株探米国株
英語
エドガーで原本を確認する
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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, 2023

OR

 

☐

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

 

For the transition period from _____ to ______

Commission File Number 001-41505

LINKBANCORP, Inc.

(Exact name of registrant as specified in its charter)

 

 

Pennsylvania

82-5130531

(State or other jurisdiction of
incorporation or organization)

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

1250 Camp Hill Bypass, Suite 202

Camp Hill, PA 17011

(Address of principal executive offices)

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

Former name, former address, and former fiscal year, if changed since last report: N/A

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: 16,243,186 shares as of November 8, 2023.

 

 

 

LINKBANCORP, Inc.

FORM 10-Q

INDEX

 

 

 

PART I - FINANCIAL INFORMATION

PAGE

Item 1 -

Financial Statements (Unaudited)

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

1

Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022

2

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022

3

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022

4

Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

6

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2 -

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

39

Item 3 -

Quantitative and Qualitative Disclosures About Market Risk

52

Item 4 -

Controls and Procedures

53

 

PART II - OTHER INFORMATION

Item 1 -

Legal Proceedings

53

Item 1A -

Risk Factors

53

Item 2 -

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3 -

Defaults Upon Senior Securities

54

Item 4 -

Mine Safety Disclosures

54

Item 5 -

Other Information

54

Item 6 -

Exhibits

55

SIGNATURES

56

1

 

PART I - FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

LINKBANCORP, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

 

 

September 30, 2023

 

 

December 31, 2022

 

(In Thousands, except share and per share data)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Noninterest-bearing cash equivalents

 

$

5,447

 

 

$

4,209

 

Interest-bearing deposits with other institutions

 

 

62,532

 

 

 

25,802

 

Cash and cash equivalents

 

 

67,979

 

 

 

30,011

 

Certificates of deposit with other banks

 

 

249

 

 

 

5,623

 

Securities available for sale, at fair value

 

 

78,779

 

 

 

78,813

 

Securities held to maturity (Fair value of $34,588 and $30,080, respectively)

 

 

37,778

 

 

 

31,822

 

Less: Allowance for credit losses - securities

 

 

(512

)

 

 

—

 

Securities held to maturity, net

 

 

37,266

 

 

 

31,822

 

Loans receivable

 

 

978,912

 

 

 

927,871

 

Less: Allowance for credit losses - loans

 

 

(9,964

)

 

 

(4,666

)

Net loans

 

 

968,948

 

 

 

923,205

 

Investments in restricted bank stock

 

 

3,107

 

 

 

3,377

 

Premises and equipment, net

 

 

6,414

 

 

 

6,743

 

Right-of-Use Asset – Premises

 

 

9,727

 

 

 

10,219

 

Bank-owned life insurance

 

 

24,732

 

 

 

19,244

 

Goodwill and other intangible assets

 

 

36,715

 

 

 

36,894

 

Deferred tax asset

 

 

6,880

 

 

 

5,619

 

Accrued interest receivable and other assets

 

 

14,899

 

 

 

12,084

 

TOTAL ASSETS

 

$

1,255,695

 

 

$

1,163,654

 

LIABILITIES

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand, noninterest bearing

 

$

210,404

 

 

$

192,773

 

Interest bearing

 

 

831,368

 

 

 

753,999

 

Total deposits

 

 

1,041,772

 

 

 

946,772

 

Other borrowings

 

 

15,000

 

 

 

20,938

 

Subordinated debt

 

 

40,354

 

 

 

40,484

 

Operating lease liabilities

 

 

9,728

 

 

 

10,219

 

Allowance for credit losses - unfunded commitments

 

 

904

 

 

 

54

 

Accrued interest payable and other liabilities

 

 

6,586

 

 

 

6,634

 

TOTAL LIABILITIES

 

 

1,114,344

 

 

 

1,025,101

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock (At September 30, 2023 and December 31, 2022: no par value; 5,000,000 shares authorized; no shares issued and outstanding.)

 

 

—

 

 

 

—

 

Common stock (At September 30, 2023 and December 31, 2022: $0.01 par value; 50,000,000 and 25,000,000 shares authorized, respectively; 16,235,871 and 14,939,640 shares issued and outstanding, respectively.)

 

 

162

 

 

 

149

 

Surplus

 

 

127,856

 

 

 

117,709

 

Retained earnings

 

 

19,062

 

 

 

27,100

 

Accumulated other comprehensive loss

 

 

(5,729

)

 

 

(6,405

)

TOTAL SHAREHOLDERS’ EQUITY

 

 

141,351

 

 

 

138,553

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,255,695

 

 

$

1,163,654

 

 

See accompanying notes to the unaudited consolidated financial statements.

1

 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(In Thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

13,068

 

 

$

9,410

 

 

$

37,330

 

 

$

25,287

 

Investment securities and certificates of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

833

 

 

 

745

 

 

 

2,309

 

 

 

1,608

 

Exempt from federal income tax

 

 

300

 

 

 

268

 

 

 

895

 

 

 

857

 

Other

 

 

577

 

 

 

157

 

 

 

1,561

 

 

 

306

 

Total interest and dividend income

 

 

14,778

 

 

 

10,580

 

 

 

42,095

 

 

 

28,058

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

5,434

 

 

 

1,389

 

 

 

15,193

 

 

 

2,872

 

Other borrowings

 

 

550

 

 

 

82

 

 

 

1,196

 

 

 

106

 

Subordinated debt

 

 

442

 

 

 

439

 

 

 

1,311

 

 

 

1,080

 

Total interest expense

 

 

6,426

 

 

 

1,910

 

 

 

17,700

 

 

 

4,058

 

NET INTEREST INCOME BEFORE (CREDIT TO) PROVISION FOR
   CREDIT LOSSES

 

 

8,352

 

 

 

8,670

 

 

 

24,395

 

 

 

24,000

 

(Credit to) provision for credit losses

 

 

(349

)

 

 

515

 

 

 

(549

)

 

 

1,190

 

NET INTEREST INCOME AFTER (CREDIT TO) PROVISION FOR
   CREDIT LOSSES

 

 

8,701

 

 

 

8,155

 

 

 

24,944

 

 

 

22,810

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

198

 

 

 

216

 

 

 

593

 

 

 

644

 

Bank-owned life insurance

 

 

177

 

 

 

156

 

 

 

488

 

 

 

381

 

Net realized (losses) gains on the sales of debt securities

 

 

—

 

 

 

—

 

 

 

(2,370

)

 

 

13

 

Gain on sale of loans

 

 

—

 

 

 

420

 

 

 

296

 

 

 

753

 

Other

 

 

505

 

 

 

249

 

 

 

905

 

 

 

658

 

Total noninterest income

 

 

880

 

 

 

1,041

 

 

 

(88

)

 

 

2,449

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

4,193

 

 

 

4,234

 

 

 

12,350

 

 

 

11,612

 

Occupancy

 

 

701

 

 

 

596

 

 

 

2,104

 

 

 

1,503

 

Equipment and data processing

 

 

934

 

 

 

666

 

 

 

2,519

 

 

 

1,858

 

Professional fees

 

 

363

 

 

 

330

 

 

 

1,162

 

 

 

865

 

FDIC insurance

 

 

276

 

 

 

141

 

 

 

619

 

 

 

483

 

Bank shares tax

 

 

278

 

 

 

201

 

 

 

834

 

 

 

585

 

Merger & system conversion related expenses

 

 

777

 

 

 

—

 

 

 

1,679

 

 

 

—

 

Other

 

 

472

 

 

 

877

 

 

 

2,280

 

 

 

2,481

 

Total noninterest expense

 

 

7,994

 

 

 

7,045

 

 

 

23,547

 

 

 

19,387

 

Income before income tax expense

 

 

1,587

 

 

 

2,151

 

 

 

1,309

 

 

 

5,872

 

Income tax expense

 

 

347

 

 

 

379

 

 

 

276

 

 

 

970

 

NET INCOME

 

$

1,240

 

 

$

1,772

 

 

$

1,033

 

 

$

4,902

 

EARNINGS PER SHARE, BASIC

 

$

0.08

 

 

$

0.17

 

 

$

0.06

 

 

 

0.49

 

EARNINGS PER SHARE, DILUTED

 

$

0.08

 

 

$

0.17

 

 

$

0.06

 

 

 

0.48

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING,

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

16,235,144

 

 

 

10,590,079

 

 

 

15,984,151

 

 

 

10,087,341

 

DILUTED

 

 

16,235,144

 

 

 

10,590,079

 

 

 

15,984,151

 

 

 

10,136,457

 

 

See accompanying notes to the unaudited consolidated financial statements.

2

 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,240

 

 

$

1,772

 

 

$

1,033

 

 

$

4,902

 

Components of other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(2,812

)

 

 

(4,484

)

 

 

(2,405

)

 

 

(12,909

)

Tax effect

 

 

591

 

 

 

943

 

 

 

503

 

 

 

2,711

 

Net of tax amount

 

 

(2,221

)

 

 

(3,541

)

 

 

(1,902

)

 

 

(10,198

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on cash flow hedges

 

 

1,341

 

 

 

—

 

 

 

3,263

 

 

 

—

 

Tax effect

 

 

(282

)

 

 

—

 

 

 

(685

)

 

 

—

 

Net of tax amount

 

 

1,059

 

 

 

—

 

 

 

2,578

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for debt securities gains realized in net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(13

)

Tax effect

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

Net of tax amount

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10

)

Total other comprehensive (loss) income

 

 

(1,162

)

 

 

(3,541

)

 

 

676

 

 

 

(10,208

)

Total comprehensive income (loss)

 

$

78

 

 

$

(1,769

)

 

$

1,709

 

 

$

(5,306

)

 

See accompanying notes to the unaudited consolidated financial statements.

3

 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)

 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total

 

Balance, June 30, 2023

 

 

16,228,440

 

 

$

162

 

 

$

127,818

 

 

$

19,039

 

 

$

(4,567

)

 

$

142,452

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,240

 

 

 

—

 

 

 

1,240

 

Dividends declared ($0.075 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,217

)

 

 

—

 

 

 

(1,217

)

Employee stock purchase plan

 

 

7,431

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Stock option expense

 

 

—

 

 

 

—

 

 

 

38

 

 

 

—

 

 

 

—

 

 

 

38

 

Other comprehensive loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,162

)

 

 

(1,162

)

Balance, September 30, 2023

 

 

16,235,871

 

 

$

162

 

 

$

127,856

 

 

$

19,062

 

 

$

(5,729

)

 

$

141,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
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 of proceeds

 

 

5,101,205

 

 

 

50

 

 

 

34,609

 

 

 

—

 

 

 

—

 

 

 

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

 

 

4

 

 

 

 

 

 

(In Thousands, except share data)

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Surplus

 

 

Retained Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total

 

 

Balance, December 31, 2022

 

 

14,939,640

 

 

$

149

 

 

$

117,709

 

 

$

27,100

 

 

$

(6,405

)

 

$

138,553

 

 

Cumulative effect of change in accounting principles (Note 1)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(5,419

)

 

 

—

 

 

 

(5,419

)

 

Balance, January 1, 2023, as adjusted

 

 

14,939,640

 

 

 

149

 

 

 

117,709

 

 

 

21,681

 

 

 

(6,405

)

 

 

133,134

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,033

 

 

 

—

 

 

 

1,033

 

 

Dividends declared ($0.225 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3,652

)

 

 

—

 

 

 

(3,652

)

 

Issuance of shares of common stock, net proceeds

 

 

1,282,052

 

 

 

13

 

 

 

9,967

 

 

 

—

 

 

 

—

 

 

 

9,980

 

 

Employee stock purchase plan

 

 

14,179

 

 

 

—

 

 

 

84

 

 

 

—

 

 

 

—

 

 

 

84

 

 

Stock option expense

 

 

—

 

 

 

—

 

 

 

96

 

 

 

—

 

 

 

—

 

 

 

96

 

 

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

676

 

 

 

676

 

 

Balance, September 30, 2023

 

 

16,235,871

 

 

$

162

 

 

$

127,856

 

 

$

19,062

 

 

$

(5,729

)

 

$

141,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

5

 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

(In Thousands)

 

2023

 

 

2022

 

OPERATING ACTIVITIES

 

 

 

Net income

 

$

1,033

 

 

$

4,902

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

(Credit to) provision for credit losses

 

 

(549

)

 

 

1,190

 

Depreciation

 

 

779

 

 

 

607

 

Amortization of intangible assets

 

 

179

 

 

 

197

 

Accretion of discounts, net

 

 

(447

)

 

 

(903

)

Origination of loans to be sold

 

 

(3,745

)

 

 

(9,362

)

Proceeds from loan sales

 

 

4,041

 

 

 

10,115

 

Gain on sale of loans

 

 

(296

)

 

 

(753

)

Share-based and deferred compensation

 

 

627

 

 

 

493

 

Bank-owned life insurance income

 

 

(488

)

 

 

(381

)

Loss (gain) on sale of debt securities, available for sale

 

 

2,370

 

 

 

(13

)

Change in accrued interest receivable and other assets

 

 

328

 

 

 

(1,397

)

Change in accrued interest payable and other liabilities

 

 

(495

)

 

 

56

 

Net cash provided by operating activities

 

 

3,337

 

 

 

4,751

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

Proceeds from sales

 

 

1,847

 

 

 

513

 

Proceeds from calls and maturities

 

 

—

 

 

 

1,150

 

Proceeds from principal repayments

 

 

5,645

 

 

 

9,748

 

Purchases

 

 

(9,756

)

 

 

—

 

Investment securities held to maturity:

 

 

 

 

 

 

Proceeds from principal repayments

 

 

2,379

 

 

 

1,826

 

Purchases

 

 

(11,289

)

 

 

(34,389

)

Proceeds from redemptions of certificates of deposit with other banks

 

 

5,374

 

 

 

4,470

 

Purchase of restricted investment in bank stocks

 

 

(6,862

)

 

 

(4,525

)

Redemption of restricted investment in bank stocks

 

 

7,132

 

 

 

3,883

 

Increase in loans, net

 

 

(49,565

)

 

 

(143,654

)

Purchase of bank-owned life insurance

 

 

(5,000

)

 

 

—

 

Proceeds from death benefit under bank-owned life insurance

 

 

—

 

 

 

41

 

Purchase of premises and equipment

 

 

(664

)

 

 

(4,405

)

Net cash used in investing activities

 

 

(60,759

)

 

 

(165,342

)

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

Increase in deposits, net

 

 

95,000

 

 

 

180,045

 

Change in short-term borrowings, net

 

 

(5,938

)

 

 

(19,814

)

Proceeds from issuance of subordinated debt

 

 

—

 

 

 

20,000

 

Issuance of shares from exercise of stock options

 

 

—

 

 

 

120

 

Dividends paid

 

 

(3,652

)

 

 

(2,213

)

Net proceeds from issuance of common stock

 

 

9,980

 

 

 

34,659

 

Net cash provided by financing activities

 

 

95,390

 

 

 

212,797

 

Increase in cash and cash equivalents

 

 

37,968

 

 

 

52,206

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

30,011

 

 

 

22,590

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

67,979

 

 

$

74,796

 

See accompanying notes to the unaudited consolidated financial statements.

