

 

(143,654

)

 

 

(16,708

)

Proceeds from death benefit under bank-owned life insurance

 

 

41

 

 

 

218

 

Purchase of premises and equipment

 

 

(4,405

)

 

 

(111

)

Net cash acquired through merger and acquisition

 

 

 

 

 

39,885

 

Net cash (used in) provided by investing activities

 

 

(165,342

)

 

 

30,499

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

Increase in deposits, net

 

 

180,045

 

 

 

36,311

 

Change in short-term borrowings, net

 

 

(19,814

)

 

 

 

Proceeds from issuance of subordinated debt

 

 

20,000

 

 

 

 

Repayments of other borrowings

 

 

 

 

 

(1,120

)

Issuance of shares from exercise of stock options

 

 

120

 

 

 

 

Dividends paid

 

 

(2,213

)

 

 

(725

)

Net proceeds from issuance of common stock

 

 

34,659

 

 

 

 

Net cash provided by financing activities

 

 

212,797

 

 

 

34,466

 

Increase in cash and cash equivalents

 

 

52,206

 

 

 

70,382

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

22,590

 

 

 

33,162

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

74,796

 

 

$

103,544

 

See accompanying notes to the unaudited consolidated financial statements.

 

6


 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

3,243

 

 

$

1,614

 

Income taxes

 

$

275

 

 

$

560

 

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-of-Use Asset

 

 

 

 

 

4,384

 

     Bank-owned life insurance

 

 

 

 

 

4,784

 

     Goodwill

 

 

 

 

 

33,179

 

Intangible assets

 

 

 

 

 

1,246

 

     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 non-cash assets acquired

 

 

 

 

 

61,396

 

Cash and cash equivalents acquired

 

$

 

 

$

49,962

 

See accompanying notes to the unaudited consolidated financial statements.

7


LINKBANCORP, Inc. and Subsidiaries

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" or "LINKBANCORP") is a bank holding company that operates The Gratz Bank (the "Bank"). 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. LINKBANCORP 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.

Merger with GNB Financial Services, Inc.

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 (collectively, the "Merger"). Additionally, as part of the Merger, the Company acquired 100% ownership of GNB Investments, Inc., a Delaware investment company which was wholly-owned by GNB Financial Services, Inc. at the time of Merger.

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 Solutions 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. The Bank has received all required regulatory approvals to legally change its name to LINKBANK effective November 4, 2022.

Initial Public Offering

In September 2022, the Company completed its initial public offering ("IPO") whereby it issued and sold 5,101,205 shares of common stock at a public offering price of $7.50 per share. The Company received net proceeds of $34,659 after deducting underwriting discounts and commissions of $2,487 and other offering expenses of $1,114. The Company plans to use the proceeds to support the Bank's current growth, its future growth initiatives, and for general corporate purposes. The Company's common stock now trades on the Nasdaq Capital Market under the symbol "LNKB."

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 first nine months of 2022 include the results of operations of the combined company 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. 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 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 unaudited condensed 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

8


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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. In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements.

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2022 for items that should potentially be recognized or disclosed in these unaudited condensed consolidated financial statements. The evaluation was conducted through the date these unaudited condensed consolidated financial statements were issued.

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.

Interim Financial Information

The accompanying unaudited condensed 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 months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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. The loan segments are based on collateral type.

 

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.

 

Goodwill Impairment

Goodwill is not amortized but is reviewed for potential impairment on at least an annual basis, with testing between annual tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit. In conjunction with

9


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

the IPO, the Company issued 5,101,205 shares of common stock and the Company's stock price subsequently decreased from an average closing price of $9.32 per share for the month of August 2022, to $7.50 per share upon completion of the IPO. In testing goodwill for impairment as of September 30, 2022, the Company determined that the fair value of its reporting unit exceeded its carrying value. Accordingly, there was no goodwill impairment at September 30, 2022.

 

Deferred Offering Costs

Deferred offering costs, consisting primarily of legal, accounting and other direct and incremental fees and costs related to the Company's initial public offering, are deferred. The deferred offering costs were offset against the proceeds received from the IPO upon the closing of the offering in September 2022.

Recent Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard simplifies the test for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill, which currently is Step 2 of the goodwill impairment test. Instead the goodwill impairment test will consist of a single quantitative step comparing the fair value of the reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The new standard is effective for annual and any interim goodwill impairment tests in reporting periods beginning after December 15, 2022. The adoption of this standard is not expected to have a material effect on the Company's operating results or financial condition.

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 measured at amortized cost, including loan receivables and held-to-maturity debt securities. This model is also applicable to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. In addition, the amendments in ASU 2016-03 require credit losses on available-for-sale debt securities to be presented as a valuation allowance rather than as a direct write down. This Update is intended to improve financial reporting by requiring more timely recording of credit losses on these financial instruments. 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. The Company is evaluating the impact of ASU 2016-13 and has individuals from multiple disciplines working with a third-party vendor solution to assist with the application of ASU 2016-13, which includes historical data validation, methodology selection, and the development of policies, procedures and appropriate internal controls. The Company has identified ten distinct loan portfolios for which a model has been developed. During the remainder of 2022, the Company plans to perform parallel processing of our existing allowance for loan losses compared to the CECL model, perform sensitivity analysis, determine qualitative adjustments, and execute governance and approval processes. In addition, the Company will continue researching and resolving interpretive accounting issues in the ASU, evaluating and refining processes and related controls, finalizing various related accounting policies and reporting disclosures. The Company expects 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, but recognizes that the impact of adoption and implementation could be material to the consolidated financial statements and related footnote disclosures. The Company anticipates the magnitude of the adoption of ASU 2016-13 and its related amendments will be influenced by the composition, characteristics, and quality of its loan and investment securities portfolios, and economic conditions and forecasts as of the date of adoption. For debt securities with other-than-temporary impairment ("OTTI"), the guidance will be applied prospectively. Existing PCI assets will be grandfathered and classified as purchased credit deteriorated ("PCD") assets at the date of adoption. The asset will be grossed up for the allowance for expected losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in the expected credit losses will be recorded through the allowance.

10


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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 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.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, which eliminates accounting guidance for troubled debt restructurings ("TDRs") by creditors that have adopted ASU 2016-13 and its related amendments. The amendments require that an entity evaluate whether the loan modification represents a new loan or a continuation of an existing loan, and introduce new requirements related to modifications made to borrowers experiencing financial difficulty. The amendments also require public business entities to disclose current-period gross write-offs for financing receivables by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022. For entities that have not adopted ASU 2016-13, the amendments in this update are effective at the time the entity adopts ASU 2016-13. The adoption of this standard is not expected to have a material effect on the Company's operating results or financial condition.

 

2. MERGER

Effective September 18, 2021 the Company completed its merger with GNBF by acquiring 100% of the outstanding common shares of GNBF.

Pursuant to the Merger Agreement, GNBF merged with and into LINKBANCORP with LINKBANCORP as the surviving corporation. Additionally, LINKBANK, the 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 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 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 common shares for each share they owned. The Merger Agreement provided for proration procedures intended to ensure that, in the aggregate, at least 80% of the GNBF common shares outstanding 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 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 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 LINKBANCORRP 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.

 

11


LINKBANCORP, Inc. and Subsidiaries

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:

 

(Dollars in thousands except per share amounts)

 

 

 

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

 

 

 

12


LINKBANCORP, Inc. and Subsidiaries

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 finalized the fair values of loans, intangible assets, other assets, income taxes, and liabilities as of September 18, 2022. The purchase price for the Merger is allocated in the table below.

 

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

 

 

 

 

Right-of-use asset

 

4,544

 

 

 

 

Intangible assets

 

1,246

 

 

 

 

Investment in bank owned life insurance

 

4,784

 

 

 

 

Deferred taxes

 

3,675

 

 

 

 

Other assets

 

4,394

 

 

 

Total Assets Acquired

 

489,708

 

 

 

 

 

 

 

 

 

Calculated Fair Value of Liabilities Assumed

 

 

 

 

 

Deposits

 

391,160

 

 

 

 

Long term borrowings

 

33,034

 

 

 

 

Subordinated debt

 

20,740

 

 

 

 

Operating lease liabilities

 

4,544

 

 

 

 

Other liabilities

 

2,265

 

 

 

Total Liabilities Assumed

 

451,743

 

 

 

Net Assets Acquired

 

 

 

37,965

 

Goodwill From the Merger

 

 

$

33,508

 

 

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

)

 

 

 

 

 

 

 

 

Fair Value Adjustments:

 

 

 

 

 

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

 

 

(991

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

(231

)

 

 

Subordinated debt

 

 

(765

)

 

 

 

 

 

 

 

37,965

 

Goodwill From the Merger

 

 

$

33,508

 

 

13


LINKBANCORP, Inc. and Subsidiaries

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 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.”

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'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.

 

14


LINKBANCORP, Inc. and Subsidiaries

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. The Company believed that the current lease costs were at market terms therefore no fair value adjustment is needed. LINKBANCORP 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

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.

15


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

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 as if the Merger occurred as of January 1, 2021 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, 2021. 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 at the beginning of 2021. The pro forma amounts for the three and nine months ended September 30, 2021 do not reflect the anticipated cost savings that had not yet been realized.

