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What changed in LINKBANCORP, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LINKBANCORP, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+318 added−302 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-30)

Top changes in LINKBANCORP, Inc.'s 2023 10-K

318 paragraphs added · 302 removed · 227 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

75 edited+25 added−16 removed120 unchanged
Biggest changeThis adjusted net income equates to a 56% growth in 2022 compared to 2021; • net interest margin for 2022 was 3.39% compared to 3.07% for the year ended December 31, 2021; • total deposits grew from $771.7 million at December 31, 2021 to $946.8 million at December 31, 2022, resulting in a growth rate of 22.7%; • total loans grew 29.1% from $718.7 million at December 31, 2021 to $927.9 million at December 31, 2022; • completed our initial public offering and listed on the Nasdaq Capital Market during September 2022; • successfully completed a migration to a new core technology platform, allowing for implementation of innovative technology solutions and improved data analytics; and • maintained strong credit quality, with total nonperforming assets at 0.23% of total assets at December 31, 2022.
Biggest changeDuring the year ended December 31, 2023, the Company achieved the following accomplishments: • Completed the merger with Partners as of November 30, 2023; • Total deposits grew from $946.8 million at December 31, 2022 to $2.30 billion at December 31, 2023, resulting in a growth rate of 142.9%; • Total loans grew 141.4% from $927.9 million at December 31, 2022 to $2.24 billion at December 31, 2023; • Maintained strong credit quality, with total nonperforming assets at 0.32% of total assets at December 31, 2023; and • In a year of net interest margin compression throughout the industry, the Company was able to limit compression to 30 basis points year over year.
The operations of the Bank also are subject to the: ▪ Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ▪ Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services; ▪ Check Clearing for the 21st Century Act (also known as "Check 21"), which gives "substitute checks," such as digital check images and copies made from that image, the same legal standing as the original paper check; ▪ USA PATRIOT Act, which requires banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering.
The operations of the Bank also are subject to the: ▪ Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ▪ Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services; ▪ Check Clearing for the 21st Century Act (also known as "Check 21"), which gives "substitute checks," such as digital check images and copies made from that image, the same legal standing as the original paper check; 14 ▪ USA PATRIOT Act, which requires banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering.
Our home equity loans are secured by a first or second mortgage on the borrower’s principal residence or their second/vacation home (excluding investment/rental property) generally at a maximum current loan-to-value of 80%. There are minimum credit score standards, maximum debt to income ratios and credit requirements on each home equity product that is defined in the Bank’s credit policy.
Our home equity loans are secured by a first or second mortgage on the borrower’s principal residence or their second/vacation home (excluding investment/rental property) generally at a maximum current loan-to-value ratio of 80%. There are minimum credit score standards, maximum debt to income ratios and credit requirements on each home equity product that is defined in the Bank’s credit policy.
Separate regulatory guidance provides for prior consultation with Federal Reserve staff concerning dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition.
Separate regulatory guidance provides for prior consultation with Federal Reserve staff concerning dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall 15 financial condition.
Of this amount, $20.5 million was acquired in the Gratz Merger and 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.
Of this amount, $20.3 million was acquired in the Gratz Merger and 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.
We generally require a debt service ratio of at least 1.25x. Personal guarantees are generally obtained from the principals of commercial real estate and multi-family loan borrowers, although this requirement may be waived in limited circumstances depending upon the loan-to-value ratio and the debt service ratio associated 6 with the loan.
We generally require a debt service ratio of at least 1.25x. Personal guarantees are generally obtained from the principals of commercial real estate and multi-family loan borrowers, although this requirement may be waived in limited circumstances depending upon the loan-to-value ratio and the debt service ratio associated with the loan.
In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. Standards for Safety and Soundness Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.
In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. 12 Standards for Safety and Soundness Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.
We obtain advances from the Federal Home Loan Bank of Pittsburgh upon the security of our capital stock in the Federal Home Loan Bank of Pittsburgh and certain of our loans. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.
Borrowings. We obtain advances from the Federal Home Loan Bank of Pittsburgh upon the security of our capital stock in the Federal Home Loan Bank of Pittsburgh and certain of our loans. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.
We believe our culture of highly engaged employees enhances productivity and results in lower employee turnover, 4 ultimately leading to greater operational efficiencies and customer loyalty. We differentiate ourselves based on high touch relationship building service, supported by the convenience of technology.
We believe our culture of highly engaged employees enhances productivity and results in lower employee turnover, ultimately leading to greater operational efficiencies and customer loyalty. We differentiate ourselves based on high touch relationship building service, supported by the convenience of technology.
As one example of these efforts, in 2019 we launched and continue to support The LINK Foundation, established as a separate legal entity and governed by a distinct board of directors, but fully aligned with the Company’s mission.
As one example of these efforts, in 2019 we launched and continue to support The LINK Foundation, established as a separate legal entity and governed by a distinct board of directors, but fully aligned with the 4 Company’s mission.
The Company also uses the investment portfolio to collateralize municipal deposits. The asset liability management committee, which consists of our President and Chief Risk Officer, Chief Executive Officer, Bank President, Chief Financial Officer and Chief Credit Officer, oversees the Company’s investing activities and strategies.