 

6

 

LINKBANCORP, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

17,331

 

 

$

3,243

 

Income taxes

 

$

—

 

 

$

275

 

See accompanying notes to the unaudited consolidated financial statements.

7

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Nature of Operations

LINKBANCORP, Inc. (the "Company" or "LINKBANCORP") is a bank holding company that operates LINKBANK (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. On October 5, 2018, 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.

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 entered into an Agreement and Plan of Merger 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 "Gratz Merger"). In markets other than the pre-merger Gratz Bank areas, the Bank operated as "LINKBANK, a division of The Gratz Bank." Effective November 4, 2022, the Bank began to operate under one brand under the name LINKBANK.

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.

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's common stock trades on the Nasdaq Capital Market under the symbol "LNKB."

Basis of Presentation

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 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, 2023 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 credit losses, and the valuation of deferred tax assets.

8

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022.

 

Reclassification of Prior Period Financial Statements

Certain previously reported items have been reclassified to conform to the current year's classifications. Reclassifications had no effect on prior year net income or shareholders' equity.

 

Pending Merger with Partners Bancorp

On February 22, 2023, the Company entered into an Agreement and Plan of Merger (the "Partners Merger Agreement") with Partners Bancorp ("Partners"), a Maryland corporation, and the holding company for The Bank of Delmarva and Virginia Partners Bank, based in Seaford, Delaware and Fredericksburg, Virginia, respectively. At December 31, 2022, Partners had total assets of $1.57 billion, total loans of $1.23 billion, total deposits of $1.34 billion, and 17,973,724 shares outstanding. The Partners Merger Agreement provides that, subject to the terms and conditions thereof, Partners will merge with and into the Company, with the Company as the surviving corporation, and that The Bank of Delmarva and Virginia Partners Bank will each merge with and into LINKBANK, with LINKBANK as the surviving bank (collectively, the "Partners Merger"). On June 22, 2023, shareholders of the Company and Partners each approved the Partners Merger. On October 13, 2023, the Company and Partners announced the receipt of FDIC and state regulatory approvals for the Partners Merger. However, the Partners Merger remains subject to the approval of the Board of Governors of the Federal Reserve System and other customary closing conditions. The Partners Merger is expected to close in the fourth quarter of 2023. The Partners Merger will introduce the Company's operations into northern Virginia, eastern Maryland, Delaware, and southern New Jersey.

 

Unregistered Sale of Equity Securities

On February 21, 2023, the Company entered into Investment Agreements with certain directors of the Company as well as other accredited investors under which it issued and sold 1,282,052 shares of its common stock, par value $0.01, at a price of $7.80 per share. The shares were issued on February 21, 2023, in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D of the rules and regulations promulgated thereunder. The offering resulted in gross proceeds of $10.0 million. There were no underwriting discounts or commissions.

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 credit losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Accrued interest receivable on loans totaled $4,073 at September 30, 2023 and was reported within accrued interest receivable and other assets on the consolidated balance sheets and is excluded from the estimate of credit losses. 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.

 

9

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The accrual of interest on all portfolio classes 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-offs 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.

 

Derivative Instruments and Hedging Activities

FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

 

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 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 the first quarter of 2023, the Company's stock price further decreased, causing management to perform a goodwill impairment test at March 31, 2023. No goodwill impairment was identified at March 31, 2023. No goodwill test has been deemed necessary by management at September 30, 2023.

Recently Adopted Accounting Standards

Reference Rate Reform

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 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.

10

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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. ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The amendments in this ASU are effective for all entities upon issuance through December 31, 2024. The Company identified its loan receivables that have an interest rate indexed to LIBOR, verified proper transition language existed in the contracts and executed contractual updates, as needed, with the impacted borrowers. The Company replaced LIBOR in most cases with one-month Term SOFR or Daily SOFR. The Company does not expect the impact to be material to the financial statements of the Company.

Goodwill Impairment

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 had been Step 2 of the goodwill impairment test. Instead, the goodwill impairment test consists 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 was effective for annual and any interim goodwill impairment tests in reporting periods beginning after December 15, 2022. The Company adopted ASU 2017-04 on January 1, 2023. The adoption of this standard did not have a material effect on the Company's operating results or financial condition.

Derivatives

On March 28, 2022, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption in the interim period permitted. For entities who have already adopted ASU 2017-12, immediate adoption is allowed. ASU 2022-01 requires a modified retrospective transition method for basis adjustments in which the entity will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company adopted ASU 2022-01 on January 1, 2023. The adoption of this standard did not have a material effect on the Company's operating results or financial condition.

Current Expected Credit Losses

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces 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.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At January 1, 2023, the Company increased the allowance for credit losses for loans by $5.7 million, the allowance for credit losses for unfunded loan commitments by $910 thousand, and the allowance on held-to-maturity securities by $602 thousand. At January 1, 2023, the Company reported a cumulative-effect adjustment of $5.4 million which decreased retained earnings.

The Company did not record an allowance for credit losses on its available-for-sale debt securities under the newly codified available-for-sale debt security impairment model, as the majority of these securities are government agency-backed securities for which the risk of loss is minimal.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of the adoption. On January 1, 2023, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $308 thousand to the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2023.

11

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The below table shows the changes made to loan segments and the allowance for credit losses upon the adoption of ASC 326 as of January 1, 2023.

(In Thousands)

 

December 31, 2022 Statement
Balance

 

 

Segment portfolio reclassifications

 

 

December 31, 2022 after reclassifications

 

Loans:

 

 

 

 

 

 

 

 

 

Agriculture and farmland

 

$

15,591

 

 

$

40,155

 

 

$

55,746

 

Construction

 

 

—

 

 

 

57,713

 

 

 

57,713

 

Commercial & industrial

 

 

103,874

 

 

 

881

 

 

 

104,755

 

Paycheck Protection Program

 

 

881

 

 

 

(881

)

 

 

—

 

Commercial real estate

 

 

540,914

 

 

 

(540,914

)

 

 

—

 

Multifamily

 

 

—

 

 

 

105,390

 

 

 

105,390

 

Owner occupied

 

 

—

 

 

 

139,554

 

 

 

139,554

 

Non-owner occupied

 

 

—

 

 

 

245,274

 

 

 

245,274

 

Residential real estate

 

 

250,832

 

 

 

(250,832

)

 

 

—

 

First liens

 

 

—

 

 

 

168,084

 

 

 

168,084

 

Second liens and lines of credit

 

 

—

 

 

 

35,576

 

 

 

35,576

 

Municipal

 

 

5,466

 

 

 

—

 

 

 

5,466

 

Consumer and other

 

 

10,057

 

 

 

—

 

 

 

10,057

 

Total

 

 

927,615

 

 

 

—

 

 

 

927,615

 

Deferred Costs

 

 

256

 

 

 

—

 

 

 

256

 

Total

 

$

927,871

 

 

$

—

 

 

$

927,871

 

 

 

 

 

 

 

 

 

 

 

Allowance:

 

 

 

 

 

 

 

 

 

Agriculture and farmland

 

$

33

 

 

$

246

 

 

$

279

 

Construction

 

 

—

 

 

 

274

 

 

 

274

 

Commercial & industrial

 

 

583

 

 

 

—

 

 

 

583

 

Paycheck Protection Program

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate

 

 

2,462

 

 

 

(2,462

)

 

 

—

 

Multifamily

 

 

—

 

 

 

480

 

 

 

480

 

Owner occupied

 

 

—

 

 

 

635

 

 

 

635

 

Non-owner occupied

 

 

—

 

 

 

1,116

 

 

 

1,116

 

Residential real estate

 

 

1,536

 

 

 

(1,536

)

 

 

—

 

First liens

 

 

—

 

 

 

1,029

 

 

 

1,029

 

Second liens and lines of credit

 

 

—

 

 

 

218

 

 

 

218

 

Municipal

 

 

12

 

 

 

—

 

 

 

12

 

Consumer and other

 

 

40

 

 

 

—

 

 

 

40

 

Total

 

$

4,666

 

 

$

—

 

 

$

4,666

 

 

The Federal Reserve and the FDIC have adopted a rule that provides a banking organization the option to phase-in, over a three year period, the effects of CECL on its regulatory capital upon the adoption of the CECL standard. The Company has elected to exercise this phase-in option.

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 Company adopted this standard effective January 1, 2023 in conjunction with ASC 326. The adoption of this standard did not have a material effect on the Company's operating results or financial condition.

As a result of the adoption of ASU 2016-13, the Company revised some of its existing accounting policies as noted below:

12

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Allowance for Credit Losses - Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

 

Portfolio Segment

Measurement Method

Agriculture and farmland

Remaining life

Construction

Discounted cash flow

Commercial & industrial

Discounted cash flow

Commercial real estate

 

Multifamily

Discounted cash flow

Owner occupied

Discounted cash flow

Non-owner occupied

Discounted cash flow

Residential real estate

 

First liens

Discounted cash flow

Second liens and lines of credit

Discounted cash flow

Municipal

Remaining life

Consumer

Remaining life

Loans that do not share risk similar risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation described above. When management determines that foreclosure is probable, expected credit losses are based on the fair value of collateral at the reporting date, adjusted for selling costs as appropriate.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company.

 

 

13

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Allowance for Credit Losses - Held-to-Maturity Securities

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities totaled $187 at September 30, 2023 which is excluded from the estimate of credit losses.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Management classifies the held-to-maturity portfolio into the following major security types: Corporate debentures and structured mortgage-backed securities.

•
The corporate debentures are comprised of investments in subordinated debt issued by U.S. based banks.
•
All of the structured mortgage-backed securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S government, are highly rated by major rating agencies and have a long history of no credit losses.

 

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The segments of off-balance sheet credit exposures are the same as the segments for the allowance for credit losses on loans. The allowance for credit losses on off balance sheet credit exposures is influenced by forecasted loss rates used in the allowance for credit losses on loans and the level of contractual obligations to extend credit.

 

Investment Securities

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

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive (loss) income.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

14

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

Accrued interest receivable on available for sale debt securities totaled $489 at September 30, 2023 and is excluded from the estimate of credit losses.

 

2.
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, 2023

 

 

 

 

(In Thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US government agency securities

 

$

2,000

 

 

$

—

 

 

$

(18

)

 

$

1,982

 

 

 

 

Small Business Administration loan pools

 

 

693

 

 

 

—

 

 

 

(14

)

 

 

679

 

 

 

 

Obligations of state and political subdivisions

 

 

45,614

 

 

 

—

 

 

 

(5,935

)

 

 

39,679

 

 

 

 

Mortgage-backed securities in government-sponsored entities

 

 

40,987

 

 

 

—

 

 

 

(4,548

)

 

 

36,439

 

 

 

 

 

 

$

89,294

 

 

$

—

 

 

$

(10,515

)

 

$

78,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
 Value

 

 

Allowance for
Credit Losses

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debentures

 

$

15,000

 

 

$

—

 

 

$

(1,963

)

 

$

13,037

 

 

$

512

 

Structured mortgage-backed securities

 

 

22,778

 

 

 

—

 

 

 

(1,227

)

 

 

21,551

 

 

 

—

 

 

 

$

37,778

 

 

$

—

 

 

$

(3,190

)

 

$

34,588

 

 

$

512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

(In Thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

858

 

 

$

—

 

 

$

(15

)

 

$

843

 

 

 

 

Obligations of state and political subdivisions

 

 

44,189

 

 

 

14

 

 

 

(4,034

)

 

 

40,169

 

 

 

 

Mortgage-backed securities in government-sponsored entities

 

 

41,873

 

 

 

—

 

 

 

(4,072

)

 

 

37,801

 

 

 

 

 

 

$

86,920

 

 

$

14

 

 

$

(8,121

)

 

$

78,813

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debentures

 

$

14,993

 

 

$

—

 

 

$

(994

)

 

$

13,999

 

 

 

 

Structured mortgage-backed securities

 

 

16,829

 

 

 

—

 

 

 

(748

)

 

 

16,081

 

 

 

 

 

 

$

31,822

 

 

$

—

 

 

$

(1,742

)

 

$

30,080

 

 

 

 

 

 

15

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following tables summarize the Company's debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and length of time in a continuous unrealized loss position.