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(Dollars in thousands)

 

2021

 

 

2021

 

Net interest income

 

$

6,751

 

 

$

20,487

 

Non-interest income

 

 

514

 

 

 

1,970

 

Net income (loss)

 

 

(78

)

 

 

6,483

 

Basic earnings (loss) per common share

 

$

(0.01

)

 

$

0.66

 

Diluted earnings (loss) per common share

 

$

(0.01

)

 

$

0.63

 

 

 

 

 

 

 

 

 

16


LINKBANCORP, Inc. and Subsidiaries

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, 2022

 

(In Thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

914

 

 

$

-

 

 

$

(13

)

 

$

901

 

Obligations of state and political subdivisions

 

 

44,352

 

 

 

1

 

 

 

(6,006

)

 

 

38,347

 

Mortgage-backed securities in government-sponsored entities

 

 

44,102

 

 

 

-

 

 

 

(4,652

)

 

 

39,450

 

 

 

$

89,368

 

 

$

1

 

 

$

(10,671

)

 

$

78,698

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debentures

 

$

14,993

 

 

$

-

 

 

$

(883

)

 

$

14,110

 

Structured mortgage-backed securities

 

 

17,578

 

 

 

-

 

 

 

(773

)

 

 

16,805

 

 

 

$

32,571

 

 

$

-

 

 

$

(1,656

)

 

$

30,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

(In Thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

1,099

 

 

$

-

 

 

$

(15

)

 

$

1,084

 

Obligations of state and political subdivisions

 

 

46,115

 

 

 

2,405

 

 

 

(38

)

 

 

48,482

 

Mortgage-backed securities in government-sponsored entities

 

 

54,239

 

 

 

382

 

 

 

(404

)

 

 

54,217

 

 

 

$

101,453

 

 

$

2,787

 

 

$

(457

)

 

$

103,783

 

 

 

17


LINKBANCORP, Inc. and Subsidiaries

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, 2022

 

 

 

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

 

$

331

 

 

$

(1

)

 

$

570

 

 

$

(12

)

 

$

901

 

 

$

(13

)

Obligations of state and political subdivisions

 

 

35,929

 

 

 

(5,474

)

 

 

1,668

 

 

 

(532

)

 

 

37,597

 

 

 

(6,006

)

Mortgage-backed securities in government-sponsored entities

 

 

25,466

 

 

 

(2,611

)

 

 

13,984

 

 

 

(2,041

)

 

 

39,450

 

 

 

(4,652

)

 

 

$

61,726

 

 

$

(8,086

)

 

$

16,222

 

 

$

(2,585

)

 

$

77,948

 

 

$

(10,671

)

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debentures

 

$

14,110

 

 

$

(883

)

 

$

-

 

 

$

-

 

 

$

14,110

 

 

$

(883

)

Structured mortgage-backed securities

 

 

16,805

 

 

 

(773

)

 

 

-

 

 

 

-

 

 

 

16,805

 

 

 

(773

)

 

 

$

30,915

 

 

$

(1,656

)

 

$

 

 

$

 

 

$

30,915

 

 

$

(1,656

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 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

 

$

-

 

 

$

-

 

 

$

1,084

 

 

$

(15

)

 

$

1,084

 

 

$

(15

)

Obligations of state and political subdivisions

 

 

3,189

 

 

 

(38

)

 

 

-

 

 

 

-

 

 

 

3,189

 

 

 

(38

)

Mortgage-backed securities in government-sponsored entities

 

 

23,420

 

 

 

(266

)

 

 

4,687

 

 

 

(102

)

 

 

28,107

 

 

 

(368

)

 

 

$

26,609

 

 

$

(304

)

 

$

5,771

 

 

$

(117

)

 

$

32,380

 

 

$

(421

)

The Company reviews its position quarterly and believes that as of September 30, 2022 and December 31, 2021, 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 181 and 41 available for sale debt securities with unrealized losses at September 30, 2022 and December 31, 2021, respectively. There were ten and zero held to maturity debt securities with unrealized losses at September 30, 2022 and December 31, 2021, 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.

As of September 30, 2022, 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.

 

 

 

Available for Sale Securities

 

 

Held to Maturity Securities

 

(In Thousands)

 

Amortized
Cost

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Fair
Value

 

Due within one year

 

$

133

 

 

$

134

 

 

$

3,000

 

 

$

2,945

 

Due after one year through five years

 

 

6,728

 

 

 

6,497

 

 

 

11,993

 

 

 

11,165

 

Due after five years through ten years

 

 

11,958

 

 

 

11,000

 

 

 

-

 

 

 

-

 

Due after ten years

 

 

26,447

 

 

 

21,617

 

 

 

-

 

 

 

-

 

Mortgage-backed securities and Collateralized mortgage obligations

 

 

44,102

 

 

 

39,450

 

 

 

17,578

 

 

 

16,805

 

 

 

$

89,368

 

 

$

78,698

 

 

$

32,571

 

 

$

30,915

 

 

The following table summarizes sales of debt securities for the three and nine months ended September 30, 2022. There were no sales of debt securities for the three and nine months ended September 30, 2021.

18


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2022

 

 

2022

 

 Proceeds

 

 $

 

 

 

 $

 

513

 

 Gross gains

 

 

 

 

 

 

 

13

 

 Gross losses

 

 

 

 

 

 

 

 

 Net gain

 

 $

 

 

 

 $

 

13

 

 

 

The Company had pledged debt securities with a carrying value of $46,316 and $45,300 to secure public monies as of September 30, 2022 and December 31, 2021, respectively.

4.
LOANS RECEIVABLE

The portfolio segments and classes of loans are as follows:

 

(In Thousands)

 

September 30, 2022

 

 

December 31, 2021

 

Agriculture loans

 

$

13,977

 

 

$

9,341

 

Commercial loans

 

 

97,542

 

 

 

98,604

 

Paycheck Protection Program ("PPP") loans

 

 

933

 

 

 

23,774

 

Commercial real estate loans

 

 

482,367

 

 

 

338,749

 

Residential real estate loans

 

 

251,832

 

 

 

231,302

 

Consumer and other loans

 

 

11,929

 

 

 

7,087

 

Municipal loans

 

 

5,404

 

 

 

6,182

 

 

 

 

863,984

 

 

 

715,039

 

Deferred costs (fees)

 

 

(15

)

 

 

(223

)

Allowance for loan losses

 

 

(4,569

)

 

 

(3,152

)

Total

 

$

859,400

 

 

$

711,664

 

 

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 $4,183 and $10,631 as of September 30, 2022 and December 31, 2021, respectively. The decrease in these loans and extensions of credit was primarily due to a change in the composition of related parties during 2022.

 

5.
ALLOWANCE FOR LOAN LOSSES to be updated

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.

19


LINKBANCORP, Inc. and Subsidiaries

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, 2022 and December 31, 2021.

20


LINKBANCORP, Inc. and Subsidiaries

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, 2022 and 2021.

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

For the Three Months Ended September 30, 2022

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

17

 

 

$

506

 

 

$

1,786

 

 

$

1,547

 

 

$

21

 

 

$

13

 

 

$

-

 

 

$

3,890

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

25

 

 

 

 

 

 

139

 

 

 

 

 

 

 

 

 

 

 

 

164

 

Provision

 

 

21

 

 

 

96

 

 

 

427

 

 

 

(43

)

 

 

12

 

 

 

2

 

 

 

 

 

 

515

 

Ending balance

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,643

 

 

$

33

 

 

$

15

 

 

$

-

 

 

$

4,569

 

 

 

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

 

 

The following table summarizes the activity in the allowance for loan losses by loan class for the nine month periods ended September 30, 2022 and 2021.

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

For the Nine Months Ended September 30, 2022

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

23

 

 

$

582

 

 

$

799

 

 

$

1,634

 

 

$

22

 

 

$

15

 

 

$

77

 

 

$

3,152

 

Charge-offs

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Recoveries

 

 

 

 

 

32

 

 

 

 

 

 

195

 

 

 

2

 

 

 

 

 

 

 

 

 

229

 

Provision

 

 

15

 

 

 

14

 

 

 

1,415

 

 

 

(186

)

 

 

9

 

 

 

0

 

 

 

(77

)

 

 

1,190

 

Ending balance

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,643

 

 

$

33

 

 

$

15

 

 

$

0

 

 

$

4,569

 

 

 

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

 

 

21


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

The majority of the increase in the allowance for loan losses allocated to the commercial real estate loans can be attributed to the risk associated with an increase in our commercial real estate loan balances in relation to other loan categories. 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, 2022 and December 31, 2021.

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

As of September 30, 2022

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,643

 

 

$

33

 

 

$

15

 

 

$

0

 

 

$

4,569

 

Ending balance: individually
   evaluated for impairment

 

$

 

 

$

 

 

$

 

 

$

16

 

 

$

2

 

 

$

 

 

$

 

 

$

18

 

Ending balance: collectively evaluated
   for impairment

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,627

 

 

$

31

 

 

$

15

 

 

$

0

 

 

$

4,551

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

13,977

 

 

$

98,475

 

 

$

482,367

 

 

$

251,832

 

 

$

11,929

 

 

$

5,404

 

 

 

 

 

$

863,984

 

Ending balance: individually
   evaluated for impairment

 

$

100

 

 

$

35

 

 

$

2,410

 

 

$

3,140

 

 

$

2

 

 

$

 

 

 

 

 

$

5,687

 

Ending balance: loans acquired with deteriorated credit
   quality

 

$

 

 

$

 

 

$

4,218

 

 

$

593

 

 

$

 

 

$

 

 

 

 

 

$

4,811

 

Ending balance: collectively evaluated
   for impairment

 

$

13,877

 

 

$

98,440

 

 

$

475,739

 

 

$

248,099

 

 

$

11,927

 

 

$

5,404

 

 

 

 

 

$

853,486

 

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

As of December 31, 2021

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

23

 

 

$

582

 

 

$

799

 

 

$

1,634

 

 

$

22

 

 

$

15

 

 

 

77

 

 

$

3,152

 

Ending balance: individually
   evaluated for impairment

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Ending balance: collectively evaluated
   for impairment

 

$

23

 

 

$

582

 

 

$

799

 

 

$

1,634

 

 

$

22

 

 

$

15

 

 

 

77

 

 

$

3,152

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

9,341

 

 

$

122,378

 

 

$

338,749

 

 

$

231,302

 

 

$

7,087

 

 

$

6,182

 

 

 

 

 

$

715,039

 

Ending balance: individually
   evaluated for impairment

 

$

-

 

 

$

42

 

 

$

-

 

 

$

709

 

 

$

-

 

 

$

-

 

 

 

 

 

$

751

 

Ending balance: loans acquired with deteriorated credit
   quality

 

$

-

 

 

$

512

 

 

$

4,394

 

 

$

650

 

 

$

-

 

 

$

-

 

 

 

 

 

$

5,556

 

Ending balance: collectively evaluated
   for impairment

 

$

9,341

 

 

$

121,824

 

 

$

334,355

 

 

$

229,943

 

 

$

7,087

 

 

$

6,182

 

 

 

 

 

$

708,732

 

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 $4,811 and $5,556 at September 30, 2022 and December 31, 2021, respectively.