The Company also uses the investment portfolio to collateralize municipal deposits. The asset liability management committee, which consists of our President and Chief Risk Officer, Chief Executive Officer, Bank President, Chief Financial Officer, Chief Credit Officer, and Treasurer oversees the Company’s investing activities and strategies.
In evaluating such notices, 15 the Federal Reserve takes into consideration such factors as the financial resources, competence, experience and integrity of the acquirer, the future prospects the bank holding company involved and its subsidiary bank and the competitive effects of the acquisition.
In evaluating such notices, the Federal Reserve takes into consideration such factors as the financial resources, competence, experience and integrity of the acquirer, the future prospects the bank holding company involved and its subsidiary bank and the competitive effects of the acquisition.
An institution is 12 "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.
An institution is "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.
Permissible Activities 14 A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities.
Permissible Activities A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities.
The Company is subject to the disclosure and regulatory requirements of the Securities Act and Exchange Act and, in accordance with the Exchange Act, it files annual, quarterly, and current reports, proxy statements, and other information with the SEC.
The Company is subject to the disclosure and regulatory requirements of the Exchange Act and, in accordance with the Exchange Act, it files annual, quarterly, and current reports, proxy statements, and other information with the SEC.
The Company has policies, procedures and systems designed to comply with these regulations, and will review and document such policies, procedures and systems to ensure continued compliance with these regulations. 16
The Company has policies, procedures and systems designed to comply with these 16 regulations, and will review and document such policies, procedures and systems to ensure continued compliance with these regulations. 17
In addition, the Director’s Loan Committee (DLC) has authority to approve loans over $8 million up to the legal lending limit of the Bank (with the exception of Regulation O (insider) loans which need to be approved by the Board of Directors). The loan approval structure prohibits any single signature loan authority.
In addition, the Director’s Loan Committee (DLC) has authority to approve loans over $15 million up to the legal lending limit of the Bank (with the exception of Regulation O (insider) loans which need to be approved by the Board of Directors). The loan approval structure prohibits any single signature loan authority.
At December 31, 2022, the Bank met the criteria for being considered “well capitalized.” Enforcement The PADOBS maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and to remove directors, officers or employees.
At December 31, 2023, the Bank met the criteria for being considered “well capitalized.” Enforcement The PADOBS maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and to remove directors, officers or employees.
Although we maintain a cautious credit outlook due to continued uncertainty in the economic environment, we believe the Bank is very well positioned for the months ahead given a strong loan loss reserve, application of prudent underwriting standards and a diverse loan portfolio, which does not include a significant concentration of loans in restaurants, lodging or other industries that are perceived to be at higher risk in the current economic environment.
Although we maintain a cautious credit outlook due to continued uncertainty in the economic environment, we believe the Bank is very well positioned for the months ahead given a strong loan loss reserve, application of prudent underwriting standards and a diverse loan portfolio, which does not include a significant concentration of loans in office, restaurants, lodging or other industries that are perceived to be at higher risk in the current economic environment. 8 Allowance for Credit Losses.
Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. Eligible institutions may opt into and out of the community bank ratio framework on their quarterly call report. The Bank did not elect to follow the community bank leverage ratio as of December 31, 2022.
Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. Eligible institutions may opt 11 into and out of the community bank ratio framework on their quarterly call report. The Bank did not elect to follow the community bank leverage ratio as of December 31, 2023.
As noted above, 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 and thereafter the Company's common shares began trading on the Nasdaq Capital Market.
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 and thereafter the Company's common shares began trading on the Nasdaq Capital Market.
As a member of the FHLB of Pittsburgh, the Bank is required to acquire and hold shares of capital stock in the FHLB. As of December 31, 2022, the Bank was in 13 compliance with this requirement. The Bank also is able to borrow from the FHLB of Pittsburgh, which provides an additional source of liquidity for the Bank.
As a member of the FHLB of Pittsburgh, the Bank is required to acquire and hold shares of capital stock in the FHLB. As of December 31, 2023, the Bank was in compliance with this requirement. The Bank also is able to borrow from the FHLB of Pittsburgh, which provides an additional source of liquidity for the Bank.
Dual signatures are in effect up to $3 million. The Chief Executive Officer and Chief Credit Officer have been given dual signature authority up to $8 million in situations where timing is essential. These approvals must be ratified by OLC at the next meeting. Ongoing Credit Risk Management.
Dual signatures are in effect up to $7.5 million. The Chief Executive Officer and Chief Credit Officer have been given dual signature authority up to $15 million in situations where timing is essential. These approvals must be ratified by OLC at the next meeting. Ongoing Credit Risk Management.
We strive to identify potential problem loans early in an effort to aggressively seek resolution of these situations before the loans create a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses incurred in the loan portfolio.
We strive to identify potential problem loans early in an effort to aggressively seek resolution of these situations before the loans create a loss, record any necessary charge-offs promptly and maintain adequate allowance for credit losses levels.
As of December 31, 2022, the Company had 132 full-time and 10 part time employees. REGULATION AND SUPERVISION LINKBANCORP, is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHC Act”).