 

 

September 30, 2023

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Government Agency Securities

 

$

1,982

 

 

$

(18

)

 

$

—

 

 

$

—

 

 

$

1,982

 

 

$

(18

)

Small Business Administration loan pools

 

 

—

 

 

 

—

 

 

 

679

 

 

 

(14

)

 

 

679

 

 

 

(14

)

Obligations of state and political subdivisions

 

 

7,383

 

 

 

(479

)

 

 

32,296

 

 

 

(5,456

)

 

 

39,679

 

 

 

(5,935

)

Mortgage-backed securities in government-sponsored entities

 

 

4,647

 

 

 

(220

)

 

 

31,792

 

 

 

(4,328

)

 

 

36,439

 

 

 

(4,548

)

 

 

$

14,012

 

 

$

(717

)

 

$

64,767

 

 

$

(9,798

)

 

$

78,779

 

 

$

(10,515

)

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debentures

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Structured mortgage-backed securities

 

 

8,227

 

 

 

(66

)

 

 

13,324

 

 

 

(1,161

)

 

 

21,551

 

 

 

(1,227

)

 

 

$

8,227

 

 

$

(66

)

 

$

13,324

 

 

$

(1,161

)

 

$

21,551

 

 

$

(1,227

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 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

 

$

334

 

 

$

(1

)

 

$

509

 

 

$

(14

)

 

$

843

 

 

$

(15

)

Obligations of state and political subdivisions

 

 

34,836

 

 

 

(3,372

)

 

 

2,559

 

 

 

(662

)

 

 

37,395

 

 

 

(4,034

)

Mortgage-backed securities in government-sponsored entities

 

 

18,052

 

 

 

(1,538

)

 

 

19,749

 

 

 

(2,534

)

 

 

37,801

 

 

 

(4,072

)

 

 

$

53,222

 

 

$

(4,911

)

 

$

22,817

 

 

$

(3,210

)

 

$

76,039

 

 

$

(8,121

)

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debentures

 

$

13,999

 

 

$

(994

)

 

$

—

 

 

$

—

 

 

$

13,999

 

 

$

(994

)

Structured mortgage-backed securities

 

 

16,081

 

 

 

(748

)

 

 

—

 

 

 

—

 

 

 

16,081

 

 

 

(748

)

 

 

$

30,080

 

 

$

(1,742

)

 

$

—

 

 

$

—

 

 

$

30,080

 

 

$

(1,742

)

No allowance for credit losses on available for sale debt securities was needed at September 30, 2023. The Company reviews its position quarterly and believes that as of September 30, 2023 and December 31, 2022, 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 186 and 175 available for sale debt securities with unrealized losses at September 30, 2023 and December 31, 2022, respectively. The Company has concluded that the unrealized losses disclosed above are the result of interest rate changes and market conditions that are not expected to result in the non-collection of principal and interest during the year.

16

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

There were 13 and ten held to maturity debt securities with unrealized losses at September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, 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

 

$

381

 

 

$

377

 

 

$

—

 

 

$

—

 

Due after one year through five years

 

 

9,030

 

 

 

8,639

 

 

 

6,000

 

 

 

5,673

 

Due after five years through ten years

 

 

13,432

 

 

 

12,134

 

 

 

9,000

 

 

 

7,364

 

Due after ten years

 

 

25,464

 

 

 

21,190

 

 

 

—

 

 

 

—

 

Mortgage-backed securities and Collateralized mortgage obligations

 

 

40,987

 

 

 

36,439

 

 

 

22,778

 

 

 

21,551

 

 

 

$

89,294

 

 

$

78,779

 

 

$

37,778

 

 

$

34,588

 

 

The following table summarizes sales of debt securities for the nine months ended September 30, 2023 and 2022. There were no sales of debt securities for the three months ended September 30, 2023 and 2022.

 

(In Thousands)

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 Proceeds

 $

 

1,847

 

 $

 

513

 

 Gross gains

 

 

 

—

 

 

 

 

13

 

 Gross losses

 

 

2,370

 

 

 

—

 

 Net (loss) gain

 $

 

(2,370

)

 $

 

13

 

 

 

The tax benefit (provision) related to these realized gains and losses was $498 and $(3) as of September 30, 2023 and 2022, respectively.

At December 31, 2022, the Company's corporate debenture portfolio contained $3,000 of an investment in subordinated notes issued by Signature Bank. As a result of and subsequent to the failure of Signature Bank during the first quarter of 2023, the Company sold its investment in the Signature Bank subordinated notes and incurred a pre-tax gross loss of approximately $2,445.

 

The Company had pledged debt securities with a carrying value of $55,755 and $47,418 to secure public deposits and certain borrowing capacity as of September 30, 2023 and December 31, 2022, respectively.

 

17

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

3.
LOANS RECEIVABLE

The portfolio segments and classes of loans are as follows:

 

(In Thousands)

 

September 30, 2023

 

 

December 31, 2022

 

Agriculture and farmland loans

 

$

50,584

 

 

$

55,746

 

Construction loans

 

 

65,836

 

 

 

57,713

 

Commercial & industrial loans

 

 

115,572

 

 

 

104,755

 

Commercial real estate loans

 

 

 

 

 

 

     Multifamily

 

 

111,853

 

 

 

105,390

 

     Owner occupied

 

 

160,929

 

 

 

139,554

 

     Non-owner occupied

 

 

257,344

 

 

 

245,274

 

Residential real estate loans

 

 

 

 

 

 

     First liens

 

 

172,481

 

 

 

168,084

 

     Second liens and lines of credit

 

 

27,870

 

 

 

35,576

 

Consumer and other loans

 

 

11,869

 

 

 

10,057

 

Municipal loans

 

 

4,137

 

 

 

5,466

 

 

 

978,475

 

 

 

927,615

 

Deferred costs

 

 

437

 

 

 

256

 

Allowance for credit losses

 

 

(9,964

)

 

 

(4,666

)

Total

 

$

968,948

 

 

$

923,205

 

 

The balances at December 31, 2022 were reclassified from those previously reported as shown in Note 1.

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.

At September 30, 2023 and December 31, 2022 the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $348 and $0, respectively.

4.
ALLOWANCE FOR CREDIT LOSSES

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

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

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

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.

18

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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 systematically monitors the loan portfolio and the appropriateness of the allowance for credit losses on a quarterly basis to provide for expected losses inherent in the portfolio. For segments determined by discounted cash flow analysis, the Company's estimate of future economic conditions utilized in its estimate is primarily dependent on the Federal Open Market Committee's forecasts related to Real Gross Domestic Product and Unemployment rate. For segments determined by the remaining life method, an average loss rate is generally calculated based on peer losses and applied to the future outstanding loan balances at quarter end.

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 credit losses adequate to cover loan losses inherent in the loan portfolio at September 30, 2023 and December 31, 2022.

19

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following tables summarize the activity in the allowance for credit losses by loan segment for the three and nine months ended September 30, 2023.

 

 

 

Beginning balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision for credit losses

 

 

Ending balance

 

(In Thousands)

 

For the Three Months Ended September 30, 2023

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and farmland

 

$

209

 

 

$

—

 

 

$

—

 

 

$

(130

)

 

$

79

 

Construction

 

 

728

 

 

 

—

 

 

 

—

 

 

 

(275

)

 

 

453

 

Commercial & industrial

 

 

729

 

 

 

—

 

 

 

—

 

 

 

126

 

 

 

855

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

673

 

 

 

—

 

 

 

—

 

 

 

(254

)

 

 

419

 

Owner occupied

 

 

1,559

 

 

 

—

 

 

 

—

 

 

 

197

 

 

 

1,756

 

Non-owner occupied

 

 

4,350

 

 

 

—

 

 

 

—

 

 

 

(220

)

 

 

4,130

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First liens

 

 

1,397

 

 

 

—

 

 

 

11

 

 

 

44

 

 

 

1,452

 

Second liens and lines of credit

 

 

383

 

 

 

—

 

 

 

1

 

 

 

(58

)

 

 

326

 

Municipal

 

 

7

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7

 

Consumer

 

 

22

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

24

 

Unallocated

 

 

171

 

 

 

—

 

 

 

—

 

 

 

292

 

 

 

463

 

Total

 

$

10,228

 

 

$

—

 

 

$

12

 

 

$

(276

)

 

$

9,964

 

 

 

 

Beginning balance

 

 

Impact of adopting ASC 326

 

 

Charge-offs

 

 

Recoveries

 

 

Provision for credit losses

 

 

Ending balance

 

(In Thousands)

 

For the Nine Months Ended September 30, 2023

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and farmland

 

$

279

 

 

$

(190

)

 

$

—

 

 

$

—

 

 

$

(10

)

 

$

79

 

Construction

 

 

274

 

 

 

513

 

 

 

—

 

 

 

—

 

 

 

(334

)

 

 

453

 

Commercial & industrial

 

 

583

 

 

 

283

 

 

 

—

 

 

 

1

 

 

 

(12

)

 

 

855

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

480

 

 

 

340

 

 

 

—

 

 

 

—

 

 

 

(401

)

 

 

419

 

Owner occupied

 

 

635

 

 

 

760

 

 

 

—

 

 

 

—

 

 

 

361

 

 

 

1,756

 

Non-owner occupied

 

 

1,116

 

 

 

3,195

 

 

 

—

 

 

 

—

 

 

 

(181

)

 

 

4,130

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First liens

 

 

1,029

 

 

 

635

 

 

 

—

 

 

 

50

 

 

 

(262

)

 

 

1,452

 

Second liens and lines of credit

 

 

218

 

 

 

140

 

 

 

—

 

 

 

60

 

 

 

(92

)

 

 

326

 

Municipal

 

 

12

 

 

 

(2

)

 

 

—

 

 

 

—

 

 

 

(3

)

 

 

7

 

Consumer

 

 

40

 

 

 

(19

)

 

 

—

 

 

 

—

 

 

 

3

 

 

 

24

 

Unallocated

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

463

 

 

 

463

 

Total

 

$

4,666

 

 

$

5,655

 

 

$

—

 

 

$

111

 

 

$

(468

)

 

$

9,964

 

 

20

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The balances at December 31, 2022 were reclassified from those previously reported as shown in Note 1.

The following table presents the amortized cost basis of nonaccrual loans and loans past due over 89 days still accruing by segments of the loan portfolio:

 

 

As of September 30, 2023

 

(In Thousands)

 

Nonaccrual with No Allowance for Credit Loss

 

 

Nonaccrual with a related Allowance for Credit Loss

 

 

Loans past due over 89 days still accruing

 

Agriculture and farmland

 

$

—

 

 

$

—

 

 

$

—

 

Construction

 

 

—

 

 

 

—

 

 

 

192

 

Commercial & industrial

 

 

13

 

 

 

—

 

 

 

110

 

Commercial real estate

 

 

 

 

 

 

 

 

 

Multifamily

 

 

—

 

 

 

—

 

 

 

—

 

Owner occupied

 

 

—

 

 

 

—

 

 

 

—

 

Non-owner occupied

 

 

292

 

 

 

140

 

 

 

558

 

Residential real estate

 

 

 

 

 

 

 

 

 

First liens

 

 

1,357

 

 

 

—

 

 

 

112

 

Second liens and lines of credit

 

 

43

 

 

 

—

 

 

 

90

 

Municipal

 

 

—

 

 

 

—

 

 

 

—

 

Consumer

 

 

50

 

 

 

—

 

 

 

1

 

Total

 

$

1,755

 

 

$

140

 

 

$

1,063

 

 

The Company recognized $35 and $49 of interest income on nonaccrual loans during the three and nine months ended September 30, 2023.

 

The following table presents an aging analysis of the recorded investment of past due loans at September 30, 2023.

 

 

September 30, 2023

 

(In Thousands)

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days
or Greater
Past Due

 

 

Total
Past Due

 

 

Current

 

 

Total
  Loans

 

Agriculture and farmland

 

$

291

 

 

$

—

 

 

$

—

 

 

$

291

 

 

$

50,293

 

 

$

50,584

 

Construction

 

 

—

 

 

 

—

 

 

 

192

 

 

 

192

 

 

 

65,644

 

 

 

65,836

 

Commercial & industrial

 

 

202

 

 

 

—

 

 

 

122

 

 

 

324

 

 

 

115,248

 

 

 

115,572

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

111,853

 

 

 

111,853

 

Owner occupied

 

 

137

 

 

 

—

 

 

 

—

 

 

 

137

 

 

 

160,792

 

 

 

160,929

 

Non-owner occupied

 

 

—

 

 

 

—

 

 

 

947

 

 

 

947

 

 

 

256,397

 

 

 

257,344

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First liens

 

 

1,096

 

 

 

101

 

 

 

592

 

 

 

1,789

 

 

 

170,692

 

 

 

172,481

 

Second liens and lines of credit

 

 

97

 

 

 

4

 

 

 

96

 

 

 

197

 

 

 

27,673

 

 

 

27,870

 

Municipal

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

11,869

 

 

 

11,869

 

Consumer

 

 

4

 

 

 

—

 

 

 

3

 

 

 

7

 

 

 

4,130

 

 

 

4,137

 

Total

 

$

1,827

 

 

$

105

 

 

$

1,952

 

 

$

3,884

 

 

$

974,591

 

 

$

978,475

 

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of September 30, 2023. 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.

21

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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

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

The following table presents the classes of the loan portfolio summarized by the internal risk rating system as of September 30, 2023.