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

22


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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 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.

The following table provides activity for the accretable yield of PCI loans for the three and nine months ended September 30, 2022:

(In Thousands)

 

Three Months Ended September 30, 2022

 

 

Nine Months Ended September 30, 2022

 

Accretable yield, beginning of period

 

$

181

 

 

$

307

 

Additions

 

 

 

 

 

 

Accretion of income

 

 

(22

)

 

 

(148

)

Reclassifications from nonaccretable difference due to improvement in expected cash flows

 

 

 

 

 

 

Other changes, net

 

 

(152

)

 

 

(152

)

Accretable yield, end of period

 

$

7

 

 

$

7

 

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of September 30, 2022 and December 31, 2021. 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.

23


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following table presents the classes of the loan portfolio summarized by the internal risk rating system as of September 30, 2022 and December 31, 2021:

(In Thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

As of September 30, 2022

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Agriculture loans

 

$

13,877

 

 

$

-

 

 

$

100

 

 

$

-

 

 

$

13,977

 

Commercial and PPP loans

 

 

93,894

 

 

 

2,195

 

 

 

2,386

 

 

 

-

 

 

 

98,475

 

Commercial real estate loans

 

 

474,045

 

 

 

1,694

 

 

 

4,680

 

 

 

1,948

 

 

 

482,367

 

Residential real estate loans

 

 

246,512

 

 

 

1,422

 

 

 

3,898

 

 

 

-

 

 

 

251,832

 

Consumer loans

 

 

11,927

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

11,929

 

Municipal loans

 

 

5,404

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,404

 

Total

 

$

845,659

 

 

$

5,311

 

 

$

11,066

 

 

$

1,948

 

 

$

863,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

As of December 31, 2021

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Agriculture loans

 

$

9,341

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

9,341

 

Commercial and PPP

 

 

117,918

 

 

 

3,757

 

 

 

703

 

 

 

-

 

 

 

122,378

 

Commercial real estate loans

 

 

332,156

 

 

 

2,077

 

 

 

4,516

 

 

 

-

 

 

 

338,749

 

Residential real estate loans

 

 

228,664

 

 

 

1,657

 

 

 

981

 

 

 

-

 

 

 

231,302

 

Consumer loans

 

 

7,087

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,087

 

Municipal loans

 

 

6,182

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,182

 

Total

 

$

701,348

 

 

$

7,491

 

 

$

6,200

 

 

$

-

 

 

$

715,039

 

 

 

24


LINKBANCORP, Inc. and Subsidiaries

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 at September 30, 2022 and December 31, 2021.

 

 

September 30, 2022

 

(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

 

$

 

 

$

 

 

$

 

 

$

 

 

$

13,977

 

 

$

 

 

$

13,977

 

 

$

 

Commercial and PPP loans

 

 

18

 

 

 

19

 

 

 

13

 

 

 

50

 

 

 

98,425

 

 

 

-

 

 

 

98,475

 

 

 

13

 

Commercial real estate loans

 

 

-

 

 

 

-

 

 

 

262

 

 

 

262

 

 

 

477,887

 

 

 

4,218

 

 

 

482,367

 

 

 

73

 

Residential real estate loans

 

 

1,524

 

 

 

617

 

 

 

451

 

 

 

2,592

 

 

 

248,647

 

 

 

593

 

 

 

251,832

 

 

 

28

 

Consumer loans

 

 

24

 

 

 

-

 

 

 

2

 

 

 

26

 

 

 

11,903

 

 

 

-

 

 

 

11,929

 

 

 

-

 

Municipal loans

 

 

-

 

 

 

144

 

 

 

-

 

 

 

144

 

 

 

5,260

 

 

 

-

 

 

 

5,404

 

 

 

-

 

Total

 

$

1,566

 

 

$

780

 

 

$

728

 

 

$

3,074

 

 

$

856,099

 

 

$

4,811

 

 

$

863,984

 

 

$

114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 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

 

$

83

 

 

$

-

 

 

$

-

 

 

$

83

 

 

$

9,258

 

 

$

-

 

 

$

9,341

 

 

$

-

 

Commercial and PPP loans

 

 

66

 

 

 

-

 

 

 

-

 

 

 

66

 

 

 

121,800

 

 

 

512

 

 

 

122,378

 

 

 

-

 

Commercial real estate loans

 

 

245

 

 

 

-

 

 

 

-

 

 

 

245

 

 

 

334,110

 

 

 

4,394

 

 

 

338,749

 

 

 

-

 

Residential real estate loans

 

 

1,427

 

 

 

211

 

 

 

869

 

 

 

2,507

 

 

 

228,145

 

 

 

650

 

 

 

231,302

 

 

 

762

 

Consumer loans

 

 

31

 

 

 

2

 

 

 

-

 

 

 

33

 

 

 

7,054

 

 

 

-

 

 

 

7,087

 

 

 

-

 

Municipal loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,182

 

 

 

-

 

 

 

6,182

 

 

 

-

 

Total

 

$

1,852

 

 

$

213

 

 

$

869

 

 

$

2,934

 

 

$

706,549

 

 

$

5,556

 

 

$

715,039

 

 

$

762

 

 

25


LINKBANCORP, Inc. and Subsidiaries

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, 2022

 

(In Thousands)

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

100

 

 

$

100

 

 

$

 

Commercial loans

 

 

35

 

 

 

55

 

 

 

 

Commercial real estate loans

 

 

2,410

 

 

 

2,410

 

 

 

 

Residential real estate loans

 

 

2,966

 

 

 

3,006

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

174

 

 

 

175

 

 

 

16

 

Consumer loans

 

 

2

 

 

 

2

 

 

 

2

 

Municipal loans

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

100

 

 

$

100

 

 

$

 

Commercial loans

 

 

35

 

 

 

55

 

 

 

 

Commercial real estate loans

 

 

2,410

 

 

 

2,410

 

 

 

 

Residential real estate loans

 

 

3,140

 

 

 

3,181

 

 

 

16

 

Consumer loans

 

 

2

 

 

 

2

 

 

 

2

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

$

5,687

 

 

$

5,748

 

 

$

18

 

 

26


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

 

 

As of December 31, 2021

 

(In Thousands)

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

42

 

 

 

61

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

709

 

 

 

779

 

 

 

 

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

 

 

42

 

 

 

61

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

709

 

 

 

779

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

$

751

 

 

$

840

 

 

$

 

 

27


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

(In Thousands)

 

Average
Recorded
Investment

 

 

Interest Income Recognized

 

 

Average
Recorded Investment

 

 

Interest Income Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

133

 

 

$

5

 

 

$

 

 

$

 

Commercial loans

 

 

37

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

2,421

 

 

 

65

 

 

 

 

 

 

 

Residential real estate loans

 

 

2,986

 

 

 

36

 

 

 

138

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,577

 

 

 

106

 

 

 

138

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

174

 

 

 

3

 

 

 

 

 

 

 

Consumer loans

 

 

2

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

176

 

 

 

3

 

 

 

 

 

 

 

Total

 

$

5,753

 

 

$

109

 

 

$

138

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

(In Thousands)

 

Average
Recorded
Investment

 

 

Interest Income
Recognized

 

 

Average
Recorded
Investment

 

 

Interest Income
Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

210

 

 

$

8

 

 

$

 

 

$

 

Commercial loans

 

 

35

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

2,451

 

 

 

100

 

 

 

 

 

 

 

Residential real estate loans

 

 

3,048

 

 

 

57

 

 

 

141

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,744

 

 

$

165

 

 

$

141

 

 

$

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

 

 

$

 

 

$

 

 

$

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans

 

 

175

 

 

 

5

 

 

 

 

 

 

 

Consumer loans

 

 

2

 

 

 

 

 

 

 

 

 

 

Municipal loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

177

 

 

 

5

 

 

 

 

 

 

 

Total

 

$

5,921

 

 

$

170

 

 

$

141

 

 

$

 

 

 

28


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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

(In Thousands)

 

September 30,
2022

 

 

December 31,
2021

 

Commercial loans

 

$

36

 

 

$

39

 

Commercial real estate loans

 

 

290

 

 

 

144

 

Residential real estate loans

 

 

1,537

 

 

 

449

 

Consumer loans

 

 

2

 

 

 

2

 

Total

 

$

1,865

 

 

$

634

 

 

The above nonaccrual loans as of September 30, 2022 excludes PCI loans with a total balance of $4,811. Management does not consider these loans to be non-performing as they are accounted for under the acrretable yield method and are performing in line with expectations as of September 30, 2022.

Approximately $482,367 or 55.8% of the Bank’s loan portfolio was in commercial real estate loans at September 30, 2022. 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, $127,127 of real estate-commercial loans were owner occupied properties as of September 30, 2022. These types of loans are generally considered to involve less risk than nonowner-occupied mortgages.

At September 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, the Company had no loans identified as TDRs. There were also no new loan modifications during the three and nine months ended September 30, 2022 and 2021 that were considered TDRs.

 

6.
DEPOSITS

Deposit accounts are summarized as follows:

 

 

September 30,
2022

 

 

December 31,
2021

 

(In Thousands)

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Demand, noninterest-bearing

 

$

184,857

 

 

 

19.42

%

 

$

129,243

 

 

 

16.75

%

Demand, interest-bearing

 

 

305,934

 

 

 

32.15

 

 

 

256,258

 

 

 

33.21

 

Money market and savings

 

 

266,743

 

 

 

28.03

 

 

 

205,843

 

 

 

26.68

 

Time deposits, $250 and over

 

 

39,123

 

 

 

4.11

 

 

 

56,266

 

 

 

7.29

 

Time deposits, other

 

 

155,053

 

 

 

16.29

 

 

 

124,055

 

 

 

16.08

 

 

 

$

951,710

 

 

 

100.0

%

 

$

771,665

 

 

 

100.0

%

 

29


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

Within time deposits, other, there were $20,000 and $0 in brokered deposits outstanding at September 30, 2022 and December 31, 2021, respectively.