As of December 31, 2023, the Company had 342 full-time and 36 part time employees. 10 REGULATION AND SUPERVISION LINKBANCORP, is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHC Act”).
At December 31, 2022, the Company had a portfolio of investment securities available for sale which is reported at fair value and a portfolio of held to maturity investment securities that were not carried at fair value through earnings. Source of Funds Generally, deposits are the Company’s primary source of funds for use in lending and investment activities.
At December 31, 2023, the Company had a portfolio of investment securities available for sale which is reported at fair value and a portfolio of held to maturity investment securities that were carried at amortized cost. Source of Funds Generally, deposits are the Company’s primary source of funds for use in lending and investment activities.
Assessments for most insured depository institutions are now based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years. The assessment range (inclusive of possible adjustments) is for institutions of the Bank’s size 1.5 basis points to 30 basis points through December 31, 2022.
Assessments for most insured depository institutions are now based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years. The assessment range (inclusive of possible adjustments) is for institutions of the Bank’s size 3.5 basis points to 32 basis points as of December 31, 2023.
At December 31, 2022, we had $35.6 million of home equity loans reported within residential real estate loans, representing 3.8% of our total loan portfolio. Home equity loans consists of either revolving lines of credit, term, or second mortgage loans secured by one-to-four family residential real estate.
At December 31, 2023, we had $70.7 million of home equity loans reported within residential real estate loans, representing 3.16% of our total loan portfolio. Home equity loans consists of either revolving lines of credit, term, or second mortgage loans secured by one-to-four family residential real estate.
The Company’s market areas are served by branches of the largest banks in the Northeast, some of which are among the largest institutions in the United States.
The Company’s market areas are served by branches of the largest banks in the Mid-Atlantic region, some of which are among the largest institutions in the United States.
The Bank has established the Officers' Loan Committee (OLC) to be able to more efficiently service our commercial customers, prudently manage credit risks, and effectively insure that credit policies are followed. The OLC requires a quorum of the Chief Executive Officer, President, Chief Credit Officer, Senior Credit Officer, Chief Risk Officer, and the Regional Presidents.
The Bank has established the Senior Loan Committee (SLC) to be able to more efficiently service our commercial customers, prudently manage credit risks, and effectively insure that credit policies are followed. The SLC requires a quorum of the Chief Executive Officer, President, Chief Credit Officer, Senior Credit Officer, and Market Chief Executive Officers.
At December 31, 2022, our largest credit relationship totaled $14.4 million, comprised of four separate facilities each secured by real estate. Each of these loans was performing in accordance with its terms at December 31, 2022. Our lending activities follow written, nondiscriminatory underwriting standards and loan origination procedures established by our board of directors and management.
At December 31, 2023, our largest credit relationship totaled $25 million, comprised of nine separate facilities, most of which are secured by real estate. Each of these loans was performing in accordance with its terms at December 31, 2023. Our lending activities follow written, nondiscriminatory underwriting standards and loan origination procedures established by our board of directors and management.
Dividends may not reduce surplus without the prior consent of the PADOBS. In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement.
In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement.
We require property and casualty insurance and flood insurance if the property is in a flood zone area. In addition, borrowers are required to obtain title insurance unless the balance of the loan is less than $250,000. In such cases, we will require an ownership and encumbrance report relating to the title of the property.
We require property and casualty insurance and flood insurance if the property is in a flood zone area. In addition, borrowers are required to obtain title insurance unless the balance of the loan is less than $250,000.
The Bank is predominantly oriented towards commercial customers, with approximately 71.3% of the portfolio in various types of commercial loans and 28.7% in residential real estate, consumer and other loans at December 31, 2022. Our commercial customers are primarily small- and medium-sized businesses.
The Bank is predominantly oriented towards commercial customers, with approximately 67.0% of the portfolio in various types of commercial loans and 33.0% in residential real estate, consumer, and other loans at December 31, 2023. Our commercial customers are primarily small- and medium-sized businesses.
Our legal lending limit was $18.8 million at December 31, 2022. In addition, we have established an in-house target that is less than the legal limits on loans to one borrower. Our in-house target was $10 million at December 31, 2022.
Our legal lending limit was $37.2 million at December 31, 2023. In addition, we have established an in-house target that is less than the legal limits on loans to one borrower. Our in-house target was $25 million at December 31, 2023.
At December 31, 2022, we had $70.0 million in brokered deposits, all maturing in the first quarter 2023. Our reciprocal CDARS and ICS deposits totaled $12.8 million at December 31, 2022. Management utilizes brokered deposits as a supplement to core deposit funding from time to time and does not consider brokered deposits to be a primary source of funding.
At December 31, 2023, we had $119.4 million in brokered deposits, all maturing in the first half of 2024. Our reciprocal CDARS and ICS deposits totaled $145.6 million at December 31, 2023. Management utilizes brokered deposits as a supplement to core deposit funding from time to time and does not consider brokered deposits to be a primary source of funding.
Each of these individuals have extensive experience in the approval of commercial loans. The OLC has authority to approve loans beginning over $3 million up to and including $8 million.