 

 

 

September 30, 2023

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving loans amortized cost basis

 

 

Revolving loans converted to term

 

 

Total

 

Agriculture and farmland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

641

 

 

$

13,880

 

 

$

5,073

 

 

$

5,228

 

 

$

3,089

 

 

$

15,107

 

 

$

4,213

 

 

$

46

 

 

$

47,277

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

45

 

 

 

192

 

 

 

242

 

 

 

—

 

 

 

479

 

Substandard or lower

 

 

14

 

 

 

—

 

 

 

16

 

 

 

129

 

 

 

—

 

 

 

2,612

 

 

 

57

 

 

 

—

 

 

 

2,828

 

Total Agriculture and farmland

 

$

655

 

 

$

13,880

 

 

$

5,089

 

 

$

5,357

 

 

$

3,134

 

 

$

17,911

 

 

$

4,512

 

 

$

46

 

 

$

50,584

 

Agriculture and farmland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

17,080

 

 

 

23,430

 

 

 

17,020

 

 

 

912

 

 

 

5,428

 

 

 

1,498

 

 

 

375

 

 

 

93

 

 

 

65,836

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard or lower

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Construction

 

 

17,080

 

 

 

23,430

 

 

 

17,020

 

 

 

912

 

 

 

5,428

 

 

 

1,498

 

 

 

375

 

 

 

93

 

 

 

65,836

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial & industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

6,765

 

 

 

14,505

 

 

 

7,258

 

 

 

9,606

 

 

 

1,657

 

 

 

1,045

 

 

 

73,096

 

 

 

110

 

 

 

114,042

 

Special mention

 

 

—

 

 

 

—

 

 

 

161

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

914

 

 

 

—

 

 

 

1,075

 

Substandard or lower

 

 

—

 

 

 

—

 

 

 

51

 

 

 

—

 

 

 

203

 

 

 

—

 

 

 

200

 

 

 

1

 

 

 

455

 

Total Commercial & industrial

 

 

6,765

 

 

 

14,505

 

 

 

7,470

 

 

 

9,606

 

 

 

1,860

 

 

 

1,045

 

 

 

74,210

 

 

 

111

 

 

 

115,572

 

Commercial & industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate - Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

5,226

 

 

 

44,619

 

 

 

42,805

 

 

 

11,307

 

 

 

5,858

 

 

 

—

 

 

 

153

 

 

 

—

 

 

 

109,968

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard or lower

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,885

 

 

 

—

 

 

 

—

 

 

 

1,885

 

Total Commercial real estate - Multifamily

 

 

5,226

 

 

 

44,619

 

 

 

42,805

 

 

 

11,307

 

 

 

5,858

 

 

 

1,885

 

 

 

153

 

 

 

—

 

 

 

111,853

 

Commercial real estate - Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

22

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

 

 

September 30, 2023

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving loans amortized cost basis

 

 

Revolving loans converted to term

 

 

Total

 

Commercial real estate - Owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

14,164

 

 

 

66,271

 

 

 

24,299

 

 

 

14,821

 

 

 

21,357

 

 

 

5,767

 

 

 

3,051

 

 

 

6

 

 

 

149,736

 

Special mention

 

 

—

 

 

 

—

 

 

 

1,490

 

 

 

—

 

 

 

6,591

 

 

 

—

 

 

 

295

 

 

 

—

 

 

 

8,376

 

Substandard or lower

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,423

 

 

 

320

 

 

 

74

 

 

 

—

 

 

 

2,817

 

Total Commercial real estate - Owner occupied

 

 

14,164

 

 

 

66,271

 

 

 

25,789

 

 

 

14,821

 

 

 

30,371

 

 

 

6,087

 

 

 

3,420

 

 

 

6

 

 

 

160,929

 

Commercial real estate - Owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate - Non-owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

20,178

 

 

 

113,886

 

 

 

59,008

 

 

 

18,565

 

 

 

25,778

 

 

 

13,105

 

 

 

5,834

 

 

 

—

 

 

 

256,354

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard or lower

 

 

—

 

 

 

—

 

 

 

43

 

 

 

—

 

 

 

140

 

 

 

558

 

 

 

—

 

 

 

249

 

 

 

990

 

Total Commercial real estate - Non-owner occupied

 

 

20,178

 

 

 

113,886

 

 

 

59,051

 

 

 

18,565

 

 

 

25,918

 

 

 

13,663

 

 

 

5,834

 

 

 

249

 

 

 

257,344

 

Commercial real estate - Non-owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

266

 

 

 

—

 

 

 

220

 

 

 

1,677

 

 

 

—

 

 

 

1,877

 

 

 

97

 

 

 

—

 

 

 

4,137

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard or lower

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Commercial real estate - Municipal

 

 

266

 

 

 

—

 

 

 

220

 

 

 

1,677

 

 

 

—

 

 

 

1,877

 

 

 

97

 

 

 

—

 

 

 

4,137

 

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

64,320

 

 

$

276,591

 

 

$

155,683

 

 

$

62,116

 

 

$

63,167

 

 

$

38,399

 

 

$

86,819

 

 

$

255

 

 

$

747,350

 

Special mention

 

 

—

 

 

 

—

 

 

 

1,651

 

 

 

—

 

 

 

6,636

 

 

 

192

 

 

 

1,451

 

 

 

—

 

 

 

9,930

 

Substandard or lower

 

 

14

 

 

 

—

 

 

 

110

 

 

 

129

 

 

 

2,766

 

 

 

5,375

 

 

 

331

 

 

 

250

 

 

 

8,975

 

Total

 

$

64,334

 

 

$

276,591

 

 

$

157,444

 

 

$

62,245

 

 

$

72,569

 

 

$

43,966

 

 

$

88,601

 

 

$

505

 

 

$

766,255

 

 

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. As part of our adoption of CECL, the Company will monitor small balance, homogeneous loans, such as home equity, residential mortgage, and consumer loans based on delinquency status rather than the assignment of loan specific risk ratings. The Company will evaluate credit quality based on the aging status of the loan.

23

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

The following tables present the amortized cost of these loans based on payment activity, by origination year

 

 

September 30, 2023

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving loans amortized cost basis

 

 

Revolving loans converted to term

 

 

Total

 

Residential real estate - First liens

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

14,757

 

 

$

40,742

 

 

$

51,889

 

 

$

20,584

 

 

$

9,512

 

 

$

27,507

 

 

$

6,021

 

 

$

—

 

 

$

171,012

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

104

 

 

 

211

 

 

 

1,154

 

 

 

—

 

 

 

—

 

 

 

1,469

 

Total Residential real estate - First liens

 

$

14,757

 

 

$

40,742

 

 

$

51,889

 

 

$

20,688

 

 

$

9,723

 

 

$

28,661

 

 

$

6,021

 

 

$

—

 

 

$

172,481

 

Residential real estate - First liens

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate - Second liens and lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

75

 

 

 

766

 

 

 

440

 

 

 

130

 

 

 

194

 

 

 

1,256

 

 

 

24,876

 

 

 

—

 

 

 

27,737

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

29

 

 

 

90

 

 

 

14

 

 

 

133

 

Total Residential real estate - Second liens and lines of credit

 

 

75

 

 

 

766

 

 

 

440

 

 

 

130

 

 

 

194

 

 

 

1,285

 

 

 

24,966

 

 

 

14

 

 

 

27,870

 

Residential real estate - Second liens and lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

1,930

 

 

 

169

 

 

 

70

 

 

 

70

 

 

 

17

 

 

 

9

 

 

 

9,553

 

 

 

—

 

 

 

11,818

 

Nonperforming

 

 

—

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

48

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

51

 

Total Consumer and other

 

 

1,930

 

 

 

171

 

 

 

70

 

 

 

70

 

 

 

65

 

 

 

9

 

 

 

9,554

 

 

 

—

 

 

 

11,869

 

Consumer and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period gross charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

16,762

 

 

$

41,677

 

 

$

52,399

 

 

$

20,784

 

 

$

9,723

 

 

$

28,772

 

 

$

40,450

 

 

$

—

 

 

$

210,567

 

Nonperforming

 

 

—

 

 

 

2

 

 

 

—

 

 

 

104

 

 

 

259

 

 

 

1,183

 

 

 

91

 

 

 

14

 

 

 

1,653

 

Total

 

$

16,762

 

 

$

41,679

 

 

$

52,399

 

 

$

20,888

 

 

$

9,982

 

 

$

29,955

 

 

$

40,541

 

 

$

14

 

 

$

212,220

 

 

 

The Company may modify loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, interest rate reduction or an other-than-insignificant payment delay. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses. The Company may also provide multiple types of modifications on an individual loan. For the nine months ended September 30, 2023, the Company did not extend any modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan.

24

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

Allowance for loan losses

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred losses methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.

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

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

 

—

 

 

 

(77

)

 

 

1,190

 

Ending balance

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,643

 

 

$

33

 

 

$

15

 

 

$

-

 

 

$

4,569

 

 

The following table illustrates the balance of loans individually evaluated vs. collectively evaluated for impairment at December 31, 2022.

 

 

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, 2022

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

33

 

 

$

583

 

 

$

2,462

 

 

$

1,536

 

 

$

40

 

 

$

12

 

 

$

—

 

 

$

4,666

 

Ending balance: individually
   evaluated for impairment

 

$

—

 

 

$

20

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

20

 

Ending balance: collectively evaluated
   for impairment

 

$

33

 

 

$

563

 

 

$

2,462

 

 

$

1,536

 

 

$

40

 

 

$

12

 

 

$

—

 

 

$

4,646

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

15,591

 

 

$

104,755

 

 

$

540,914

 

 

$

250,832

 

 

$

10,057

 

 

$

5,466

 

 

 

 

 

$

927,615

 

Ending balance: individually
   evaluated for impairment

 

$

300

 

 

$

55

 

 

$

2,306

 

 

$

4,652

 

 

$

—

 

 

$

—

 

 

 

 

 

$

7,313

 

Ending balance: loans acquired with deteriorated credit
   quality

 

$

—

 

 

$

—

 

 

$

2,227

 

 

$

182

 

 

$

—

 

 

$

—

 

 

 

 

 

$

2,409

 

Ending balance: collectively evaluated
   for impairment

 

$

15,291

 

 

$

104,700

 

 

$

536,381

 

 

$

245,998

 

 

$

10,057

 

 

$

5,466

 

 

 

 

 

$

917,893

 

 

25

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of December 31, 2022. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all.

The Company’s internally assigned grades are as follows:

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

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

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

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

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

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

(In Thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Agriculture loans

 

$

15,291

 

 

$

—

 

 

$

300

 

 

$

—

 

 

$

15,591

 

Commercial and PPP

 

 

101,980

 

 

 

2,721

 

 

 

54

 

 

 

—

 

 

 

104,755

 

Commercial real estate loans

 

 

533,864

 

 

 

2,516

 

 

 

4,534

 

 

 

—

 

 

 

540,914

 

Residential real estate loans

 

 

246,028

 

 

 

207

 

 

 

4,597

 

 

 

—

 

 

 

250,832

 

Consumer loans

 

 

10,057

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,057

 

Municipal loans

 

 

5,466

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,466

 

Total

 

$

912,686

 

 

$

5,444

 

 

$

9,485

 

 

$

—

 

 

$

927,615

 

 

The following table presents an aging analysis of the recorded investment of past due loans at December 31, 2022.

 

 

December 31, 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

 

$

193

 

 

$

48

 

 

$

149

 

 

$

390

 

 

$

15,201

 

 

$

—

 

 

$

15,591

 

 

$

149

 

Commercial and PPP loans

 

 

111

 

 

 

21

 

 

 

54

 

 

 

186

 

 

 

104,569

 

 

 

—

 

 

 

104,755

 

 

 

54

 

Commercial real estate loans

 

 

863

 

 

 

88

 

 

 

190

 

 

 

1,141

 

 

 

537,546

 

 

 

2,227

 

 

 

540,914

 

 

 

—

 

Residential real estate loans

 

 

2,474

 

 

 

137

 

 

 

1,176

 

 

 

3,787

 

 

 

246,863

 

 

 

182

 

 

 

250,832

 

 

 

540

 

Consumer loans

 

 

254

 

 

 

58

 

 

 

—

 

 

 

312

 

 

 

9,745

 

 

 

—

 

 

 

10,057

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,466

 

 

 

—

 

 

 

5,466

 

 

 

—

 

Total

 

$

3,895

 

 

$

352

 

 

$

1,569

 

 

$

5,816

 

 

$

919,390

 

 

$

2,409

 

 

$

927,615

 

 

$

743

 

 

26

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 December 31, 2022

 

(In Thousands)

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

300

 

 

$

300

 

 

$

—

 

Commercial loans

 

 

35

 

 

 

55

 

 

 

—

 

Commercial real estate loans

 

 

2,306

 

 

 

2,312

 

 

 

—

 

Residential real estate loans

 

 

4,652

 

 

 

4,683

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

20

 

 

 

20

 

 

 

20

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

300

 

 

$

300

 

 

$

—

 

Commercial loans

 

 

55

 

 

 

75

 

 

 

20

 

Commercial real estate loans

 

 

2,306

 

 

 

2,312

 

 

 

—

 

Residential real estate loans

 

 

4,652

 

 

 

4,683

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

7,313

 

 

$

7,370

 

 

$

20

 

 

27

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2022

 

 

2022

 

(In Thousands)

 

Average
Recorded
Investment

 

 

Interest Income Recognized

 

 

Average
Recorded Investment

 

 

Interest Income Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

133

 

 

$

5

 

 

$

210

 

 

$

8

 

Commercial loans

 

 

37

 

 

 

—

 

 

 

35

 

 

 

—

 

Commercial real estate loans

 

 

2,421

 

 

 

65

 

 

 

2,451

 

 

 

100

 

Residential real estate loans

 

 

2,986

 

 

 

36

 

 

 

3,048

 

 

 

57

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

5,577

 

 

 

106

 

 

 

5,744

 

 

 

165

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

174

 

 

 

3

 

 

 

175

 

 

 

5

 

Consumer loans

 

 

2

 

 

 

—

 

 

 

2

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

176

 

 

 

3

 

 

 

177

 

 

 

5

 

Total

 

$

5,753

 

 

$

109

 

 

$

5,921

 

 

$

170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

(In Thousands)

 

December 31,
2022

 

Commercial and PPP loans

 

$

35

 

Commercial real estate loans

 

 

231

 

Residential real estate loans

 

 

1,652

 

Consumer loans

 

 

—

 

Total

 

$

1,918

 

 

The above nonaccrual loans as of December 31, 2022 excludes PCI loans with a total balance of $2,409. Management does not consider these loans to be non-performing as they are accounted for under the accretable yield method and are performing in line with expectations as of December 31, 2022.

At December 31, 2022, the carrying amount of borrowings secured by loans pledged to the FHLB under its blanket lien was $0.

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.

28

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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 December 31, 2022, the Company had no loans identified as TDRs.