7.
BORROWINGS AND SUBORDINATED DEBENTURES

Borrowings and subordinated debt was as follows:

(in Thousands)

 

September 30,
2022

 

 

December 31,
2021

 

Subordinated Debt

 

$

40,526

 

 

$

20,696

 

Federal Reserve PPPLF

 

 

 

 

 

19,814

 

Total

 

$

40,526

 

 

$

40,510

 

 

On April 8, 2022, LINKBANCORP entered into Subordinated Note Purchase Agreements (the “Agreements”) with certain institutional accredited investors (the “Purchasers”) and, pursuant to the Agreements, issued to the Purchasers $20,000 in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Notes”). The investors included a related party entity that is controlled by a member of the Board of Directors of the Company, which purchased $7,000 in principal amount of the note. During the nine months ended September 30, 2022, the Company contributed $15,000 of the subordinated note proceeds to the Bank as equity capital, the impact of which can be seen within Note 10 Regulatory Capital Requirements later in this document.

 

The Notes are intended to qualify at the holding company level as Tier 2 capital under the capital guidelines of the Federal Reserve Board.

 

The Notes, which mature on April 15, 2032, bear interest at a fixed annual rate of 4.50% for the period up to but excluding April 15, 2027 (the “Fixed Interest Rate Period”). From April 15, 2027 until maturity or redemption (the “Floating Interest Rate Period”), the interest rate will adjust to a floating rate equal to a benchmark rate, which is expected to be the then-current three-month Secured Overnight Financing Rate (SOFR), plus 203 basis points. The Company will pay interest in arrears semi-annually during the Fixed Interest Rate Period and quarterly during the Floating Interest Rate Period. The Notes constitute unsecured and subordinated obligations of the Company and rank junior in right of payment to any senior indebtedness and obligations to general and secured creditors. Subject to limited exceptions, the Company cannot redeem the Notes before the fifth anniversary of the issuance date.

 

The Agreements and Notes contain customary subordination provisions, representations and warranties, covenants, and events of default.

 

The Bank has available unsecured lines of credit, with interest based on the daily Federal Funds rate, with four correspondent banks totaling $51,000 at September 30, 2022. There were no borrowings under these lines of credit at September 30, 2022 and December 31, 2021.
 

 

8.
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 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

30


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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, 2022

 

 

At December 31, 2021

 

(In Thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (Level 1)

 

$

74,796

 

 

$

74,796

 

 

$

22,590

 

 

$

22,590

 

Certificates of deposit with other banks (Level 3)

 

 

8,358

 

 

 

8,318

 

 

 

12,828

 

 

 

12,828

 

Securities held to maturity (Level 2)

 

 

32,571

 

 

 

30,915

 

 

 

 

 

 

 

Loans (Level 3)

 

 

863,969

 

 

 

800,085

 

 

 

711,664

 

 

 

705,706

 

Accrued interest receivable (Level 1)

 

 

4,058

 

 

 

4,058

 

 

 

3,022

 

 

 

3,022

 

Restricted investments in bank stock (Level 1)

 

 

3,327

 

 

 

3,327

 

 

 

2,685

 

 

 

2,685

 

Cash surrender value of life insurance (Level 1)

 

 

19,127

 

 

 

19,127

 

 

 

18,787

 

 

 

18,787

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits (Level 1)

 

 

757,534

 

 

 

757,534

 

 

 

591,344

 

 

 

591,344

 

Time Deposits (Level 3)

 

 

194,176

 

 

 

188,985

 

 

 

180,321

 

 

 

180,485

 

Other borrowings (Level 3)

 

 

 

 

 

 

 

 

19,814

 

 

 

19,819

 

Subordinated Notes (Level 3)

 

 

40,526

 

 

 

37,285

 

 

 

20,696

 

 

 

20,696

 

Accrued interest payable (Level 1)

 

 

917

 

 

 

917

 

 

 

103

 

 

 

103

 

 

 

31


LINKBANCORP, Inc. and Subsidiaries

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, 2022 and December 31, 2021, 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. The valuations 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, 2022

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

 

 

$

901

 

 

$

 

 

$

901

 

Obligations of state and political subdivisions

 

 

 

 

 

38,347

 

 

 

 

 

 

38,347

 

Mortgage backed securities

 

 

 

 

 

39,450

 

 

 

 

 

 

39,450

 

Total

 

$

 

 

$

78,698

 

 

$

 

 

$

78,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

 

 

$

1,084

 

 

$

 

 

$

1,084

 

Obligations of state and political subdivisions

 

 

 

 

 

48,482

 

 

 

 

 

 

48,482

 

Mortgage backed securities

 

 

 

 

 

54,217

 

 

 

 

 

 

54,217

 

Total

 

$

 

 

$

103,783

 

 

$

 

 

$

103,783

 

 

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, 2022 and December 31, 2021 are presented in the table below.

 

 

 

September 30, 2022

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Impaired loans

 

$

 

 

$

 

 

$

5,687

 

 

$

5,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Impaired loans

 

$

 

 

$

 

 

$

751

 

 

$

751

 

Loans Held for Sale

 

$

 

 

$

 

 

$

3,860

 

 

$

3,860

 

 

32


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

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, 2022

 

 

 

Quantitative Information About Level III Fair Value Measurements

 

(In Thousands)

 

Fair Value

 

 

Valuation
Techniques

 

 

 

 

Unobservable
Input

 

Range (Weighted
Average)

 

Impaired loans

 

$

5,687

 

 

Appraisal of
collateral

 

 

(1

)

 

Liquidation
expenses

 

 

10

%

 

 

December 31, 2021

 

 

 

Quantitative Information About Level III Fair Value Measurements

 

(In Thousands)

 

Fair Value

 

 

Valuation
Techniques

 

 

 

 

Unobservable
Input

 

Range (Weighted
Average)

 

Impaired loans

 

$

751

 

 

Appraisal of
collateral

 

 

(1

)

 

Liquidation
expenses

 

 

10

%

Loans Held for Sale

 

$

3,860

 

 

Appraisal of
collateral

 

 

(1

)

 

Liquidation of collateral

 

 

15

%

 

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

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.

9.
STOCK-BASED COMPENSATION

On May 14, 2019, the Company’s shareholders approved the LINKBANCORP, Inc. 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan authorizes the issuance or delivery to participants of up to 450,000 shares of LINKBANCORP common stock pursuant to grants of incentive and non-statutory stock options. The 2019 Plan is administered by the members of LINKBANCORP’s Compensation Committee (the "Committee"). Unless the Committee specifies a different vesting schedule, awards under the 2019 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 or its subsidiaries are eligible to receive awards under the 2019 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 2019 Plan was frozen such that no new awards would be granted under the 2019 Plan following receipt of shareholder approval of the LINKBANCORP, Inc. 2022 Equity Incentive Plan described within this footnote. The table below provides details of the Company's stock options under the 2019 Plan at September 30, 2022.

 

 

 

Number
of Stock
Options

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Term in
Years

 

 

Aggregate
Intrinsic
Value
(in ‘000s)

 

Outstanding, December 31, 2021

 

 

421,500

 

 

$

10.46

 

 

 

7.9

 

 

$

780

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Expired/terminated

 

 

(5,600

)

 

 

12.00

 

 

 

8.1

 

 

 

 

Exercised

 

 

(12,000

)

 

 

10.00

 

 

 

 

 

 

 

Outstanding, September 30, 2022

 

 

403,900

 

 

$

10.86

 

 

 

7.1

 

 

$

 

Exercisable at period end

 

 

195,900

 

 

$

10.08

 

 

 

6.8

 

 

$

 

 

33


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

The exercise prices for options outstanding as of September 30, 2022 ranged from $10.00 to $14.50. 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. The Company recognized compensation expense of $19 and $59 during the three and nine months ended September 30, 2022. At September 30, 2022, the total unrecognized stock-based compensation costs totaled $146 and will be recognized ratably as expense through December 31, 2026.

On May 26, 2022, the Company's shareholders approved the LINKBANCORP, Inc. 2022 Equity Incentive Plan (the "2022 Plan"). The 2022 Plan authorizes the issuance or delivery to participants of up to 475,000 shares of the Company's common stock pursuant to grants of restricted stock, restricted stock units, stock options, and non-qualified stock options. The 2022 Plan is administered by the members of LINKBANCORP’s Compensation Committee (the "Committee"). At least 95% of the awards under the 2022 Plan will vest no earlier than one year after the grant date. As of September 30, 2022, no awards have been granted under the 2022 Plan.

10.
REGULATORY CAPITAL REQUIREMENTS

The Bank 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 Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

The Bank is 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, 2022, the Bank has met all capital adequacy requirements to which it is 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 Subsidiaries

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 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, 2022 and December 31, 2021 under the Basel III Capital Rules. Bank capital levels required to be considered well capitalized are based upon prompt corrective action regulations. The table below does not include any additional capital as a result of the initial public offering discussed in Note 1. The Company did not contribute any of the offering proceeds to the Bank during the third quarter of 2022, but did contribute $20,000 in capital to the Bank during October 2022.