Each of these individuals have extensive experience in the approval of commercial loans. The SLC has authority to approve loans beginning over $7.5 million up to and including $15 million.
Current Market Area We currently conduct our business principally through ten Customer Solutions Centers in Chester, Cumberland, Dauphin, Lancaster, Northumberland and Schuylkill Counties, Pennsylvania.
Current Market Area We currently conduct our business principally through ten Customer Solutions Centers in Chester, Cumberland, Dauphin, Lancaster, Northumberland and Schuylkill Counties, Pennsylvania. In 2021 and 2022 respectively, we established loan production offices in York and Chester Counties in Pennsylvania.
An affiliate is generally a company that controls or is under common control with an insured depository institution, such as the Bank. The Company is an affiliate of the Bank because of its control of the Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements.
The Company is an affiliate of the Bank because of its control of the Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements.
In addition to the loan types discussed above, the Company also originates agricultural loans and municipal loans. At December 31, 2022, our agricultural loan portfolio totaled $15.6 million or 1.7% of our total loan portfolio and municipal loans totaled $5.5 million or 0.6% of our total loan portfolio.
In addition to the loan types discussed above, the Company also originates agricultural loans and municipal loans. At December 31, 2023, our agricultural loan portfolio totaled $65.9 million or 2.94% of our total loan portfolio and municipal loans totaled $5.2 million or 0.23% of our total loan portfolio.
The Company received net proceeds of $34.7 million after deducting underwriting discounts and commissions of $2.5 million and other offering expenses of $1.1 million. The Company contributed $20.0 million in capital to the Bank in October 2022. The Company plans to use the proceeds to support the Bank's current growth, its future growth initiatives, and for general corporate purposes.
The Company received net proceeds of $34.7 million after deducting underwriting discounts and commissions of $2.5 million and other offering expenses of $1.1 million. The Company contributed $20.0 million in capital to the Bank in October 2022.
For example, as of June 30, 2022 (the most recent date for which data is available), data provided by the FDIC Deposit Market Share Report indicated that within the Company’s Central and Southeastern Pennsylvania market area, there were 54 different FDIC-insured institutions operating a total of 603 offices.
For example, as of June 30, 2023 (the most recent date for which data is available), data provided by the FDIC Deposit Market Share Report indicated that within the Company's current physical locations, there were 117 different FDIC-insured institutions operating a total of 1,323 offices.
At December 31, 2022, our core deposits (which includes all deposits except for time deposit accounts greater than $250,000 and brokered deposits) totaled $831.2 million, or 87.8% of our total deposits, and our cost of funds for 2022 on this stable funding source was 0.61%.
At December 31, 2023, our core deposits (which includes all deposits except for time deposit accounts greater than $250,000 and brokered deposits) totaled $2.04 billion or 88.9% of our total deposits, and our average cost of funds for 2023 on this stable funding source was 1.72%.
The notes have a term of ten years, with a maturity date of April 15, 2032. The notes are redeemable at the option of the Company, in whole or in part, subject to any required regulatory approvals after five years. Competition Commercial banking in Pennsylvania is extremely competitive.
The notes are redeemable at the option of the Company, in whole or in part, subject to any required regulatory approvals after five years. Competition Commercial banking in our locations is extremely competitive.
Risk of loss on a construction or land loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions.
Construction and land lending generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction or land loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions.
Our commercial real estate loans are typically secured by multi-family, hotel, agricultural, medical, retail, churches or other commercial properties. At December 31, 2022, our commercial real estate loans were 45.3% non-owner occupied, 25.8% owner-occupied, 19.5% multi-family, and 9.4% construction and land development. We consider a number of factors in originating commercial real estate and multi-family loans.
Our commercial real estate loans are typically secured by multi-family, hotel, agricultural, medical, retail, churches or other commercial properties. At December 31, 2023, our commercial real estate loans were 46.0% non-owner occupied, 39.7% owner-occupied, and 14.3% multifamily. We consider a number of factors in originating commercial real estate and multi-family loans.
One-to-four family Residential Real Estate Lending. At December 31, 2022, we had $250.8 million in residential real estate loans, representing 27.0% of total loans.
One-to-four family Residential Real Estate Lending. At December 31, 2023, we had $402.4 million in residential real estate loans, representing 17.95% of total loans.
At December 31, 2022, our consumer loan portfolio totaled $10.1 million, or 1.1% of our total loan portfolio, and $6.7 million of our consumer loans were unsecured (excluding overdraft accounts).
At December 31, 2023, our consumer loan portfolio totaled $16.8 million, or 0.75% of our total loan portfolio, and $11.0 million of our consumer loans were unsecured (excluding overdraft accounts).
As of December 31, 2022, the Bank was in compliance with the loans-to-one borrower limitations. 11 Capital Distributions The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless surplus is at least equal to capital.
Capital Distributions The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless surplus is at least equal to capital. Dividends may not reduce surplus without the prior consent of the PADOBS.
LINKBANCORP common stock is traded on the Nasdaq Capital Market under the trading symbol “LNKB” and is subject to Nasdaq's rules for listed companies. LINKBANK, a Pennsylvania-chartered, non-Federal Reserve member bank, is subject to regulation by the Pennsylvania Department of Banking and Securities ("PADOBS") and the Federal Deposit Insurance Corporation ("FDIC"). LINKBANCORP is the Bank’s sole shareholder.