 

5.
DEPOSITS

Deposit accounts are summarized as follows:

 

 

September 30,
2023

 

 

December 31,
2022

 

(In Thousands)

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Demand, noninterest-bearing

 

$

210,404

 

 

 

20.20

%

 

$

192,773

 

 

 

20.36

%

Demand, interest-bearing

 

 

273,673

 

 

 

26.26

 

 

 

254,478

 

 

 

26.88

 

Money market and savings

 

 

258,334

 

 

 

24.80

 

 

 

228,048

 

 

 

24.09

 

Time deposits, $250 and over

 

 

51,563

 

 

 

4.95

 

 

 

45,616

 

 

 

4.82

 

Time deposits, other

 

 

247,798

 

 

 

23.79

 

 

 

225,857

 

 

 

23.86

 

 

 

$

1,041,772

 

 

 

100.0

%

 

$

946,772

 

 

 

100.0

%

 

Within time deposits, other, there were $75,000 and $70,000 in brokered deposits outstanding at September 30, 2023 and December 31, 2022, respectively. The brokered deposits outstanding at September 30, 2023 matured in October 2023.

 

 

29

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

6.
BORROWINGS AND SUBORDINATED DEBENTURES

Borrowings and subordinated debt were as follows:

(in Thousands)

 

September 30,
2023

 

 

December 31,
2022

 

Subordinated Debt

 

$

40,354

 

 

$

40,484

 

Short-term borrowings

 

 

15,000

 

 

 

20,938

 

Total

 

$

55,354

 

 

$

61,422

 

 

Subordinated Notes Sale - 2022

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 year ended December 31, 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 9 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.

 

Short-term Borrowings - FHLB Advances

The Company had $15,000 and $20,938 in short-term FHLB Advances outstanding at September 30, 2023 and December 31, 2022, respectively. These advances have scheduled maturities less than a year. Our balance as of September 30, 2023 represents a single FHLB advance with a one-month maturity, however, as part of our interest rate swap transaction, the Company has committed to maintain either one-month advances from the FHLB or brokered deposits with a duration of one month through May of 2028. See Note 12 for more detail on an interest rate swap transaction regarding FHLB advances.

 

Available Lines of Credit

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, 2023. There were no borrowings under these lines of credit at September 30, 2023 and December 31, 2022.
 

7.
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.

30

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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

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

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

Level I:

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

Level II:

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

Level III:

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

 

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

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

 

 

At September 30, 2023

 

 

At December 31, 2022

 

(In Thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (Level 1)

 

$

67,979

 

 

$

67,979

 

 

$

30,011

 

 

$

30,011

 

Certificates of deposit with other banks (Level 3)

 

 

249

 

 

 

249

 

 

 

5,623

 

 

 

5,590

 

Securities held to maturity (Level 2)

 

 

37,778

 

 

 

34,588

 

 

 

31,822

 

 

 

30,080

 

Loans (Level 3)

 

 

978,912

 

 

 

920,526

 

 

 

927,871

 

 

 

886,944

 

Derivative (Level 3)

 

 

3,264

 

 

 

3,264

 

 

 

—

 

 

 

—

 

Accrued interest receivable (Level 1)

 

 

4,767

 

 

 

4,767

 

 

 

4,661

 

 

 

4,661

 

Restricted investments in bank stock (Level 1)

 

 

3,107

 

 

 

3,107

 

 

 

3,377

 

 

 

3,377

 

Cash surrender value of life insurance (Level 1)

 

 

24,732

 

 

 

24,732

 

 

 

19,244

 

 

 

19,244

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits (Level 1)

 

 

742,411

 

 

 

742,411

 

 

 

675,299

 

 

 

675,299

 

Time Deposits (Level 3)

 

 

299,361

 

 

 

296,799

 

 

 

271,473

 

 

 

266,775

 

Other borrowings (Level 3)

 

 

15,000

 

 

 

15,000

 

 

 

20,938

 

 

 

20,938

 

Subordinated Notes (Level 3)

 

 

40,354

 

 

 

35,796

 

 

 

40,484

 

 

 

35,966

 

Accrued interest payable (Level 1)

 

 

1,166

 

 

 

1,166

 

 

 

797

 

 

 

797

 

 

31

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

The following tables present the assets reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2023 and December 31, 2022, 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, 2023

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

US government agency securities

 

$

—

 

 

$

1,982

 

 

$

—

 

 

$

1,982

 

Small Business Administration loan pools

 

 

—

 

 

 

679

 

 

 

—

 

 

 

679

 

Obligations of state and political subdivisions

 

 

—

 

 

 

39,679

 

 

 

—

 

 

 

39,679

 

Mortgage backed securities in government-sponsored entities

 

 

—

 

 

 

36,439

 

 

 

—

 

 

 

36,439

 

Total

 

$

—

 

 

$

78,779

 

 

$

—

 

 

$

78,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration loan pools

 

$

—

 

 

$

843

 

 

$

—

 

 

$

843

 

Obligations of state and political subdivisions

 

 

—

 

 

 

40,169

 

 

 

—

 

 

 

40,169

 

Mortgage backed securities in government-sponsored entities

 

 

—

 

 

 

37,801

 

 

 

—

 

 

 

37,801

 

Total

 

$

—

 

 

$

78,813

 

 

$

—

 

 

$

78,813

 

 

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, 2023 and December 31, 2022 are presented in the table below.

 

 

September 30, 2023

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Loans individually evaluated

 

$

—

 

 

$

—

 

 

$

9,523

 

 

$

9,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

(In Thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Loans individually evaluated

 

$

—

 

 

$

—

 

 

$

7,313

 

 

$

7,313

 

 

32

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

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

 

 

September 30, 2023

 

 

 

Quantitative Information About Level III Fair Value Measurements

 

(In Thousands)

 

Fair Value

 

 

Valuation
Techniques

 

 

 

 

Unobservable
Input

 

Range (Weighted
Average)

 

Loans individually evaluated

 

$

9,523

 

 

Appraisal of
collateral

 

 

(1

)

 

Liquidation
expenses

 

 

10

%

 

 

December 31, 2022

 

 

 

Quantitative Information About Level III Fair Value Measurements

 

(In Thousands)

 

Fair Value

 

 

Valuation
Techniques

 

 

 

 

Unobservable
Input

 

Range (Weighted
Average)

 

Loans individually evaluated

 

$

7,313

 

 

Appraisal of
collateral

 

 

(1

)

 

Liquidation
expenses

 

 

10

%

 

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

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.

 

33

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

 

8.
STOCK-BASED COMPENSATION

 

The LINKBANCORP, Inc. 2019 Equity Incentive Plan (the "2019 Plan") authorized 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 Plan is administered by the members of LINKBANCORP’s Compensation Committee (the "Committee"). Unless the Committee specified a different vesting schedule, awards under the Plan were 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 were eligible to receive awards under the plan, except that nonemployees were not 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.

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.

The table below provides details of the Company's stock options at September 30, 2023.

 

 

Number
of Shares

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Term in
Years

 

 

Aggregate
Intrinsic
Value
(in ‘000s)

 

Outstanding, December 31, 2022

 

 

490,000

 

 

$

10.11

 

 

 

7.0

 

 

$

33

 

Granted

 

 

60,000

 

 

 

7.00

 

 

 

9.9

 

 

 

—

 

Expired/terminated

 

 

(36,000

)

 

 

10.45

 

 

 

—

 

 

 

 

Exercised

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

Outstanding, September 30, 2023

 

 

514,000

 

 

$

9.72

 

 

 

7.0

 

 

$

—

 

Exercisable at period end

 

 

260,000

 

 

$

10.16

 

 

 

5.8

 

 

$

—

 

 

The exercise prices for options outstanding as of September 30, 2023 ranged from $7.00 to $14.50.

The table below provides details of the Company's restricted shares activity at September 30, 2023.

 

 

Number
of Shares

 

 

Average Market Price at Grant

 

Outstanding, December 31, 2022

 

 

—

 

 

 

 

Granted

 

 

87,000

 

 

$

7.00

 

Expired/terminated

 

 

—

 

 

 

 

Outstanding, September 30, 2023

 

 

87,000

 

 

$

7.00

 

 

The Company recognized stock-based compensation expense of $38 and $96 for the three and nine months ended September 30, 2023 and $19 and $59 for the three and nine months ended September 30, 2022, respectively. At September 30, 2023, the total unrecognized stock-based compensation costs totaled $200 and will be recognized ratably as expense through December 31, 2027.

 

9.
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.

34

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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, 2023, 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.

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 table presents actual and required capital ratios as of September 30, 2023 and December 31, 2022 under the Basel III Capital Rules. Bank capital levels required to be considered well capitalized are based upon prompt corrective action regulations.

 

 

 

September 30, 2023

 

 

December 31, 2022

 

(In Thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total capital

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

133,547

 

 

 

12.92

%

 

$

125,632

 

 

 

12.89

%

For capital adequacy purposes

 

 

82,664

 

 

 

8.00

 

 

 

77,953

 

 

 

8.00

 

To be well capitalized

 

 

103,331

 

 

 

10.00

 

 

 

97,441

 

 

 

10.00

 

Tier 1 capital

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

127,823

 

 

 

12.37

%

 

$

120,912

 

 

 

12.41

%

For capital adequacy purposes

 

 

61,998

 

 

 

6.00

 

 

 

58,465

 

 

 

6.00

 

To be well capitalized

 

 

82,664

 

 

 

8.00

 

 

 

77,953

 

 

 

8.00

 

Common equity

 

 

 

 

 

 

 

 

 

 

 

 

(to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

127,823

 

 

 

12.37

%

 

$

120,912

 

 

 

12.41

%

For capital adequacy purposes

 

 

46,499

 

 

 

4.50

 

 

 

43,848

 

 

 

4.50

 

To be well capitalized

 

 

67,165

 

 

 

6.50

 

 

 

63,337

 

 

 

6.50

 

Tier 1 capital

 

 

 

 

 

 

 

 

 

 

 

 

(to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

127,823

 

 

 

10.71

%

 

$

120,912

 

 

 

10.93

%

For capital adequacy purposes

 

 

47,727

 

 

 

4.00

 

 

 

44,248

 

 

 

4.00

 

To be well capitalized

 

 

59,658

 

 

 

5.00

 

 

 

55,311

 

 

 

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, 2023 and December 31, 2022, the Bank had not elected to be subject to the alternative framework.

35

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

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.

The Federal Reserve and the FDIC have adopted a rule that provides a banking organization the option to phase-in over a three-year period the effects of CECL on its regulatory capital upon the adoption of the CECL standard. The Company opted to exercise this phase-in option.

 

 

36

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

10.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making and monitoring commitments and conditional obligations as it does for on-balance sheet instruments. As of September 30, 2023 and December 31, 2022, the Company has an allowance for credit losses for off-balance sheet instruments of $904 and $54, respectively, included within the liabilities section of the balance sheet. The corresponding credit to provision for credit losses for the three and nine months ended September 30, 2023 was $0 and $60, respectively. The provision for credit losses for both the three and nine months ended September 30, 2022 was $0.

At September 30, 2023 and December 31, 2022, the following financial instruments were outstanding whose contract amounts represent credit risk:

(In Thousands)

 

September 30,
2023

 

 

December 31,
2022

 

Unfunded commitments under lines of credit:

 

 

 

 

 

 

Home equity loans

 

$

46,960

 

 

$

43,798

 

Commercial real estate, construction, and land development

 

 

60,239

 

 

 

62,146

 

Commercial and industrial

 

 

144,736

 

 

 

125,205

 

Total

 

$

251,935

 

 

$

231,149

 

 

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.

 

37

LINKBANCORP, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Unaudited)

[In Thousands, Except Share Data]

 

11.
EARNINGS PER SHARE

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In Thousands, except share and per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

1,240

 

 

$

1,772

 

 

$

1,033

 

 

$

4,902

 

Basic weighted average common shares outstanding

 

 

16,235,144

 

 

 

10,590,079

 

 

 

15,984,151

 

 

 

10,087,341

 

Net effect of dilutive stock options and warrants

 

 

—

 

 

 

—

 

 

 

—

 

 

 

49,116

 

Net effect of dilutive restricted stock awards

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Diluted weighted average common shares outstanding

 

 

16,235,144

 

 

 

10,590,079

 

 

 

15,984,151

 

 

 

10,136,457

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

0.17

 

 

$

0.06

 

 

$

0.49

 

Diluted

 

$

0.08

 

 

$

0.17

 

 

$

0.06

 

 

$

0.48

 

 

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,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Stock Options

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Warrants

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,537,484

 

Restricted Stock Awards

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

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.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Stock Options

 

 

260,000

 

 

 

195,700

 

 

 

260,000

 

 

 

195,700

 

Warrants

 

 

1,537,484

 

 

 

1,537,484

 

 

 

1,537,484

 

 

 

—

 

Restricted Stock Awards

 

 

87,000

 

 

 

—

 

 

 

87,000

 

 

 

—

 

Total anti-dilutive securities

 

 

1,884,484

 

 

 

1,733,184

 

 

 

1,884,484

 

 

 

195,700

 

 

 

 

 

38

 

12.
DERIVATIVES

During the second quarter of 2023 the Company entered into a pay fixed / received variable interest rate swap with a notional amount of $75,000 which has a fixed rate of 3.28%, a maturity of five years and is designated against either a mix of one-month FHLB advances or brokered certificates of deposit. The Company will utilize, from time to time, interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. At September 30, 2023, the derivative contract is used to hedge the variable cash flows associated with monthly brokered deposits.

 

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in Accumulated Other Comprehensive Income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The amounts reclassified to interest expense were ($375) and ($572) for the three and nine months ended September 30, 2023. Over the next 12 months, the Company estimates that an additional $1.5 million will be reclassified as a reduction to interest expense.

The Company recorded $3.3 million within other assets on the Consolidated Balance Sheet, which represented the fair value of this derivative at September 30, 2023.

 

 

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
•
Overview and Strategy
•
Partners Merger
•
Financial Highlights
•
Comparison of Financial Condition at September 30, 2023 and December 31, 2022
•
Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022.
•
Comparison of Operating Results for the Nine Months Ended September 30, 2023 and 2022.
•
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

39

 

•
•
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:

•
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;
•
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 credit 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;
•
recent events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock;
•
any future FDIC insurance premium increases, or special assessment may adversely affect our earnings;
•
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;
•
the Partners Merger will not close when expected or at all because required regulatory or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all;
•
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;

40

 

•
•
political instability or civil unrest;
•
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;
•
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.