 

 

 

September 30, 2022

 

 

December 31, 2021

 

(In Thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total capital

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

104,487

 

 

 

11.55

%

 

$

81,355

 

 

 

11.50

%

For capital adequacy purposes

 

 

72,358

 

 

 

8.00

 

 

 

56,578

 

 

 

8.00

 

To be well capitalized

 

 

90,448

 

 

 

10.00

 

 

 

70,722

 

 

 

10.00

 

Tier 1 capital

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

99,864

 

 

 

11.04

%

 

$

77,904

 

 

 

11.02

%

For capital adequacy purposes

 

 

54,269

 

 

 

6.00

 

 

 

42,433

 

 

 

6.00

 

To be well capitalized

 

 

72,358

 

 

 

8.00

 

 

 

56,578

 

 

 

8.00

 

Common equity

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

99,864

 

 

 

11.04

%

 

$

77,904

 

 

 

11.02

%

For capital adequacy purposes

 

 

40,702

 

 

 

4.50

 

 

 

31,825

 

 

 

4.50

 

To be well capitalized

 

 

58,791

 

 

 

6.50

 

 

 

45,969

 

 

 

6.50

 

Tier 1 capital

 

 

 

 

 

 

 

 

 

 

 

 

(to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

99,864

 

 

 

9.74

%

 

$

77,904

 

 

 

8.85

%

For capital adequacy purposes

 

 

41,015

 

 

 

4.00

 

 

 

35,230

 

 

 

4.00

 

To be well capitalized

 

 

51,269

 

 

 

5.00

 

 

 

44,038

 

 

 

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. 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, 2022 and December 31, 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.
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.

35


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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, 2022 and December 31, 2021, the Company has a reserve related to credit losses for off-balance sheet instruments of $54, which is included in other liabilities.

At September 30, 2022 and December 31, 2021, the following financial instruments were outstanding whose contract amounts represent credit risk:

 

(In Thousands)

 

September 30,
2022

 

 

December 31,
2021

 

Unfunded commitments under lines of credit:

 

 

 

 

 

 

Home equity loans

 

$

39,052

 

 

$

17,774

 

Commercial real estate, construction, and land development

 

 

45,134

 

 

 

20,609

 

Commercial and industrial

 

 

141,940

 

 

 

100,440

 

Other

 

 

8,785

 

 

 

6,244

 

Total

 

$

234,911

 

 

$

145,067

 

 

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.

12.
EARNINGS PER SHARE

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income (loss)

 

$

1,772

 

 

$

(2,797

)

 

$

4,902

 

 

$

(499

)

Basic weighted average common shares outstanding

 

 

10,590,079

 

 

 

6,274,250

 

 

 

10,087,341

 

 

 

5,888,008

 

Net effect of dilutive stock options and warrants

 

 

 

 

 

 

 

 

49,116

 

 

 

 

Diluted weighted average common shares outstanding

 

 

10,590,079

 

 

 

6,274,250

 

 

 

10,136,457

 

 

 

5,888,008

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

 

$

(0.45

)

 

$

0.49

 

 

$

(0.08

)

Diluted

 

$

0.17

 

 

$

(0.45

)

 

$

0.48

 

 

$

(0.08

)

 

The following is a summary of securities that could potentially dilute basic earnings per common share in future periods that were included in the computation of diluted earnings per common share in the periods presented.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Share-based compensation awards

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Warrants

 

 

-

 

 

 

-

 

 

 

1,537,484

 

 

 

-

 

Total dilutive securities

 

$

-

 

 

$

-

 

 

$

1,537,484

 

 

$

-

 

 

 

The following is a summary of securities that could potentially dilute basic earnings per share in future periods that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.

 

36


LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Share-based compensation awards

 

$

195,700

 

 

$

148,200

 

 

$

195,700

 

 

$

148,200

 

Warrants

 

 

1,537,484

 

 

 

1,537,484

 

 

 

-

 

 

 

1,537,484

 

Total anti-dilutive securities

 

$

1,733,184

 

 

$

1,685,684

 

 

$

195,700

 

 

$

1,685,684

 

 

 

 

 

37


 

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

This discussion and analysis reflects the Company’s consolidated financial statements 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:

Forward Looking Statements
Completion of Merger
Overview and Strategy
Financial Highlights
Comparison of Financial Condition at September 30, 2022 and December 31, 2021
Comparison of Operating Results for the Three Months Ended September 30, 2022 and 2021.
Comparison of Operating Results for the Nine Months Ended September 30, 2022 and 2021.
Liquidity, Commitments, and Capital Resources
Off-Balance Sheet Arrangements
Critical Accounting Estimates
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;

38


 

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;
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 and our existing customers;
a breach in security of our information systems, including the occurrence of a cyber incident or a deficiency in cyber security;
political instability or civil unrest;
acts of war or terrorism;
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 completed its previously announced Merger with GNBF, 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 Merger 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

39


 

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 shareholders 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.

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. Effective November 4, 2022, the Bank will operate under one brand under the name LINKBANK. 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, revenue from the sale of securities, and revenue from the sale of SBA loans and 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 fees 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, Schuylkill, and York 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.

Financial Highlights

The following is a summary of the financial highlights as of and for the three and nine months ended September 30, 2022:

Net Income (Loss) and Net Income (Loss) Per Share - Net income was $1.8 million for the three months ended September 30, 2022, a $4.6 million increase from net loss of $2.8 million for the same period in 2021. Net income was $4.9 million for the nine months ended September 30, 2022, a $5.4 million increase from net loss of $499 thousand for the nine months ended September 30, 2021. Diluted net income (loss) per share was $0.17 and $0.48 for the three and nine months ended September 30, 2022, respectively, compared to ($0.45) and ($0.08) per diluted share for the comparable periods in 2021.
Net Interest Income - Net interest income before provision for loan losses increased $5.3 million or 159.3% for the three months ended September 30, 2022 compared to the same period in 2021. Net interest income before provision for loan losses increased $15.0 million or 165.9% for the nine months ended September 30, 2022 compared to the same period in 2021. Net interest margin for the third quarter of 2022 totaled 3.51%, representing a 79 basis points increase over the same period in 2021. Net interest margin for the first nine months of 2022 totaled 3.40%, representing a 67 basis points increase over the same period in 2021. The primary driver for the growth in net interest income was the increased net interest earning assets as a result of the Merger as well as significant organic loan growth since the closing of the Merger. Since September 30, 2021, the Company has grown gross loans by $195.6 million.

40


 

Loan Growth - Total gross loans held for investment grew by $145.3 million during the first nine months of 2022 to $864.0 million at September 30, 2022, equating to an annualized growth rate of approximately 28.0%.
Deposit Growth - Total deposits grew by $180.0 million during the first nine months of 2022 to $951.7 million at September 30, 2022, equating to an annualized growth rate of approximately 31.0%.
Subordinated Deb Issuance Completed- On April 8, 2022, the Company completed a $20.0 million private placement of Fixed-to-Floating Rate Subordinated Notes due 2032 and contributed $15.0 million of additional capital to the Bank.
Initial Public Offering Completed - In September 2022, the Company completed its initial public offering ("IPO") whereby it issued and sold 5,101,205 shares of common stock at a public offering price of $7.50 per share. The Company received net proceeds of $34.7 million after deducting underwriting discounts and commissions of $2.5 million and other offering expenses of $1.1 million. The Company plans to use the proceeds to support the Bank's current growth, its future growth initiatives, and for general corporate purposes. The Company's common stock now trades on the Nasdaq Capital Market under the symbol "LNKB."

 

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total assets at September 30, 2022, were $1.14 billion, an increase of $212.1 million, or 23%, from $932.8 million at December 31, 2021. The increase in total assets was primarily due to an increase in cash and cash equivalents of $52.2 million, from $22.6 million at December 31, 2021 to $74.8 million at September 30, 2022, an increase in securities held to maturity from $0 to $32.6 million at September 30, 2022, and an increase in net loans receivable of $147.7 million, or 20.8%, from $711.7 million at December 31, 2021 to $859.4 million at September 30, 2022. These increases were partially offset by a decrease in securities available for sale of $25.1 million, or 24.2%, from $103.8 million at December 31, 2021 to $78.7 million at September 30, 2022.

Cash and cash equivalents increased $52.2 million, or 231.1%, from $22.6 million at December 31, 2021 to $74.8 million at September 30, 2022. The increase was primarily due to:

Primary Cash Inflows

Net increase in deposits of $180.0 million;
Cash received from investment securities (sales, calls, maturities, and principal repayments) of $13.2 million;
Proceeds from the IPO of $34.7 million
Proceeds from the issuance of subordinated debt of $20.0 million; and
Cash provided by operating activities of $4.8 million

Primary Cash Outflows

Repayments of borrowings of $19.8 million;
Net increase in cash funding of loans receivable of $143.7 million;
Purchase of investment securities held to maturity of $34.4 million; and
Payment of dividends of $2.2 million

Securities available-for-sale decreased by $25.1 million, or 24.2%, to $78.7 million at September 30, 2022 from $103.8 million at December 31, 2021. The decrease was due to a decrease in fair value of our holdings of $13.0 million as a result of the increase in market interest rates, calls/sales/repayments totaling $11.4 million, and net amortization of premiums and discounts of $0.7 million. In addition, we purchased investment securities classified as held-to-maturity of $34.4 million during the first nine months of 2022.

41


 

Net loans receivable increased during the nine months ended September 30, 2022 as shown in the table below:

 

(dollars in thousands)

 

September 30,
2022

 

 

December 31,
2021

 

 

Change

 

 

%

 

Agriculture loans

 

$

13,977

 

 

$

9,341

 

 

$

4,636

 

 

 

49.63

%

Commercial loans

 

 

97,542

 

 

 

98,604

 

 

 

(1,062

)

 

 

(1.08

)%

Paycheck Protection Program ("PPP") loans

 

 

933

 

 

 

23,774

 

 

 

(22,841

)

 

 

(96.08

)%

Commercial real estate loans

 

 

482,367

 

 

 

338,749

 

 

 

143,618

 

 

 

42.40

%

Residential real estate loans

 

 

251,832

 

 

 

231,302

 

 

 

20,530

 

 

 

8.88

%

Consumer loans

 

 

11,929

 

 

 

7,087

 

 

 

4,842

 

 

 

68.32

%

Municipal loans

 

 

5,404

 

 

 

6,182

 

 

 

(778

)

 

 

(12.58

)%

Total Loans

 

 

863,984

 

 

 

715,039

 

 

 

148,945

 

 

 

20.83

%

Deferred fees

 

 

(15

)

 

 

(223

)

 

 

208

 

 

 

(93.27

)%

Allowance for loan losses

 

 

(4,569

)

 

 

(3,152

)

 

 

(1,417

)

 

 

44.96

%

Net Loans

 

$

859,400

 

 

$

711,664

 

 

$

147,736

 

 

 

20.76

%

 

Residential real estate loans increased $20.5 million during the first nine months of 2022 with $30.8 million related to new loan originations of mortgage loans for investment properties partially offset by normal principal amortization and payoffs. The growth in our commercial real estate loans was not attributable to any one significant loan relationship and was primarily generated in markets serviced by our Camp Hill, Lancaster, and Delaware Valley solutions centers. The reduction in PPP loans since December 31, 2021 relate to SBA loan forgiveness of PPP loans during the first nine months of 2022.