LINKBANK, a Pennsylvania-chartered, non-Federal Reserve member bank, is subject to regulation and supervision by the Pennsylvania Department of Banking and Securities ("PADOBS") and the Federal Deposit Insurance Corporation ("FDIC"). LINKBANCORP is the Bank’s sole shareholder.
Loans-to-One Borrower Generally, a Pennsylvania-chartered commercial bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of capital. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2023, the Bank was in compliance with the loans-to-one borrower limitations.
As of December 31, 2022, we had $103.9 million in commercial business loans (excluding PPP loans), representing 11.2% of total loans. Our business strategy is to increase our originations of commercial business loans.
As of December 31, 2023, we had $238.3 million in commercial business loans, representing 10.63% of total loans. Our business strategy is to increase our originations of commercial business loans.
Our regions are based on geographic markets, which allows each region to retain flexibility and local leadership in the unique communities we serve. We believe that this approach gives our Bank greater flexibility to better serve our markets and increases responsiveness to the needs of local customers.
We believe that this approach gives our Bank greater flexibility to better serve our markets and increases responsiveness to the needs of local customers.
The Bank is a full-service commercial bank providing personal and business lending and deposit services to individuals, families, nonprofit and business clients throughout Central and Southeastern Pennsylvania, primarily through its digital presence on the internet and ten client solutions centers in Chester, Cumberland, Dauphin, Lancaster, Northumberland and Schuylkill counties, and loan production offices in Chester and York Counties.
The Bank is a full-service commercial bank providing personal and business lending and deposit services to individuals, families, nonprofit and business clients, through its digital presence on the internet and client solutions centers.
As of December 31, 2022 we had $20.9 million in outstanding FHLB advances. At December 31, 2022, we had remaining available capacity with FHLB, subject to certain collateral restrictions, of approximately $301.4 million. At December 31, 2022, the Company had subordinated notes outstanding of $40.5 million.
As of December 31, 2023 we had $10 million in outstanding FHLB advances. At December 31, 2023, we had remaining available capacity with FHLB, subject to certain collateral restrictions, of approximately $305.7 million.
The Bank received a “satisfactory” rating in its most recent federal examination. Transactions with Related Parties A state-chartered bank’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation.
Transactions with Related Parties A state-chartered bank’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls or is under common control with an insured depository institution, such as the Bank.
The notes are redeemable at the option of the Company, in whole or in part, subject to any required regulatory approvals after five years. The remaining $20.0 million bear interest at a fixed interest rate of 4.5% per year for five years and then float at an index tied to the Secured Overnight Finance Rate ("SOFR").
The remaining subordinated notes of $20.0 million bear interest at a fixed interest rate of 4.5% 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 April 15, 2032.
The description is limited to certain material aspects of the statutes and regulations addressed, is not intended to be a complete description of such statutes and regulations and their effects on LINKBANCORP and the Bank, and is qualified in its entirety by reference to the actual statutes and regulations involved. 10 Bank Regulation Capital Requirements Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8%, and a 4% Tier 1 capital to total assets leverage ratio.
Bank Regulation Capital Requirements Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8%, and a 4% Tier 1 capital to total assets leverage ratio.
The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice. The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating.
The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice. On October 24, 2023, the FDIC and the other federal bank regulatory agencies issued a final rule to strengthen and modernize the federal CRA regulations.
We offer a full array of technology solutions to our clients and continually evaluate new technologies that enhance the customer experience and allow the Bank to operate more efficiently. The Bank does not rely on robust noninterest income growth. The management team has experience running many different product sets and subsidiaries but is focused on core deposit and loan growth.
The Bank provides traditional lending, deposit gathering and cash services to retail customers, small businesses and nonprofit organizations. We offer a full array of technology solutions to our clients and continually evaluate new technologies that enhance the customer experience and allow the Bank to operate more efficiently. The Bank does not rely on significant noninterest income growth.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. As of December 31, 2022, the allowance for loan losses measured 0.50% of total loans, or approximately 0.78% of the non-purchased portfolio.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. As of December 31, 2023, the allowance for credit losses measured 1.06% of total loans. Investments The Company’s board of directors is responsible for approving and overseeing the investment policy.
The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s periodic review of the collectability of the loans considering historical experience, the size and composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.
The allowance for credit losses is evaluated on a quarterly basis by management, with assistance from a third-party provider and incorporates a discounted cash flow model utilizing Federal Open Market Committee forecasts and is impacted by the size and composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.
The Company’s management team has significant experience in successfully executing bank growth strategies, including through bank mergers and acquisitions. Accordingly, as opportunities arise, we will consider growth through acquisition including whole institutions, branches or additional lines of business that are aligned with our strategy and mission, as demonstrated by our recent agreement to merge with Partners Bancorp.
Accordingly, as opportunities arise, we will consider growth through acquisition including whole institutions, branches or additional lines of business that are aligned with our strategy and mission, as demonstrated by our merger with Partners completed on November 30, 2023.