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 wholly-owned subsidiary, LINKBANK, which provides traditional lending, deposit gathering and cash services to retail customers, small businesses and nonprofit organizations. The Bank focuses its lending activities on small businesses, targeted to create a diverse loan portfolio in relation to its underlying collateral and different business segments with unique cash flow generation and varied interest rate sensitivity. The Bank offers a full suite of deposit products and cash management services focused on the small business and nonprofit segments.

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

 

Partners Merger

On February 22, 2023, the Company and Partners Bancorp entered into the Merger Agreement that provides that Partners Bancorp will merge with and into the Company, with the Company as the surviving corporation (the “Partners Merger”). Partners Bancorp shareholders will receive 1.15 shares of Company common stock for each Partners Bancorp share they own. Following the Partners Merger, Partners Bancorp’s two bank subsidiaries, The Bank of Delmarva and Virginia Partners Bank, will each merge with and into LINKBANK, with LINKBANK remaining as the surviving bank (the “Bank Mergers”). On June 22, 2023, shareholders of the Company and Partners Bancorp each approved the Partners Merger. The completion of the Partners Merger and the Bank Mergers is subject to customary closing conditions, including the receipt of regulatory approvals. On October 13, 2023, the Company and Partners announced the receipt of FDIC and state regulatory approvals for the Partners Merger. However, the Partners Merger remains subject to the approval of the Board of Governors of the Federal Reserve System.

41

 

The Partners Merger is expected to close in the fourth quarter of 2023.

 

Financial Highlights

The following is a summary of the financial highlights as of and for the three and nine months ended September 30, 2023:

•
Quarterly Net Income and Net Income Per Share - Net income was $1.2 million for the three months ended September 30, 2023, a $532 thousand decrease from the same period in 2022 and a $107 thousand decrease from the three months ended June 30, 2023 ("Linked Quarter"). Diluted net income per share was $0.08 for the three months ended September 30, 2023, compared to $0.17 per diluted share for the comparable period in 2022 and $0.08 per diluted share for the three months ended June 30, 2023.
•
YTD Net Income - Net income was $1.0 million for the nine months ended September 30, 2023, a $3.9 million decrease from net income of $4.9 million for the same period in 2022.
•
Net Interest Income - Net interest income before provision for credit losses decreased $318 thousand or 3.7% for the three months ended September 30, 2023 compared to the same period in 2022. Net interest margin for the third quarter of 2023 totaled 2.89%, representing a 62 basis points decrease over the same period in 2022. Compared to the Linked Quarter, net interest income before provision for credit losses increased $263 thousand and net interest margin increased eight basis points.
•
Loan Growth - Total gross loans held for investment grew by $9.4 million during the third quarter of 2023 to $978.9 million at September 30, 2023, equating to an annualized growth rate of approximately 3.84%.
•
Deposit Growth - Total deposits grew by $6.9 million during the third quarter of 2023 to $1.04 billion at September 30, 2023, equating to an annualized growth rate of approximately 2.66%.

 

See the sections below for a complete analysis of the results of operations for both the three and nine months ended September 30, 2023.

 

Comparison of Financial Condition at September 30, 2023 and December 31, 2022

Total assets at September 30, 2023, were $1.26 billion, an increase of $92 million, or 7.9%, from $1.16 billion at December 31, 2022. The increase in total assets was primarily due to an increase in cash and cash equivalents of $38.0 million, from $30.0 million at December 31, 2022 to $68.0 million at September 30, 2023, an increase in securities held to maturity from $31.8 million at December 31, 2022 to $37.8 million at September 30, 2023, and an increase in net loans receivable of $45.7 million, or 5.0%, from $923.2 million at December 31, 2022 to $968.9 million at September 30, 2023.

Cash and cash equivalents increased $38.0 million, or 126.5%, from $30.0 million at December 31, 2022 to $68.0 million at September 30, 2023. The increase was primarily due to:

Primary Cash Inflows

•
Net increase in deposits of $95.0 million;
•
Cash received from investment securities (sales, calls, maturities, and principal repayments) of $9.9 million;
•
Cash received from redemptions of certificates of deposit with other banks of $5.4 million;
•
Proceeds from the issuance of common stock of $10.0 million; and
•
Cash from operating activities of $3.3 million.

 

Primary Cash Outflows

•
Net increase in cash funding of loans receivable of $49.6 million;
•
Purchase of investment securities held to maturity of $11.3 million;
•
Purchase of investment securities available for sale of $9.8 million;
•
Purchase of bank owned life insurance of $5.0 million;
•
Net decrease in borrowings of $5.9 million; and Payment of dividends of $3.7 million.

42

 

•

Securities available-for-sale decreased by $34 thousand, with a balance of $78.8 million at both September 30, 2023 and December 31, 2022. The decrease was due to calls/repayments totaling $5.6 million, a decrease in the fair value of our securities of $2.4 million as a result of changes in market conditions, and sales of existing securities of $1.8 million, partially offset by purchases of investment securities of $9.8 million. Securities held to maturity increased $6.0 million, or 18.7% to $37.8 million at September 30, 2023 from $31.8 million at December 31, 2022. This increase was primarily the result of purchases of investment securities of $11.3 million, partially offset by principal repayments of $2.4 million and the sale of one security with a purchase value of $3.0 million that was related to a failed financial institution resulting in a loss recognized of $2.4 million.

Net loans receivable increased during the nine months ended September 30, 2023 as shown in the table below:

 

(dollars in thousands)

 

September 30,
2023

 

 

December 31,
2022

 

 

Change

 

 

%

 

Agriculture loans

 

$

50,584

 

 

$

55,746

 

 

$

(5,162

)

 

 

(9.26

)%

Construction loans

 

 

65,836

 

 

 

57,713

 

 

 

8,123

 

 

 

14.07

 

Commercial loans

 

 

115,572

 

 

 

104,755

 

 

 

10,817

 

 

 

10.33

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

     Multifamily

 

 

111,853

 

 

 

105,390

 

 

 

6,463

 

 

 

6.13

 

     Owner occupied

 

 

160,929

 

 

 

139,554

 

 

 

21,375

 

 

 

15.32

 

     Non-owner occupied

 

 

257,344

 

 

 

245,274

 

 

 

12,070

 

 

 

4.92

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

     First liens

 

 

172,481

 

 

 

168,084

 

 

 

4,397

 

 

 

2.62

 

     Second liens and lines of credit

 

 

27,870

 

 

 

35,576

 

 

 

(7,706

)

 

 

(21.66

)

Consumer and other loans

 

 

11,869

 

 

 

10,057

 

 

 

1,812

 

 

 

18.02

 

Municipal loans

 

 

4,137

 

 

 

5,466

 

 

 

(1,329

)

 

 

(24.31

)

Total Loans

 

 

978,475

 

 

 

927,615

 

 

 

50,860

 

 

 

5.48

 

Deferred costs

 

 

437

 

 

 

256

 

 

 

181

 

 

 

70.70

 

Allowance for credit losses

 

 

(9,964

)

 

 

(4,666

)

 

 

(5,298

)

 

 

113.54

 

Total

 

$

968,948

 

 

$

923,205

 

 

 

45,743

 

 

 

4.95

%

 

Commercial real estate loans increased $39.9 million during the first nine months of 2023. This growth was not attributable to any one significant relationship and was primarily the result of current balances of new loan originations of $40.0 million partially offset by normal net loan repayment activity. Construction loans increased $8.1 million during the first nine months of 2023 primarily due to draws on existing loans with new loan originations for the year to date adding $17.1 million to the balance. Commercial loans increased $10.8 million from December 31, 2022, resulting from $16.1 million in balances on newly originated loans offset by net loan repayments on existing loans.

The allowance for credit losses increased $5.3 million from $4.7 million at December 31, 2022 to $10.0 million at September 30, 2023. The primary driver of the increased allowance for credit losses related to loans was the adoption of the CECL accounting standard on January 1, 2023, which added $5.7 million. Refer to Notes 1 and 4 within the Consolidated Financial Statements for further information.

Asset quality remained strong at September 30, 2023 with non-performing loans, which is defined as non-accrual loans, and loans delinquent greater than 90 days and still accruing interest, was $3.0 million or 0.3% of total gross loans. This was compared to $2.7 million of non-performing loans at December 31, 2022, which equated to 0.29% of total gross loans. Additionally, our allowance for credit losses for loans totaled $10.0 million at September 30, 2023 and represented 1.02% to our total gross loans, which is an increase from 0.50% at December 31, 2022. The allowance for credit losses for loans does not include the unamortized credit discount on purchased loans from prior mergers which totaled $3.9 million and $5.0 million at September 30, 2023 and December 31, 2022, respectively. This significant increase in our allowance coverage was due to the adoption of CECL as of January 1, 2023. At September 30, 2023 and December 31, 2022, the Company had no other real estate owned.

43

 

Deposits grew by $95.1 million, or 10%, from a total of $946.8 million at December 31, 2022 to $1.04 billion at September 30, 2023. Changes in the deposit types are presented in the table below:

 

(in thousands)

 

September 30,
2023

 

 

December 31,
2022

 

 

Change

 

 

%

 

Demand, noninterest-bearing

 

$

210,404

 

 

$

192,773

 

 

$

17,631

 

 

 

9.1

%

Demand, interest-bearing

 

 

273,673

 

 

 

254,478

 

 

 

19,195

 

 

 

7.5

 

Money market and savings

 

 

258,334

 

 

 

228,048

 

 

 

30,286

 

 

 

13.3

 

Time deposits, $250,000 and over

 

 

51,563

 

 

 

45,616

 

 

 

5,947

 

 

 

13.0

 

Time deposits, other

 

 

247,798

 

 

 

225,857

 

 

 

21,941

 

 

 

9.7

 

Total deposits

 

$

1,041,772

 

 

$

946,772

 

 

$

95,000

 

 

 

10.0

%

 

The increase of $36.8 million in demand deposits during the first nine months of 2023 was the result of new accounts opened during the first three quarters of 2023, partially offset by net decreases in existing account balances, with new accounts contributing approximately $70.5 million in balance at September 30, 2023. New accounts opened during the first three quarters of 2023 also explained the growth in money market and savings accounts, contributing $44.7 million to the overall balance growth of $30.3 million. Included in the time deposits balance above were brokered time deposits with a balance of $75.0 million and $70.0 million at September 30, 2023 and December 31, 2022, respectively.

 

The Company has estimated deposits that exceed the FDIC insurance limit of $250,000 of $414.4 million, or 39.8% of total deposits and $408.4 million, or 43.1% of total deposits at September 30, 2023 and December 31, 2022, respectively. Total uninsured deposits is calculated based on regulatory reporting requirements and reflects the portion of any deposit of a customer at an insured depository institution that exceeds the applicable FDIC insurance coverage for that depositor at that institution and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regime. As of September 30, 2023 and December 31, 2022, the total uninsured deposits includes $43.4 million and $36.8 million, respectively, of municipal deposits that exceed the FDIC insurance limits. These municipal deposits are fully secured with pledged securities from our available for sale securities portfolio.

At September 30, 2023 and December 31, 2022, other borrowings consisted of $15.0 million and $20.9 million, respectively in short-term FHLB advances. The advances outstanding as of September 30, 2023 are scheduled to mature in the fourth quarter of 2023. During the second quarter of 2023, the Company entered into a pay fixed/received variable interest rate swap with a notional amount of $75 million which has a fixed rate of 3.28%, and a maturity of five years. As part of the transaction, the Company will receive an offset to the interest incurred on either a mix of one-month FHLB advances or brokered certificates of deposit at a rate equal to one-month SOFR. Our time deposits balance as of September 30, 2023 contains $75 million of one-month maturity brokered deposits that matured in October 2023. As part of our interest rate swap transaction, the Company has committed to maintain either one-month advances from the FHLB or brokered deposits with a duration of one month through May 2028.

Subordinated debt with a fair value of $20.7 million was assumed as part of the Gratz 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, or October 1, 2025. 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 $40.4 million and $40.5 million at September 30, 2023 and December 31, 2022, respectively.

Total shareholders’ equity increased by $2.8 million, or 2.0%, from $138.6 million at December 31, 2022, to $141.4 million at September 30, 2023. The increase was primarily attributable to the net proceeds from the private placement of $10.0 million, net income of $1.0 million, and a $676 thousand decrease in accumulated other comprehensive loss during the first nine months of 2023 as a result of an unrealized gain on the interest rate swap, offset by decreases in fair market values of available for sale securities. These increases were offset by the cumulative effect adjustment from adoption of CECL of $5.4 million and dividends of $3.7 million for the nine months ended September 30, 2023.

Comparison of Results of Operations for the Three Months Ended September 30, 2023 and 2022

General: Net income was $1.2 million for the three months ended September 30, 2023, or $0.08 per diluted share, a decrease of $532 thousand compared to net income of $1.8 million, or $0.17 per diluted share, for the three months ended September 30, 2022.

44

 

The decrease in net income for the three months ended September 30, 2023, as compared to the same prior year period was primarily the result of an increase in noninterest expense of $949 thousand and a decrease in net interest income before provision for credit losses of $318 thousand. Offsetting the decrease in net income was a credit to the provision for credit losses of $349 thousand for the three months ended September 30, 2023 as compared to a provision for credit losses of $515 thousand for the three months ended September 30, 2022, a decrease of $864 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. In general, the shift in the interest rate environment that began in March of 2022 resulted in higher interest rates earned on loans, securities, and interest-earning cash as well as higher interest rates paid on deposits and borrowed money when comparing the three months ended September 30, 2023 to the same period in 2022. Since December 31, 2021, the Federal Funds Target Rate rose from a range of 0.00% - 0.25% to a range of 3.00% - 3.25% as of September 30, 2022 and a range of 5.25% - 5.50% as of September 30, 2023. While this interest rate index is not used for all financial instruments, the interest rate indices and interest rate curves have increased over this same time horizon. The results of this overall upward shift in interest rates has generally caused net interest margins at financial institutions contract when comparing the third quarter of 2023 to the third quarter of 2022 as the cost of funds of financial institutions, generally, have risen at a faster pace than the yield on interest earning assets. As shown in the upcoming table and subsequent discussion, the Company experienced a similar trend whereby our average yield on interest earning assets increased 82 basis points when comparing the third quarter 2023 to the third quarter 2022, while our average cost of funds increased 155 basis points over that same period, resulting in a decrease to net interest margin of 62 basis points.