At September 30, 2022, commercial real estate loans included commercial construction loans with a balance of $44.4 million compared to $28.5 million at December 31, 2021. Residential construction loans contained within residential real estate loans totaled $4.9 million compared to $2.5 million at December 31, 2021. Total construction loans represented a 66% and 62% draw percentage at September 30, 2022 and December 31, 2021, respectively.

The allowance for loan losses increased $1.4 million from $3.2 million at December 31, 2021 to $4.6 million at September 30, 2022. The primary driver of the increased allowance for loan losses was a provision for loan losses recognized during the nine months ended September 30, 2022 of $1.2 million which was primarily due to loan growth.

Asset quality remained strong at September 30, 2022 with non-performing loans, which is defined as non-accrual loans, loans delinquent greater than 90 days and still accruing interest, was $2.0 million or 0.23% of total gross loans. This is compared to $1.4 million of non-performing assets at December 31, 2021, which equated to 0.20% of total gross loans. 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 $5.5 million at September 30, 2022, 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 $10.1 million at September 30, 2022 and represented 1.17% to our total gross loans, which is a decrease from 1.43% at December 31, 2021. At September 30, 2022 and December 31, 2021, the Company had no other real estate owned.

Deposits grew by $180.0 million or 23%, from a total of $771.7 million at December 31, 2021 to $951.7 million at September 30, 2022. Changes in the deposit types are presented in the table below:

 

(in thousands)

 

September 30,
2022

 

 

December 31,
2021

 

 

Change

 

 

%

 

Demand, noninterest-bearing

 

$

184,857

 

 

$

129,243

 

 

$

55,614

 

 

 

43.0

%

Demand, interest-bearing

 

 

305,934

 

 

 

256,258

 

 

 

49,676

 

 

 

19.4

 

Money market and savings

 

 

266,743

 

 

 

205,843

 

 

 

60,900

 

 

 

29.6

 

Time deposits, $250,000 and over

 

 

39,123

 

 

 

56,266

 

 

 

(17,143

)

 

 

(30.5

)

Time deposits, other

 

 

155,053

 

 

 

124,055

 

 

 

30,998

 

 

 

25.0

 

Total deposits

 

$

951,710

 

 

$

771,665

 

 

$

180,045

 

 

 

23.3

%

 

The increase of $105.3 million in demand deposits during the first nine months of 2022 was the result of new accounts opened during the first nine months of 2022, partially offset by net decreases in existing account balances, with new accounts contributing approximately $119.8 million in balance at September 30, 2022. New accounts opened during the first nine months of 2022 also explains the majority of the growth in money market and savings accounts, contributing $49.9 million to the overall balance growth of $60.9 million. Included in the time deposits balance above were brokered time deposits with a balance of $20.0 million, and $0 as of September 30, 2022 and December 31, 2021, respectively.

42


 

At September 30, 2022 and December 31, 2021, other borrowings consisted of $0 and $19.8 million, respectively, 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. 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. Additionally, on April 8, 2022, LINKBANCORP issued subordinated debt with a carrying value of $20.0 million. These notes bear interest at a fixed annual rate of 4.50% per year up to April 15, 2027 and then float to an index tied to the three-month SOFR, plus 203 basis points. Subject to limited exceptions, the Company cannot redeem the notes before the fifth anniversary of the issuance date. The balance of subordinated debt was $40.5 million and $20.7 million at September 30, 2022 and December 31, 2021, respectively.

Total shareholders’ equity increased by $27.3 million, or 24.9%, from $109.6 million at December 31, 2021, to $136.9 million at September 30, 2022. The increase was primarily attributable to the net proceeds from the IPO of $34.7 million and net income of $4.9 million, less dividends of $2.2 million for the nine months ended September 30, 2022. These increases were offset by a $10.2 million decrease in accumulated other comprehensive income (loss) during the first nine months of 2022 as a result of decreases in fair market values of available for sale securities due to the current rising interest rate environment.

Comparison of Results of Operations for the Three Months Ended September 30, 2022 and 2021

General: Net income was $1.8 million for the three months ended September 30, 2022, or $0.17 per diluted share, an increase of $4.6 million compared to a net loss of $2.8 million, or ($0.45) per diluted share, for the three months ended September 30, 2021.

 

Net income for the three months ended September 30, 2022 reflected the results of the combined company following the completion of the Merger on September 18, 2021 whereas 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 followed the completion of the Merger on September 18, 2021 through September 30, 2021.

Net income for the three months ended September 30, 2022, as compared to the same prior year period was the result of an increase in net interest income before provision for loan losses of $5.3 million and an increase in noninterest income of $670 thousand. These increases were partially offset by an increase in noninterest expense of $444 thousand and increases in the provision for loan losses of $58 thousand and income tax expense of $921 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.

43


 

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. Yields on earning assets are shown on a fully taxable-equivalent basis assuming a tax rate of 21%.

 

 

For the Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

(Dollars in thousands)

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

Int. Earn. Cash

 

$

30,630

 

 

$

157

 

 

 

2.03

%

 

$

53,214

 

 

$

134

 

 

 

1.00

%

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable (1)

 

 

86,330

 

 

 

745

 

 

 

3.42

%

 

 

72,386

 

 

 

202

 

 

 

1.11

%

Tax-Exempt

 

 

39,258

 

 

 

339

 

 

 

3.43

%

 

 

48,298

 

 

 

380

 

 

 

3.12

%

Total Securities

 

 

125,588

 

 

 

1,084

 

 

 

3.42

%

 

 

120,684

 

 

 

582

 

 

 

1.91

%

Total Cash Equiv. and Investments

 

 

156,218

 

 

 

1,241

 

 

 

3.15

%

 

 

173,898

 

 

 

716

 

 

 

1.63

%

Total Loans (3)

 

 

824,309

 

 

 

9,410

 

 

 

4.53

%

 

 

313,636

 

 

 

3,267

 

 

 

4.13

%

Total Interest-Earning Assets

 

 

980,527

 

 

 

10,651

 

 

 

4.31

%

 

 

487,534

 

 

 

3,983

 

 

 

3.24

%

Other Assets

 

 

93,116

 

 

 

 

 

 

 

 

 

30,471

 

 

 

 

 

 

 

Total Assets

 

$

1,073,643

 

 

 

 

 

 

 

 

$

518,005

 

 

 

 

 

 

 

Interest bearing demand

 

$

278,637

 

 

$

400

 

 

 

0.57

%

 

$

168,662

 

 

$

264

 

 

 

0.62

%

Money market demand

 

 

244,107

 

 

 

568

 

 

 

0.92

%

 

 

96,450

 

 

 

37

 

 

 

0.15

%

Time deposits

 

 

205,792

 

 

 

421

 

 

 

0.81

%

 

 

71,219

 

 

 

203

 

 

 

1.13

%

Total Borrowings

 

 

52,562

 

 

 

521

 

 

 

3.93

%

 

 

8,172

 

 

 

51

 

 

 

2.48

%

Total Interest-Bearing Liabilities

 

 

781,098

 

 

 

1,910

 

 

 

0.97

%

 

 

344,503

 

 

 

555

 

 

 

0.64

%

Non Int Bearing Deposits

 

 

170,863

 

 

 

 

 

 

 

 

 

90,429

 

 

 

 

 

 

 

Total Cost of Funds

 

$

951,961

 

 

$

1,910

 

 

 

0.80

%

 

$

434,932

 

 

$

555

 

 

 

0.51

%

Other Liabilities

 

 

13,243

 

 

 

 

 

 

 

 

 

4,459

 

 

 

 

 

 

 

Total Liabilities

 

$

965,204

 

 

 

 

 

 

 

 

$

439,391

 

 

 

 

 

 

 

Shareholders' Equity

 

$

108,439

 

 

 

 

 

 

 

 

$

78,614

 

 

 

 

 

 

 

Total Liabilities & Shareholders' Equity

 

$

1,073,643

 

 

 

 

 

 

 

 

$

518,005

 

 

 

 

 

 

 

Net Interest Income/Spread (FTE)

 

 

 

 

 

8,741

 

 

 

3.34

%

 

 

 

 

 

3,428

 

 

 

2.60

%

Tax-Equivalent Basis Adjustment

 

 

 

 

 

(71

)

 

 

 

 

 

 

 

 

(80

)

 

 

 

Net Interest Income

 

 

 

 

$

8,670

 

 

 

 

 

 

 

 

$

3,348

 

 

 

 

Net Interest Margin

 

 

 

 

 

 

 

 

3.51

%

 

 

 

 

 

 

 

 

2.72

%

(1) Taxable income on securities includes income from available for sale securities and income from certificates of deposits with other banks.

 

(2) Income stated on a tax equivalent basis which is non-GAAP and is reconciled to GAAP at the bottom of the table.

 

(3) Includes the balances of nonaccrual loans.

 

 

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.