We occasionally make loans secured by properties located outside of our primary lending market, usually to borrowers with whom we have an existing relationship and who have a presence within our primary market. While we manage our banking operations as separate regions, we operate in only one segment.
We will continue to consider other strategic locations in the markets we serve to further our objective to become the bank of choice in those markets. We occasionally make loans secured by properties located outside of our primary lending market, usually to borrowers with whom we have an existing relationship and who have a presence within our primary market.
The agricultural loan portfolio consists of loans to local farmers and agricultural businesses that are generally secured by farmland and equipment. 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. 7 Credit Risk Management Loan Approval Procedures and Authority .
The agricultural loan portfolio consists of loans to local farmers and agricultural businesses that are generally secured by farmland and equipment.
In connection with the announcement of the Partners Merger, LINKBANCORP completed a private placement of $10.0 million with certain directors of LINKBANCORP as well as other accredited investors. On September 18, 2021, the Company completed its merger with GNB Financial Services, Inc.
The Bank of Delmarva and Virginia Partners Bank merged with and into LINKBANK with LINKBANK as the surviving bank (the "Bank Mergers"). In connection with the announcement of the Partners Merger in the first quarter of 2023, LINKBANCORP completed a private placement of $10.0 million with certain directors of LINKBANCORP as well as other accredited investors.
Effective November 4, 2022, The Gratz Bank legally changed its name and began to operate under one brand under the name LINKBANK (the "Bank"). LINKBANCORP has no material operations and conducts no business on its own other than owning the Bank and GNB Investment Corp., a Delaware investment company subsidiary.
Effective November 4, 2022, The Gratz Bank legally changed its name and began to operate under one brand under the name LINKBANK (the "Bank").
We are committed to increasing our market share in the communities we serve by continuing to leverage available technology, existing branch locations, and new branch locations, and by considering other strategic growth opportunities throughout Central and Southeastern Pennsylvania and surrounding areas. The Bank provides traditional lending, deposit gathering and cash services to retail customers, small businesses and nonprofit organizations.
We are committed to increasing our market share in the communities we serve by continuing to leverage available technology, existing branch locations, and new branch locations, and by considering other strategic growth opportunities throughout Central and Southeastern Pennsylvania, the counties of Wicomico, Charles, Anne Arundel, and Worcester counties in Maryland, Sussex county in Delaware, Camden and Burlington counties in New Jersey, Spotsylvania county in Virginia, and the cities of Fredericksburg and Reston, Virginia and surrounding areas.
Construction and Land Development Lending . At December 31, 2022, $57.7 million, or 6.2% of our total loan portfolio, consisted of construction and land loans.
In such cases, we will require an ownership and encumbrance report relating to the title of the property. 6 Construction and Land Development Lending . At December 31, 2023, $178.5 million, or 7.96% of our total loan portfolio, consisted of construction and land loans.
In October 2018, LINKBANCORP became a bank holding company when it completed the acquisition of Stonebridge Bank, which was subsequently renamed LINKBANK. On February 22, 2023, LINKBANCORP and Partners Bancorp entered into a merger agreement (the “Merger Agreement”) that provides that Partners Bancorp will merge with and into LINKBANCORP, with LINKBANCORP as the surviving corporation (the “Partners Merger”).
In October 2018, LINKBANCORP became a bank holding company when it completed the acquisition of Stonebridge Bank, which was subsequently renamed LINKBANK. On September 18, 2021, the Company completed its merger with GNB Financial Services, Inc.
Of these, $50.7 million were for commercial development and land loans and are included within our Commercial Real Estate loans and $7.0 million were for residential development and reported within our Residential Real Estate loan category. We offer both fixed-rate and adjustable-rate construction and land loans, although most of these loans have fixed interest rates.
Of these, $129.3 million were for commercial development and land loans and $49.2 million were for residential development. We offer both fixed-rate and adjustable-rate construction and land loans, although most of these loans have fixed interest rates. The maximum loan-to-value of these loans is generally 80% of the lesser of the appraised value or the purchase price of the property.
In addition, commercial business loans often result in larger outstanding balances to single borrowers, or related groups of borrowers, and also generally require substantially greater evaluation and oversight efforts. As a result of the Gratz Merger, we acquired loans made through the Paycheck Protection Program (“PPP”), administered directly by the U.S. Small Business Administration (“SBA”).
In addition, commercial business loans often result in larger outstanding balances to single borrowers, or related groups of borrowers, and also generally require substantially greater evaluation and oversight efforts. Commercial Real Estate Lending . As of December 31, 2023, we had $1.26 billion in commercial real estate and multi-family loans, representing 56.4% of total loans.
As of December 31, 2022, the Company had total consolidated assets of approximately $1.16 billion, total loans of approximately $927.9 million, total deposits of approximately $946.8 million and total consolidated shareholders’ equity of approximately $138.6 million.
In addition to these banking activities, the Bank owns a 51% share in Johnson Mortgage Company LLC, which was acquired in the Partners Merger. As of December 31, 2023, the Company had total consolidated assets of approximately $2.67 billion, total loans of approximately $2.24 billion, total deposits of approximately $2.30 billion and total consolidated shareholders’ equity of approximately $265.8 million.