45

 

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 credit 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,

 

 

 

2023

 

 

2022

 

(Dollars in thousands)

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

Int. Earn. Cash

 

$

55,514

 

 

$

577

 

 

 

4.12

%

 

$

30,630

 

 

$

157

 

 

 

2.03

%

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable (1)

 

 

82,499

 

 

 

833

 

 

 

4.01

%

 

 

86,330

 

 

 

745

 

 

 

3.42

%

Tax-Exempt

 

 

38,589

 

 

 

378

 

 

 

3.89

%

 

 

39,258

 

 

 

339

 

 

 

3.43

%

Total Securities

 

 

121,088

 

 

 

1,211

 

 

 

3.97

%

 

 

125,588

 

 

 

1,084

 

 

 

3.42

%

Total Cash Equiv. and Investments

 

 

176,602

 

 

 

1,788

 

 

 

4.02

%

 

 

156,218

 

 

 

1,241

 

 

 

3.15

%

Total Loans (3)

 

 

971,877

 

 

 

13,068

 

 

 

5.33

%

 

 

824,309

 

 

 

9,410

 

 

 

4.53

%

Total Interest-Earning Assets

 

 

1,148,479

 

 

 

14,856

 

 

 

5.13

%

 

 

980,527

 

 

 

10,651

 

 

 

4.31

%

Other Assets

 

 

97,995

 

 

 

 

 

 

 

 

 

93,116

 

 

 

 

 

 

 

Total Assets

 

$

1,246,474

 

 

 

 

 

 

 

 

$

1,073,643

 

 

 

 

 

 

 

Interest bearing demand

 

$

254,725

 

 

$

1,490

 

 

 

2.32

%

 

$

278,637

 

 

$

400

 

 

 

0.57

%

Money market demand

 

 

254,849

 

 

 

1,827

 

 

 

2.84

%

 

 

244,107

 

 

 

568

 

 

 

0.92

%

Time deposits

 

 

265,573

 

 

 

2,117

 

 

 

3.16

%

 

 

205,792

 

 

 

421

 

 

 

0.81

%

Total Borrowings (4)

 

 

102,669

 

 

 

992

 

 

 

3.83

%

 

 

52,562

 

 

 

521

 

 

 

3.93

%

Total Interest-Bearing Liabilities

 

 

877,816

 

 

 

6,426

 

 

 

2.90

%

 

 

781,098

 

 

 

1,910

 

 

 

0.97

%

Non Int Bearing Deposits

 

 

209,054

 

 

 

 

 

 

 

 

 

170,863

 

 

 

 

 

 

 

Total Cost of Funds

 

$

1,086,870

 

 

$

6,426

 

 

 

2.35

%

 

$

951,961

 

 

$

1,910

 

 

 

0.80

%

Other Liabilities

 

 

17,230

 

 

 

 

 

 

 

 

 

13,243

 

 

 

 

 

 

 

Total Liabilities

 

$

1,104,100

 

 

 

 

 

 

 

 

$

965,204

 

 

 

 

 

 

 

Shareholders' Equity

 

$

142,374

 

 

 

 

 

 

 

 

$

108,439

 

 

 

 

 

 

 

Total Liabilities & Shareholders' Equity

 

$

1,246,474

 

 

 

 

 

 

 

 

$

1,073,643

 

 

 

 

 

 

 

Net Interest Income/Spread (FTE)

 

 

 

 

 

8,430

 

 

 

2.23

%

 

 

 

 

 

8,741

 

 

 

3.34

%

Tax-Equivalent Basis Adjustment

 

 

 

 

 

(78

)

 

 

 

 

 

 

 

 

(71

)

 

 

 

Net Interest Income

 

 

 

 

$

8,352

 

 

 

 

 

 

 

 

$

8,670

 

 

 

 

Net Interest Margin

 

 

 

 

 

 

 

 

2.89

%

 

 

 

 

 

 

 

 

3.51

%

(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.

 

(4) Includes the effect of the interest rate swap, which reduced interest expense by $375 thousand during the three months ended September 30, 2023.

 

 

 

46

 

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, 2023 vs. 2022
Increase (Decrease) Due To:

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net

 

Interest Income:

 

 

 

 

 

 

 

 

 

Int. Earn. Cash

 

$

293

 

 

$

127

 

 

$

420

 

Securities

 

 

 

 

 

 

 

 

 

Taxable

 

 

121

 

 

 

(33

)

 

 

88

 

Tax-Exempt

 

 

45

 

 

 

(6

)

 

 

39

 

Total Securities

 

 

166

 

 

 

(39

)

 

 

127

 

Total Loans

 

 

1,973

 

 

 

1,685

 

 

 

3,658

 

Total Interest-Earning Assets

 

 

2,432

 

 

 

1,773

 

 

 

4,205

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

1,124

 

 

 

(34

)

 

 

1,090

 

Money market demand

 

 

1,234

 

 

 

25

 

 

 

1,259

 

Time deposits

 

 

1,574

 

 

 

122

 

 

 

1,696

 

Total Borrowings

 

 

(25

)

 

 

496

 

 

 

471

 

Total Interest-Bearing Liabilities

 

 

3,907

 

 

 

609

 

 

 

4,516

 

Change in Net Interest Income

 

$

(1,475

)

 

$

1,164

 

 

$

(311

)

Net Interest Income: Net interest income decreased by $318 thousand, or 3.7%, to $8.4 million for the three months ended September 30, 2023, compared to $8.7 million for the three months ended September 30, 2022. The decrease can be attributed to an increase in the rate paid on deposits, and to a lesser extent, a higher average balance in interest bearing liabilities. The decrease caused by changes in funding liabilities were partially offset by an increase in the average yield on interest earning assets and an increase in interest income resulting from a higher average balance in interest-earning assets as compared to the same period in 2022. The net interest margin decreased 62 basis points to 2.89% for the three months ended September 30, 2023 from 3.51% for the three months ended September 30, 2022.

Interest Income: Interest income increased to $14.8 million for the three months ended September 30, 2023, compared with $10.6 million for the three months ended September 30, 2022 primarily due to an increase in interest income on loans as a result of the growth in average loans as well as the increase in average yields earned on all categories of interest earning assets. The growth in average balance of interest earning assets which increased $168.0 million to $1.1 billion for the three months ended September 30, 2023 compared to $980.5 million for the comparable period in 2022 contributed $1.8 million to the increase in 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 $147.6 million to $971.9 million for the three months ended September 30, 2023 as compared to the same period in 2022, as a result of growth in the commercial loan portfolio, which contributed $1.7 million to the increase in interest income. The average yield on loans increased 80 basis points on an annualized basis from 4.53% for the three months ended September 30, 2022 to 5.33% for the three months ended September 30, 2023, which contributed $2.0 million to the increase in interest income. Normal amortization of net loan discounts recorded as part of purchase accounting adjustments to loans acquired through the Gratz Merger contributed $346 thousand to interest income during the three months ended September 30, 2023. Overall the average yield of interest earning assets increased 82 basis points on an annualized basis to 5.13% for the three months ended September 30, 2023 as compared to the same period in 2022 due primarily to a larger concentration of interest earning assets in loans along with an increase in the average yield earned on loans.

Interest Expense: Interest expense increased by $4.5 million, or 236%, to $6.4 million for the three months ended September 30, 2023, compared to $1.9 million for the three months ended September 30, 2022. The increase in interest expense was primarily due to an increase in the average rates paid on interest-bearing liabilities. The average rate paid on interest-bearing liabilities increased 193 basis points on an annualized basis from 0.97% for the three months ended September 30, 2022 to 2.90% for the three months ended September 30, 2023 due to the increasing interest rate environment since September 30, 2022 and in particular its impact on deposit cost. This increase in interest expense was also impacted by an increase in the average balance of interest bearing liabilities, which increased $96.7 million to $877.8 million for the three months ended September 30, 2023 compared to $781.1 million for the three months ended September 30, 2022 as a result of the increase in the average balance of our deposits and borrowings. Interest expense on borrowings was reduced by $375 thousand due to the impact of the interest rate swap.

47

 

Provision for Credit Losses: The provision for credit losses decreased by $864 thousand from a provision of $515 thousand for the three months ended September 30, 2022 to a credit to the provision of $349 thousand for the three months ended September 30, 2023. The credit to the provision for credit losses for the three months ended September 30, 2023 consisted of $275 thousand related to loans and $74 thousand related to held-to-maturity securities. The majority of the net credit to the provision for credit losses can be attributable to a decrease in the forecasted loss factors at September 30, 2023 when compared to the forecast at June 30, 2023. Additionally, the Company had net recoveries for the three mo3nths ended September 30, 2023 of $12 thousand, which contributed to the credit to the provision.

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

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

Non-interest Income: Non-interest income decreased by $161 thousand to $880 thousand for the three months ended September 30, 2023, from $1.0 million recognized during the same period of 2022. The decrease was primarily due to a decrease of $420 thousand in gain on sale of the guaranteed portion of SBA loans sold into the secondary market. This decrease was partially offset by an increase in other income of $256 thousand primarily due to the settlement of a legal matter.

Non-interest Expense: Non-interest expense increased $949 thousand, or 13.5%, from $7.0 million for the three months ended September 30, 2022, to $8.0 million for the three months ended September 30, 2023. The increase was largely due to: (1) an increase of $105 thousand in occupancy expense related to increased property maintenance costs, lease costs, and depreciation expense mostly related to our new corporate headquarters location and the Delaware Valley regional headquarters location; (2) an increase of $268 thousand in equipment and data processing; (3) an increase in FDIC insurance of $135 thousand and (4) an increase in merger related expenses of $777 thousand as a result of the Partners Merger which merger agreement was executed in the first quarter of 2023.

Income Tax Expense: Income tax expense for the three months ended September 30, 2023 totaled $347 compared to $379 thousand for the same period in 2022 as a result of a decrease in income before income tax expense. The income tax expense recognized for the three months ended September 30, 2023 and 2022 was the direct result of our net income adjusted for tax free income and non-deductible merger related expenses. We recognized an income tax expense for the three months ended September 30, 2023 at an effective tax rate of 21.9% which is greater than our statutory tax rate of 21% because of certain non-deductible merger related expenses incurred in preparation for our pending merger with Partners Bancorp. This is compared to income tax expense for the three months ended September 30, 2022 which resulted in an effective tax rate of 17.6%.

Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and 2022

General: Net income was $1.0 million for the nine months ended September 30, 2023, or $0.06 per diluted share, a decrease of $3.9 million compared to net income of $4.9 million, or $0.48 per diluted share, for the nine months ended September 30, 2022.

The decrease in net income for the nine months ended September 30, 2023, as compared to the same prior year period was primarily the result of a decrease in noninterest income of $2.5 million and an increase in noninterest expense of $4.2 million, partially offset by an increase in net interest income before provision for credit losses of $395 thousand. Also offsetting the decrease in net income was the credit to the provision for credit losses of $549 thousand for the nine months ended September 30, 2023 as compared to the provision for credit losses of $1.2 million for the nine months ended September 30, 2022, a decrease of $1.7 million.

Analysis of Net Interest Income

Net interest income represents the difference between the interest the Company earns on its interest-earning assets, such as loans and investment securities, and the expense the Company pays on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates the Company earns or pays on them. In general, the shift in the interest rate environment that began in March of 2022 resulted in higher interest rates earned on loans, securities, and interest-earning cash as well as higher interest rates paid on deposits and borrowed money when comparing the nine months ended September 30, 2023 to the same period in 2022. Since December 31, 2021, the Federal Funds Target Rate rose from a range of 0.00% - 0.25% to a range of 3.00% - 3.25% as of September 30, 2022 and a range of 5.25% - 5.50% as of September 30, 2023. While this interest rate index is not used for all financial instruments, the interest rate indices and interest rate curves have increased over this same time horizon. The results of this overall upward shift in interest rates has generally caused net interest margins at financial institutions to contract when comparing the first nine months of 2023 to the same period in 2022 as the cost of funds of financial institutions, generally, have risen at a faster pace than the yield on interest earning assets. As shown in the upcoming table and subsequent discussion, the Company experienced a similar trend whereby our average yield on interest earning assets increased 99 basis points when comparing the nine months ended September 30, 2023 to the same period in 2022, while our average cost of funds increased 163 basis points over that same period, resulting in a decrease to net interest margin of 52 basis points.

48

 

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 credit losses, but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields. Yields on earning assets are shown on a fully taxable-equivalent basis assuming a tax rate of 21%.