 

44


 

 

 

Three Months Ended September 30, 2022 vs. 2021
Increase (Decrease) Due To:

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net

 

Interest Income:

 

 

 

 

 

 

 

 

 

Int. Earn. Cash

 

$

80

 

 

$

(57

)

 

$

23

 

Securities

 

 

 

 

 

 

 

 

 

Taxable

 

 

503

 

 

 

40

 

 

 

543

 

Tax-Exempt

 

 

30

 

 

 

(71

)

 

 

(41

)

Total Securities

 

 

533

 

 

 

(31

)

 

 

502

 

Total Loans

 

 

831

 

 

 

5,312

 

 

 

6,143

 

Total Interest-Earning Assets

 

 

1,444

 

 

 

5,224

 

 

 

6,668

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

(35

)

 

 

171

 

 

 

136

 

Money market demand

 

 

474

 

 

 

57

 

 

 

531

 

Time deposits

 

 

(166

)

 

 

384

 

 

 

218

 

Total Borrowings

 

 

192

 

 

 

278

 

 

 

470

 

Total Interest-Bearing Liabilities

 

 

465

 

 

 

890

 

 

 

1,355

 

Change in Net Interest Income

 

$

979

 

 

$

4,334

 

 

$

5,313

 

Net Interest Income: Net interest income increased by $5.3 million, or 159%, to $8.7 million for the three months ended September 30, 2022, compared to $3.4 million for the three months ended September 30, 2021. This increase can be mostly attributed to an increase in interest income resulting from a higher average balance in loans as a result of the completion of the Merger. The net interest margin increased 79 basis points to 3.51% for the three months ended September 30, 2022 from 2.72% for the three months ended September 30, 2021. The provision for loan losses increased by $58 thousand from $457 thousand for the three months ended September 30, 2021 to $515 thousand for the same period in 2022.

Interest Income: Interest income increased to $10.6 million for the three months ended September 30, 2022, compared with $3.9 million for the three months ended September 30, 2021 primarily due to an increase in interest income on loans as a result of the growth in average assets, primarily loans, following the completion of the Merger. The growth in average balance of interest earning assets which increased $493.0 million to $980.5 million for the three months ended September 30, 2022 compared to $487.5 million for the comparable period in 2021 contributed $5.2 million in growth of interest income. The growth in the average balance of interest earning assets was due primarily to the increase in the average balance of loans which increased $510.7 million to $824.3 million for the three months ended September 30, 2022 as compared to the same period in 2021 reflecting the completion of the Merger. The average yield on loans increased 40 basis points on an annualized basis from 4.13% for the three months ended September 30, 2021 to 4.53% for the three months ended September 30, 2022. Normal amortization of net loan discounts recorded as part of purchase accounting adjustments to loans acquired through the Merger contributed $501 thousand to interest income during the three months ended September 30, 2022. Overall the average yield of interest earning assets increased 107 basis points on an annualized basis to 4.31% for the three months ended September 30, 2022 as compared to the same period in 2021 due primarily to a larger concentration of interest earning assets in loans along with an increase in the average yield of securities.

Interest Expense: Interest expense increased by $1.4 million or 244% to $1.9 million for the three months ended September 30, 2022, compared to $555 thousand for the three months ended September 30, 2021. The increase in interest expense was primarily due to an increase in the average balance of interest-bearing liabilities of $436.6 million to $781.1 million for the three months ended September 30, 2022 compared to $344.5 million for the comparative period in 2021 as a result of the completion of the Merger which had the effect of increasing the average balances of deposits and borrowings. This average balance growth resulted in an increase in interest expense of $890 thousand during the three months ended September 30, 2022 as compared to the same period in 2021. The average rates paid on interest-bearing liabilities increased 33 basis points on an annualized basis from 0.64% for the three months ended September 30, 2021 to 0.97% for the three months ended September 30, 2022 due to the increasing interest rate environment during the current period as well as the impact of interest on $20 million of subordinated notes acquired in the Merger as well as $20 million of subordinated notes issued during April 2022.

Provision for Loan Losses: The provision for loan losses increased by $58 thousand from $457 thousand for the three months ended September 30, 2021 to $515 thousand for the three months ended September 30, 2022. During the three months ended September 30, 2022, management noted that the total amount of special mention rated loans increased $1.8 million compared to June 30, 2022, while total substandard rated loans decreased $132 thousand. The provision for the three months ended September 30, 2022 can be primarily attributed to the commercial real estate loan balances added to the pool of loans collectively evaluated for incurred losses.

45


 

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 5 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 $670 thousand to $1.0 million for the three months ended September 30, 2022, from the $371 thousand recognized during the same period of 2021. The increase was the result of an increase in BOLI income of $102 thousand, an increase in service charges on deposit accounts of $39 thousand, an increase in gain on sale of loans of $367 thousand, and an increase in other income of $162 thousand.

Non-interest Expense: Non-interest expense increased $444 thousand or 6.7%, from $6.6 million for the three months ended September 30, 2021, to $7.0 million for the three months ended September 30, 2022. The increase was largely due to an increase in salaries and employee benefits expense of $3.1 million related to higher headcount from the combined company as a result of the Merger and also due to an increase in employees to facilitate loan growth and foster deposit relationships. Additionally, there was (1) an increase of $364 thousand in occupancy expense related to increased property maintenance costs, lease costs, and depreciation expense for LINKBANK locations post-merger; (2) an increase of $331 thousand in equipment and data processing expenses related to the additional processing costs attributed post-merger to customer transactions over a larger account base during the third quarter of 2022 when compared to a pre-merger basis during the third quarter of 2021; (3) an increase in professional fees of $255 thousand; (4) and an increase in other expense of $110 thousand. These increases were offset by a decrease in Merger related expenses of $3.9 million.

Income Tax (Benefit) Expense: Income tax expense for the three months ended September 30, 2022 totaled $379 thousand compared to an income tax benefit of $542 thousand for the same period in 2021 as a result of an increase in income before income tax expense. The income tax expense recognized for the three months ended September 30, 2022 was the direct result of our net income adjusted for tax free income and non-deductible expenses. We recognized an income tax expense for the three months ended September 30, 2022 at an effective tax rate of 17.6% which is less than our statutory tax rate of 21%. This is compared to income tax expense for the three months ended September 30, 2021 which resulted in an effective tax rate of 16.2%.

Comparison of Results of Operations for the Nine Months Ended September 30, 2022 and 2021

General: Net income was $4.9 million for the nine months ended September 30, 2022, or $0.48 per diluted share, an increase of $5.4 million compared to a net loss of $499 thousand, or ($0.08) per diluted share, for the nine months ended September 30, 2021.

 

Net income for the nine months ended September 30, 2022 reflected the results of the combined company following the completion of the Merger on September 18, 2021 whereas 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 followed the completion of the Merger on September 18, 2021 through September 30, 2021.

Net income for the nine months ended September 30, 2022, as compared to the same prior year period was the result of an increase in net interest income before provision for loan losses of $15.0 million and an increase in noninterest income of $891 thousand. These increases were partially offset by an increase in noninterest expense of $8.7 million and increases in the provision for loan losses of $642 thousand and income tax expense of $1.1 million.

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.

46


 

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. Yields on earning assets are shown on a fully taxable-equivalent basis assuming a tax rate of 21%.

 

 

 

For the Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

(Dollars in thousands)

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

Int. Earn. Cash

 

$

50,254

 

 

$

306

 

 

 

0.81

%

 

$

51,665

 

 

$

366

 

 

 

0.95

%

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable (1)

 

 

86,590

 

 

 

1,608

 

 

 

2.48

%

 

 

81,654

 

 

 

649

 

 

 

1.06

%

Tax-Exempt

 

 

41,438

 

 

 

1,085

 

 

 

3.50

%

 

 

46,548

 

 

 

1,147

 

 

 

3.29

%

Total Securities

 

 

128,028

 

 

 

2,693

 

 

 

2.81

%

 

 

128,202

 

 

 

1,796

 

 

 

1.87

%

Total Cash Equiv. and Investments

 

 

178,282

 

 

 

2,999

 

 

 

2.25

%

 

 

179,867

 

 

 

2,162

 

 

 

1.61

%

Total Loans (3)

 

 

765,267

 

 

 

25,287

 

 

 

4.42

%

 

 

262,051

 

 

 

8,638

 

 

 

4.41

%

Total Interest-Earning Assets

 

 

943,549

 

 

 

28,286

 

 

 

4.01

%

 

 

441,918

 

 

 

10,800

 

 

 

3.27

%

Other Assets

 

 

90,970

 

 

 

 

 

 

 

 

 

21,729

 

 

 

 

 

 

 

Total Assets

 

$

1,034,519

 

 

 

 

 

 

 

 

$

463,647

 

 

 

 

 

 

 

Interest bearing demand

 

$

269,282

 

 

$

905

 

 

 

0.45

%

 

$

162,587

 

 

$

800

 

 

 

0.66

%

Money market demand

 

 

228,105

 

 

 

945

 

 

 

0.55

%

 

 

79,637

 

 

 

73

 

 

 

0.12

%

Time deposits

 

 

203,947

 

 

 

1,022

 

 

 

0.67

%

 

 

83,495

 

 

 

597

 

 

 

0.96

%

Total Borrowings

 

 

84,382

 

 

 

1,186

 

 

 

1.88

%

 

 

2,236

 

 

 

62

 

 

 

3.71

%

Total Interest-Bearing Liabilities

 

 

785,716

 

 

 

4,058

 

 

 

0.69

%

 

 

327,955

 

 

 

1,532

 

 

 

0.62

%

Non Int Bearing Deposits

 

 

151,941

 

 

 

 

 

 

 

 

 

78,770

 

 

 

 

 

 

 

Total Cost of Funds

 

$

937,657

 

 

$

4,058

 

 

 

0.58

%

 

$

406,725

 

 

$

1,532

 

 

 

0.50

%

Other Liabilities

 

 

11,517

 

 

 

 

 

 

 

 

 

4,151

 

 

 

 

 

 

 

Total Liabilities

 

$

949,174

 

 

 

 

 

 

 

 

$

410,876

 

 

 

 

 

 

 

Shareholders' Equity

 

$

85,345

 

 

 

 

 

 

 

 

$

52,771

 

 

 

 

 

 

 

Total Liabilities & Shareholders' Equity

 

$

1,034,519

 

 

 

 

 

 

 

 

$

463,647

 

 

 

 

 

 

 

Net Interest Income/Spread (FTE)

 

 

 

 

 

24,228

 

 

 

3.32

%

 

 

 

 

 

9,268

 

 

 

2.65

%

Tax-Equivalent Basis Adjustment

 

 

 

 

 

(228

)

 

 

 

 

 

 

 

 

(241

)

 

 

 

Net Interest Income

 

 

 

 

$

24,000

 

 

 

 

 

 

 

 

$

9,027

 

 

 

 

Net Interest Margin

 

 

 

 

 

 

 

 

3.40

%

 

 

 

 

 

 

 

 

2.73

%

(1) Taxable income on securities includes income from available for sale securities and income from certificates of deposits with other banks.

