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


☐	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

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.

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.

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.

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.


(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.

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.

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.

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

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

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

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.

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.

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

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

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.

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.

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

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

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

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.

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.

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.

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.

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.

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

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

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.

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

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

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

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	$	—

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	$	—

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.

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	%

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.

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.

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

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

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

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.

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	$	—

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.

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.

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.

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

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;

•

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

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.

•

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.

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.

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.

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.


	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.

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


	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


	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,

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.

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

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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

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.

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)