 

 

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

(Dollars in thousands)

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

 

Avg Bal

 

 

Interest (2)

 

 

Yield/Rate

 

Int. Earn. Cash

 

$

51,547

 

 

$

1,561

 

 

 

4.05

%

 

$

50,254

 

 

$

306

 

 

 

0.81

%

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable (1)

 

 

83,449

 

 

 

2,309

 

 

 

3.70

%

 

 

86,590

 

 

 

1,608

 

 

 

2.48

%

Tax-Exempt

 

 

38,617

 

 

 

1,133

 

 

 

3.92

%

 

 

41,438

 

 

 

1,085

 

 

 

3.50

%

Total Securities

 

 

121,960

 

 

 

3,442

 

 

 

3.77

%

 

 

128,028

 

 

 

2,693

 

 

 

2.81

%

Total Cash Equiv. and Investments

 

 

173,507

 

 

 

5,003

 

 

 

3.86

%

 

 

178,282

 

 

 

2,999

 

 

 

2.25

%

Total Loans (3)

 

 

958,382

 

 

 

37,330

 

 

 

5.21

%

 

 

765,267

 

 

 

25,287

 

 

 

4.42

%

Total Interest-Earning Assets

 

 

1,131,889

 

 

 

42,333

 

 

 

5.00

%

 

 

943,549

 

 

 

28,286

 

 

 

4.01

%

Other Assets

 

 

95,400

 

 

 

 

 

 

 

 

 

90,970

 

 

 

 

 

 

 

Total Assets

 

$

1,227,289

 

 

 

 

 

 

 

 

$

1,034,519

 

 

 

 

 

 

 

Interest bearing demand

 

$

250,830

 

 

$

3,938

 

 

 

2.10

%

 

$

269,282

 

 

$

905

 

 

 

0.45

%

Money market demand

 

 

248,731

 

 

 

4,766

 

 

 

2.56

%

 

 

228,105

 

 

 

945

 

 

 

0.55

%

Time deposits

 

 

285,666

 

 

 

6,489

 

 

 

3.04

%

 

 

203,947

 

 

 

1,022

 

 

 

0.67

%

Total Borrowings (4)

 

 

81,749

 

 

 

2,507

 

 

 

4.10

%

 

 

84,382

 

 

 

1,186

 

 

 

1.88

%

Total Interest-Bearing Liabilities

 

 

866,976

 

 

 

17,700

 

 

 

2.73

%

 

 

785,716

 

 

 

4,058

 

 

 

0.69

%

Non Int Bearing Deposits

 

 

203,284

 

 

 

 

 

 

 

 

 

151,941

 

 

 

 

 

 

 

Total Cost of Funds

 

$

1,070,260

 

 

$

17,700

 

 

 

2.21

%

 

$

937,657

 

 

$

4,058

 

 

 

0.58

%

Other Liabilities

 

 

17,024

 

 

 

 

 

 

 

 

 

11,517

 

 

 

 

 

 

 

Total Liabilities

 

$

1,087,284

 

 

 

 

 

 

 

 

$

949,174

 

 

 

 

 

 

 

Shareholders' Equity

 

$

140,005

 

 

 

 

 

 

 

 

$

85,345

 

 

 

 

 

 

 

Total Liabilities & Shareholders' Equity

 

$

1,227,289

 

 

 

 

 

 

 

 

$

1,034,519

 

 

 

 

 

 

 

Net Interest Income/Spread (FTE)

 

 

 

 

 

24,633

 

 

 

2.27

%

 

 

 

 

 

24,228

 

 

 

3.32

%

Tax-Equivalent Basis Adjustment

 

 

 

 

 

(238

)

 

 

 

 

 

 

 

 

(228

)

 

 

 

Net Interest Income

 

 

 

 

$

24,395

 

 

 

 

 

 

 

 

$

24,000

 

 

 

 

Net Interest Margin

 

 

 

 

 

 

 

 

2.88

%

 

 

 

 

 

 

 

 

3.40

%

(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.

 

(4) Includes the effect of the interest rate swap, which reduced interest expense by $572 thousand during the nine months ended September 30, 2023.

 

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.

 

49

 

 

 

Nine Months Ended September 30, 2023 vs. 2022
Increase (Decrease) Due To:

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net

 

Interest Income:

 

 

 

 

 

 

 

 

 

Int. Earn. Cash

 

$

1,247

 

 

$

8

 

 

$

1,255

 

Securities

 

 

 

 

 

 

 

 

 

Taxable

 

 

761

 

 

 

(60

)

 

 

701

 

Tax-Exempt

 

 

122

 

 

 

(74

)

 

 

48

 

Total Securities

 

 

883

 

 

 

(134

)

 

 

749

 

Total Loans

 

 

5,663

 

 

 

6,380

 

 

 

12,043

 

Total Interest-Earning Assets

 

 

7,793

 

 

 

6,254

 

 

 

14,047

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

3,095

 

 

 

(62

)

 

 

3,033

 

Money market demand

 

 

3,736

 

 

 

85

 

 

 

3,821

 

Time deposits

 

 

5,057

 

 

 

410

 

 

 

5,467

 

Total Borrowings

 

 

1,358

 

 

 

(37

)

 

 

1,321

 

Total Interest-Bearing Liabilities

 

 

13,246

 

 

 

396

 

 

 

13,642

 

Change in Net Interest Income

 

$

(5,453

)

 

$

5,858

 

 

$

405

 

Net Interest Income: Net interest income increased by $395 thousand, or 1.6%, to $24.4 million for the nine months ended September 30, 2023, compared to $24.0 million for the nine months ended September 30, 2022. This increase can be attributed to an increase in interest income resulting from a higher average balance in interest-earning assets and an increase in the average yield on interest earning assets as compared to the same period in 2022. These increases on the asset side were partially offset mostly by an increase in cost of funds. The net interest margin decreased 52 basis points to 2.88% for the nine months ended September 30, 2023 from 3.40% for the nine months ended September 30, 2022.

Interest Income: Interest income increased to $42.1 million for the nine months ended September 30, 2023, compared with $28.1 million for the nine months ended September 30, 2022 primarily due to an increase in interest income on loans as a result of the growth in average loans as well as the increase in average yields earned on all categories of interest earning assets. The growth in average balance of interest earning assets which increased $188.3 million to $1.1 billion for the nine months ended September 30, 2023 compared to $943.5 million for the comparable period in 2022 contributed $6.3 million to the increase in interest income. The growth in the average balance of interest earning assets was due primarily to the increase in the average balance of loans as a result of growth in the commercial loan portfolio which increased $193.1 million to $958.3 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The average yield on loans increased 79 basis points on an annualized basis from 4.42% for the nine months ended September 30, 2022 to 5.21% for the nine months ended September 30, 2023, which contributed $6.4 million to the increase in interest income. Normal amortization of net loan discounts recorded as part of purchase accounting adjustments to loans acquired through the Gratz Merger contributed $1.1 million to interest income during the nine months ended September 30, 2023. Overall the average yield of interest earning assets increased 99 basis points on an annualized basis to 5.00% for the nine months ended September 30, 2023 as compared to the same period in 2022 due primarily to a larger concentration of interest earning assets in loans along with an increase in the average yield of interest earning cash, securities and loans.

Interest Expense: Interest expense increased by $13.6 million, or 336%, to $17.7 million for the nine months ended September 30, 2023, compared to $4.1 million for the nine months ended September 30, 2022. The increase in interest expense was primarily due to an increase in the average rate paid on interest-bearing liabilities. The average rate paid on interest-bearing liabilities increased 204 basis points on an annualized basis from 0.69% for the nine months ended September 30, 2022 to 2.73% for the nine months ended September 30, 2023 due to the increasing interest rate environment during the current period and in particular its impact on deposit cost as well as the impact of interest on $20 million of subordinated notes acquired in the Gratz Merger as well as $20 million of subordinated notes issued by the Company during April 2022. This increase in interest expense was also impacted by an increase in the average balance of interest bearing liabilities, which increased $81.3 million to $867 million for the nine months ended September 30, 2023 compared to $785.7 million for the nine months ended September 30, 2022 as a result of the increase in the average balance of our deposits and borrowings. Interest expense on borrowings was reduced by $572 thousand due to the impact of the interest rate swap.

Provision for Credit Losses: The provision for credit losses decreased by $1.7 million from $1.2 million for the nine months ended September 30, 2022 to a credit to the provision of $549 thousand for the nine months ended September 30, 2023. During the nine months ended September 30, 2023, the Company adopted the current expected loss model ("CECL") which changed the methodology related to the calculation of expected credit losses within the loan portfolio. This methodology calculates losses over the expected life of our loans based on historical credit performance in conjunction with select forecasted economic factors. The provision for credit losses for the nine months ended September 30, 2023 consisted of ($468) thousand related to loans, ($60) related to unfunded commitments, and ($21) thousand related to held-to-maturity securities.

50

 

The majority of the net credit to the provision for credit losses can be attributable to a decrease in the forecasted loss factors at September 30, 2023 when compared to the forecast at December 31, 2022. Additionally, the Company had net recoveries for the nine months ended September 30, 2023 of $111 thousand, which contributed to the credit to the provision.

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

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

Non-interest Income: Non-interest income decreased by $2.5 million to a loss of $88 thousand for the nine months ended September 30, 2023, from the $2.4 million in income recognized during the same period of 2022. The decrease was primarily the result of a loss on the sale of an investment in the subordinated notes of Signature Bank which was taken into FDIC receivership during the first quarter of 2023. The Company sold our investment and recognized a loss of $2.4 million during the three months ended March 31, 2023. Gain on sale of loans decreased $454 thousand to $299 thousand for the nine months ended September 30, 2023 due to lower loan sales activity. These decreases to non-interest income were partially offset by a $244 thousand increase to other income primarily due to settlement of a legal matter.

Non-interest Expense: Non-interest expense increased $4.2 million, or 21.5%, from $19.4 million for the nine months ended September 30, 2022, to $23.5 million for the nine months ended September 30, 2023. The increase was largely due to: (1) an increase in salaries and employee benefits expense of $738 thousand related to an increase in the number of employees to facilitate our growth and foster deposit relationships; (2) an increase of $601 thousand in occupancy expense related to increased property maintenance costs, lease costs, and depreciation expense mostly related to our new corporate headquarters location and the Delaware Valley regional headquarters location; (3) an increase of $297 thousand in professional fee expenses; (4) an increase in equipment and data processing costs of $661 thousand; and (5) an increase in merger related expenses of $1.7 million as a result of the Partners Merger which merger agreement was executed in the first quarter of 2023.

Income Tax Expense: Income tax expense for the nine months ended September 30, 2023 totaled $276 thousand compared to an income tax expense of $970 thousand for the same period in 2022 as a result of a decrease in income before income tax expense. The income tax expense recognized for the nine months ended September 30, 2023 was the direct result of our net income adjusted for tax free income and non-deductible merger related expenses. We recognized an income tax expense for the nine months ended September 30, 2023 at an effective tax rate of 21.1% which is greater than our statutory tax rate of 21%. This is compared to income tax expense for the nine months ended September 30, 2022 which resulted in an effective tax rate of 17.6%.

Liquidity, Commitments, and Capital Resources

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

The Company strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Company is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Our attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of the Company’s business management. We 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, 2023, totaled $280.2 million, or 93.6% of our certificates of deposit, and 26.9% of total deposits. Of these certificates of deposit, $75 million are brokered 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.

51

 

Additionally, management noted that approximately 14.8% of our deposits (measured on a year-to-date average balance) consisted of balances in escrow-type deposits which are distributed among 190 different customers with no customer exceeding our policy limits on size of deposits. 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, 2023, the Company had $15 million outstanding in FHLB borrowings with a remaining available capacity with FHLB, subject to certain collateral restrictions, of approximately $304.0 million.

In addition to our available borrowing capacity at the FHLB, the Company has bank-level lines of credit with multiple financial institutions that provide an available $51.0 million of additional liquidity at September 30, 2023. The Company also maintains available credit at the Federal Reserve Bank's Discount Window of $14.5 million at September 30, 2023.

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, 2023 and December 31, 2022, the Bank met the capital requirements to be considered “well capitalized.” See Note 9 within the Notes to the Consolidated Financial Statements for more information regarding our capital resources.

Off-Balance Sheet Arrangements and Contractual Obligations

See Note 10 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 estimate, which have a material impact on the carrying value of certain assets and liabilities. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The more significant area in which the Company's management applies critical assumptions and estimates include the following:

Allowance for credit losses: The loan portfolio is the biggest asset on the Company's balance sheet. The allowance for credit losses represents management's estimate of credit losses in the loan portfolio at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance for credit losses as deemed necessary by management. The allowance for credit losses consists of reserves on loans that share similar risk characteristics, and reserves on loans that do not share similar risk characteristics.

Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructured loan will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company. Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, historical credit losses experienced by peer institutions on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. This evaluation has subjective components requiring material estimates, including forecasted national economic conditions such as GDP and unemployment, expected default probabilities, the expected loss given default, and the amounts and timing of expected future cash flows. All of these factors may be susceptible to significant change.

Generally, loans that do not share similar risk characteristics are collateral-dependent and impairment is measured through the collateral method. When the measurement of these loans is less than the recorded investment in the loan, the shortfall is recorded through the allowance for credit losses. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.

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.

52

 

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, 2023, 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 and 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, 2023, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

At September 30, 2023, 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

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents a material update and addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

 

Recent events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock.

 

Recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in the failure of those institutions have resulted in decreased confidence in banks among depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events have occurred against the backdrop of a rapidly rising interest rate environment which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These events and developments could materially and adversely impact our business or financial condition, including through potential liquidity pressures, reduced net interest margins, and potential increased credit losses. These recent events and developments have, and could continue to, adversely impact the market price and volatility of our common stock. These recent events may also result in changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our businesses. The cost of resolving the recent failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities Item 3.

 

None

53

 

Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

 

54

 

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, 2023 and December 31, 2022; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022; (v) Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022; and (vi) Notes to Unaudited Consolidated Financial Statements.

55

 

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 14, 2023

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)

 

56

EX-31.1 2 lnkb-ex31_1.htm EX-31.1 EX-31.1

 

 

Exhibit 31.1

CERTIFICATION

I, Andrew Samuel, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of LINKBANCORP, INC.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statement for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date:

November 14, 2023

/s/ Andrew Samuel

Andrew Samuel

Vice Chairman and Chief Executive Officer

(Principal Executive Officer)

 

 

EX-31.2 3 lnkb-ex31_2.htm EX-31.2 EX-31.2

 

Exhibit 31.2

CERTIFICATION

I, Kristofer Paul, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of LINKBANCORP, INC.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date:

November 14, 2023

/s/ Kristofer Paul

Kristofer Paul

Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

 

 

EX-32 4 lnkb-ex32.htm EX-32 EX-32

 

Exhibit 32

CERTIFICATION

Pursuant to 18 U.S.C. § 1350, the undersigned officers of LINKBANCORP, INC. (the “Company”) hereby certify that the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 14, 2023

 

/s/ Andrew Samuel

Andrew Samuel

Vice Chairman and Chief Executive Officer

(Principal Executive Officer)

/s/ Kristofer Paul

Kristofer Paul

Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)