 

(2) Income stated on a tax equivalent basis which is non-GAAP and is reconciled to GAAP at the bottom of the table.

 

(3) Includes the balances of nonaccrual loans.

 

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.

47


 

 

 

Nine Months Ended September 30, 2022 vs. 2021
Increase (Decrease) Due To:

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net

 

Interest Income:

 

 

 

 

 

 

 

 

 

Int. Earn. Cash

 

$

(53

)

 

$

(7

)

 

$

(60

)

Securities

 

 

 

 

 

 

 

 

 

Taxable

 

 

920

 

 

 

39

 

 

 

959

 

Tax-Exempt

 

 

65

 

 

 

(127

)

 

 

(62

)

Total Securities

 

 

985

 

 

 

(88

)

 

 

897

 

Total Loans

 

 

57

 

 

 

16,592

 

 

 

16,649

 

Total Interest-Earning Assets

 

 

989

 

 

 

16,497

 

 

 

17,486

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

(423

)

 

 

528

 

 

 

105

 

Money market demand

 

 

734

 

 

 

138

 

 

 

872

 

Time deposits

 

 

(442

)

 

 

867

 

 

 

425

 

Total Borrowings

 

 

(1,155

)

 

 

2,279

 

 

 

1,124

 

Total Interest-Bearing Liabilities

 

 

(1,286

)

 

 

3,812

 

 

 

2,526

 

Change in Net Interest Income

 

$

2,275

 

 

$

12,685

 

 

$

14,960

 

Net Interest Income: Net interest income increased by $15.0 million, or 166%, to $24.0 million for the nine months ended September 30, 2022, compared to $9.0 million for the nine months ended September 30, 2021. This increase can be mostly attributed to an increase in interest income resulting from a higher average balance in loans as a result of the completion of the Merger. The net interest margin increased 67 basis points to 3.40% for the nine months ended September 30, 2022 from 2.73% for the nine months ended September 30, 2021. The provision for loan losses increased by $642 thousand from $548 thousand for the nine months ended September 30, 2021 to $1.2 million for the same period in 2022.

Interest Income: Interest income increased to $28.1 million for the nine months ended September 30, 2022, compared with $10.6 million for the nine months ended September 30, 2021 primarily due to an increase in interest income on loans as a result of the growth in average assets, primarily loans, following the completion of the Merger. The growth in average balance of interest earning assets which increased $501.6 million to $943.5 million for the nine months ended September 30, 2022 compared to $441.9 million for the comparable period in 2021 contributed $16.5 million in growth of interest income. The growth in the average balance of interest earning assets was due primarily to the increase in the average balance of loans which increased $503.2 million to $765.3 million for the nine months ended September 30, 2022 as compared to the same period in 2021 reflecting the completion of the Merger. The average yield on loans increased 1 basis point on an annualized basis from 4.41% for the nine months ended September 30, 2021 to 4.42% for the nine months ended September 30, 2022. In general, the flat yield on the loan portfolio can be attributed to the new loan originations that occurred from September 30, 2021 through September 30, 2022. Additionally, the loans that closed during the first nine months of 2022 did not fully reflect the impact of the Federal Reserve's increase to its benchmark rate by 300 basis points over the first nine months of 2022 as a portion of these loans had been in various stages of our approval pipeline as benchmark rates moved upward. Normal amortization of net loan discounts recorded as part of purchase accounting adjustments to loans acquired through the Merger contributed $1.6 million to interest income during the nine months ended September 30, 2022. Overall the average yield of interest earning assets increased 74 basis points on an annualized basis to 4.01% for the nine months ended September 30, 2022 as compared to the same period in 2021 due primarily to a larger concentration of interest earning assets in loans and an increase in the average yield of securities.

Interest Expense: Interest expense increased by $2.5 million or 164.9% to $4.1 million for the nine months ended September 30, 2022, compared to $1.5 million for the nine months ended September 30, 2021. The increase in interest expense was primarily due to an increase in the average balance of interest-bearing liabilities of $457.8 million to $785.7 million for the nine months ended September 30, 2022 compared to $328.0 million for the comparative period in 2021 as a result of (1) the completion of the Merger which had the effect of increasing the average balances of deposits and borrowings, and (2) the issuance of subordinated debt in April 2022, which had the effect of increasing the average balances of borrowings. This average balance growth resulted in an increase in interest expense of $3.8 million during the nine months ended September 30, 2022 as compared to the same period in 2021. This resulted in a cost of funds increase of eight basis points on an annualized basis from 0.50% for the nine months ended September 30, 2021 to 0.58% for the nine months ended September 30, 2022 . Adding to the increase in interest expense was the impact to interest expense of $20 million of subordinated notes acquired in the Merger as well as $20 million of new subordinated notes issued during April of 2022.

Provision for Loan Losses: The provision for loan losses increased by $642 thousand from $548 thousand for the nine months ended September 30, 2021 to $1.2 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2022, management noted that the total amount of special mention rated loans decreased $2.2 million compared to December 31, 2021,

48


 

while total substandard rated loans increased $4.9 million and doubtful rated loans increased by $1.9 million. The provision for the nine months ended September 30, 2022 can be primarily attributed to the commercial real estate loan balances added to the pool of loans collectively evaluated for incurred losses.

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 5 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 $879 thousand to $2.4 million for the nine months ended September 30, 2022, from the $1.6 million recognized during the same period of 2021. The increase was the result of an increase in gain on sale of loans income of $437 thousand, an increase in BOLI income of $205 thousand, and an increase in service charges on deposit accounts of $87 thousand.

Non-interest Expense: Non-interest expense increased $8.7 million or 81%, from $10.7 million for the nine months ended September 30, 2021, to $19.4 million for the nine months ended September 30, 2022. The increase was largely due to an increase in salaries and employee benefits expense of $8.2 million related to higher headcount from the combined company as a result of the Merger and also due to an increase in employees to facilitate loan growth and foster deposit relationships. Additionally, there was (1) an increase of $996 thousand in occupancy expense related to increased property maintenance costs, lease costs, and depreciation expense for LINKBANK locations post-merger; (2) an increase of $1.1 million in equipment and data processing expenses related to the additional processing costs attributed post-merger to customer transactions over a larger account base during the first nine months of 2022 when compared to a pre-merger basis during the same period in 2021; (3) an increase in professional fees of $601 thousand, and (4) an increase in other expenses of $1.1 million. These increases were offset by a decrease in Merger related expenses of $4.0 million.

Income Tax (Benefit) Expense: Income tax expense for the nine months ended September 30, 2022 totaled $970 thousand compared to income tax benefit of $167 thousand for the same period in 2021 as a result of an increase in income before income tax expense. The income tax expense recognized for the nine months ended September 30, 2022 was the direct result of our net income adjusted for tax free income and non-deductible expenses. We recognized an income tax expense for the nine months ended September 30, 2022 at an effective tax rate of 16.5% which is less than our statutory tax rate of 21%. This is compared to income tax expense for the nine months ended September 30, 2021 which resulted in an effective tax rate of 25.0% which is the result of additional tax benefit from tax free income exceeding the impact of non-deductible merger expenses.

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 manage 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, 2022, totaled $134.3 million, or 63.0% of our certificates of deposit, and 14.9% 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

49


 

from the Federal Home Loan Bank of Pittsburgh (“FHLB”). At September 30, 2022, the Company had no outstanding FHLB borrowings with a remaining available capacity with FHLB, subject to certain collateral restrictions, of approximately $290,365. In addition, the Company had $51 million in available lines of credit with other banks at September 30, 2022.

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, 2022 and December 31, 2021, 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.

Off-Balance Sheet Arrangements and Contractual Obligations

See Note 11 within the Notes to the Consolidated Financial Statements beginning for more information regarding the Company’s off-balance sheet arrangements.

Critical Accounting Estimates

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.

Management's critical accounting estimates are unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2021.

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

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures as of September 30, 2022, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

50


 

PART II - OTHER INFORMATION

At September 30, 2022, 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.

Item 1A – Risk Factors

There have been no material changes to the risk factors set forth under Item 1.A. Risk Factors as set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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

 

On September 7, 2022, LINKBANCORP filed a Registration Statement on Form S-1 with the Securities and Exchange Commission in connection with the related offering of common stock by LINKBANCORP. The Registration Statement (File No. 333-267303) was declared effective by the Securities and Exchange Commission on September 13, 2022. LINKBANCORP registered 5,261,250 shares of common stock, par value $0.01 per share, pursuant to the Registration Statement (File No. 333-267303) for an aggregate offering price of approximately $50.0 million. The stock offering commenced on September 7, 2022, and ended on September 30, 2022.

 

The stock offering resulted in gross proceeds of $38.3 million, through the sale of 5,101,205 shares of common stock at a price of $7.50 per share.

 

Stephens Inc., Piper Sandler & Co. and D.A. Davidson & Co. (the “Underwriters”) were the managing underwriters for the offering. The Underwriters received an underwriting discount and expense reimbursements totaling $2.5 million.

 

Expenses related to the offering were approximately $3.6 million, including $2.5 million paid to the Underwriters. Net proceeds of the offering were approximately $34.7 million. LINKBANCORP contributed approximately $20.0 million of the net proceeds of the offering to the Bank and approximately $14.7 million of the net proceeds will be retained by LINKBANCORP. The net proceeds contributed to the Bank have been invested in cash and short-term instruments or loans. The net proceeds retained by LINKBANCORP have been deposited with the Bank.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

51


 

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, 2022 and December 31, 2021; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021; (v) Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021; and (vi) Notes to Unaudited Consolidated Financial Statements.

 

52


 

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 10, 2022

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)

 

53