"Summary of Significant Accounting Policies" within the audited consolidated financial statements for further information regarding the implementation of CECL. At December 31, 2022, the Bank exceeded all regulatory capital requirements and was considered to be well-capitalized based on FDIC guidelines.
At December 31, 2023, the Bank exceeded all regulatory capital requirements and was considered to be well-capitalized based on FDIC guidelines. Loans-to-One Borrower Generally, a Pennsylvania-chartered commercial bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of capital.
December 31, 2022 (In Thousands) Amount % Demand, noninterest-bearing $ 192,773 20.36 % Demand, interest-bearing 254,478 26.88 Money market and savings 228,048 24.09 Time deposits, $250 and over 45,616 4.82 Time deposits, other 225,857 23.86 Total Deposits $ 946,772 100.00 % All deposits are generated from in-market relationships through our Client Solutions Centers. 9 Borrowings.
The following table sets forth the distribution of total deposits for the Bank by account type as of December 31, 2023. 9 December 31, 2022 (In Thousands) Amount % Demand, noninterest-bearing $ 655,953 28.54 % Demand, interest-bearing 438,765 19.09 Money market and savings 577,448 25.12 Time deposits, $250 and over 134,324 5.84 Time deposits, other 491,983 21.40 Total Deposits $ 2,298,473 100.00 % Other than reciprocal CDARS and ICS deposits, and brokered deposits, all deposits are generated from in-market relationships through our Client Solutions Centers.
Removed
Partners Bancorp shareholders will receive 1.15 shares of LINKBANCORP 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 merge with and into LINKBANK, with LINKBANK remaining as the surviving bank (the “Bank Mergers”).
Added
On November 30, 2023, the Company completed its merger with Partners Bancorp ("Partners"), and its wholly owned subsidiaries, The Bank of Delmarva and Virginia Partners Bank, pursuant to which Partners merged with and into the Company with the Company as the surviving corporation (the "Partners Merger").
Removed
The completion of the Partners Merger and the Bank Mergers are subject to customary closing conditions, including approval by both LINKBANCORP and Partners Bancorp shareholders and the receipt of regulatory approvals. The Partners Merger is expected to close in the third quarter of 2023.
Added
LINKBANCORP has no material operations and conducts no business on its own other than owning the Bank. In December 2023, subsidiary GNB Investment Corp. was dissolved. LINKBANCORP common stock is traded on the Nasdaq Capital Market under the trading symbol “LNKB” and is subject to Nasdaq's rules for listed companies.
Removed
During the year ended December 31, 2022, the Company achieved the following accomplishments: • net income of $5.6 million for 2022 compared to $289 thousand for the year ended December 31, 2021.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

59 edited+10 added−13 removed158 unchanged
Biggest changeIn addition, the shares of common stock rank junior to the $20.0 million in subordinated debt that the Company assumed in connection with the Gratz Merger and the $20.0 million of subordinated debt that the Company issued in April 2022.
Biggest changeIn addition, the shares of common stock rank junior to the $20.0 million in subordinated debt that the Company assumed in connection with the Gratz Merger, $22.6 million in subordinated debt that the Company assumed in connection with the Partners Merger, and $20.0 million of subordinated debt that the Company issued in April 2022. 29 Other Risks The use of estimates and valuations may be different from actual results, which could have a material adverse effect on the Company’s consolidated financial statements.
The Company, primarily through the Bank, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, the Federal Deposit Insurance Fund and the safety and soundness of the banking system as a whole, not shareholders.
The Company, primarily through the Bank, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, the Deposit Insurance Fund and the safety and soundness of the banking system as a whole, not shareholders.
Acquisitions, including the merger with Partners Bancorp, involve many risks, including the following: • an acquisition may negatively affect the Company’s results of operations, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • the Company may encounter difficulties or unforeseen expenditures in integrating the operations of any company that it acquires, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; • an acquisition, and in particular the Partners Merger, will involve the entry into geographic or business markets in which the Company has little or no prior experience or where competitors have stronger market positions; • if the Company incurs debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; and • the Company will issue a significant amount of equity securities in connection with the Partners Merger, such that existing shareholders will be diluted and earnings per share may decrease.
Acquisitions, including the merger with Partners Bancorp, involve many risks, including the following: • an acquisition may negatively affect the Company’s results of operations, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • the Company may encounter difficulties or unforeseen expenditures in integrating the operations of any company that it acquires, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; • an acquisition, and in particular the Partners Merger, will involve the entry into geographic or business markets in which the Company has little or no prior experience or where competitors have stronger market positions; • if the Company incurs debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; and • the Company issued a significant amount of equity securities in connection with the Partners Merger, such that existing shareholders will be diluted and earnings per share may decrease.
Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property.
Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to repay the 27 loans irrespective of the value of the underlying property.
Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on the Company’s current and planned privacy, data protection and information security-related practices, the Company’s collection, use, sharing, retention and safeguarding of consumer or employee information, and some of its current or planned business 25 activities.
Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on the Company’s current and planned privacy, data protection and information security-related practices, the Company’s collection, use, sharing, retention and safeguarding of consumer or employee information, and some of its current or planned business activities.
Before investing in shares of the Company's common stock you should consider the limited trading market for our common stock and be financially prepared and able to hold your shares for an indefinite period. 27 The Company can provide no assurance regarding whether it will continue to make dividend payments in the future.
Before investing in shares of the Company's common stock you should consider the limited trading market for our common stock and be financially prepared and able to hold your shares for an indefinite period. The Company can provide no assurance regarding whether it will continue to make dividend payments in the future.
High inflation, if sustained, could have an adverse effect on our business. The recent increase in interest rates in response to elevated levels of inflation has decreased the value of our securities portfolio, resulting in an increase in unrealized losses recorded in accumulated other comprehensive income on the shareholders’ equity section of our balance sheet.
High inflation, if sustained, could have an adverse effect on our business. The recent increase in interest rates in response to elevated levels of inflation has decreased the value of our securities portfolio, resulting in an increase in unrealized losses recorded in accumulated other comprehensive income (loss) on the shareholders’ equity section of our balance sheet.
If additional borrowers become delinquent and do not pay their loans and the Company is unable to successfully manage its non-performing assets, losses and troubled assets could increase significantly, which could have a material adverse effect on the Company’s financial condition and results of operations.
If additional borrowers become delinquent and do not pay back their loans and the Company is unable to successfully manage its non-performing assets, losses and troubled assets could increase significantly, which could have a material adverse effect on the Company’s financial condition and results of operations.
Whether customer claims and legal action are legitimate or unfounded, if such claims and legal actions are not resolved in the Company’s favor they may result in significant financial liability and/or adversely affect the market perception of it and its products and services as well as impact customer demand for those products and services.
Whether customer claims and legal action are legitimate or unfounded, if such claims and legal actions are not resolved in the Company’s favor they may result in significant financial liability and/or adversely affect the 28 market perception of it and its products and services as well as impact customer demand for those products and services.
The deterioration of one or a few of these loans could cause a significant increase in nonperforming loans, which could result in a net loss of earnings, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.
The deterioration of one or a few of these loans could cause a significant increase in nonperforming loans, which could result in a net loss of earnings, an increase in the provision for credit losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.
If some investors find the Company’s common stock less attractive as a result of these choices, there may be a less active trading market for the Company’s common stock, and the Company’s stock price may be more volatile. Item 1B. Unresolved Staff Comments. None 30
If some investors find the Company’s common stock less attractive as a result of these choices, there may be a less active trading market for the Company’s common stock, and the Company’s stock price may be more volatile. Item 1B. Unresolved Staff Comments. None
The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
In addition, regulatory agencies periodically review the Company’s allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.
In addition, regulatory agencies periodically review the Company’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.
Any deterioration in economic conditions, whether caused by national or local concerns, in particular any further economic slowdown in Pennsylvania, could result in the following consequences, any of which could hurt the Company’s business materially: loan delinquencies may increase; problem assets and foreclosures may increase; demand for the Company’s products and services may decrease; low cost or noninterest bearing deposits may decrease; and collateral for loans made by the Company, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with the Company’s existing loans.
Any deterioration in economic conditions, whether caused by national or local concerns, in particular any further economic slowdown in the local market, could result in the following consequences, any of which could hurt the Company’s business materially: loan delinquencies may increase; problem assets and foreclosures may increase; demand for the Company’s products and services may decrease; low cost or noninterest bearing deposits may decrease; and collateral for loans made by the Company, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with the Company’s existing loans.
Such changes could subject the Company to additional costs, limit the types of financial services and products it may offer, and/or 24 limit the pricing it may charge on certain banking services, among other things.
Such changes could subject the Company to additional costs, limit the types of financial services and products it may offer, and/or limit the pricing it may charge on certain banking services, among other things.
The Company’s decisions regarding allowance for loan losses and credit risk may materially and adversely affect its business. Making loans and other extensions of credit is an essential element of the Company’s business.
The Company’s decisions regarding allowance for credit losses and credit risk may materially and adversely affect its business. Making loans and other extensions of credit is an essential element of the Company’s business.
If the Company’s primary market areas experience an economic slowdown, these loans represent higher risk and could result in a sharp increase in loans charged off and could require the Company to significantly increase its allowance for loan losses, which could have a material adverse impact on its business, financial condition, results of operations, and cash flows.
If the Company’s primary market areas experience an economic slowdown, these loans represent higher risk and could result in a sharp increase in loans charged off and could require the Company to significantly increase its allowance for credit losses, which could have a material adverse impact on its business, financial condition, results of operations, and cash flows.
Although the Company cannot predict if there will be future increases to insurance assessment rates or special assessments, either a deterioration in its risk-based capital ratios or further adjustments to the base assessment rates could have a material adverse impact on its business, financial condition, results of operations, and cash flows.
Although the Bank cannot predict if there will be future increases to insurance assessment rates or special assessments, either a deterioration in its risk-based capital ratios or further adjustments to the base assessment rates could have a material adverse impact on its business, financial condition, results of operations, and cash flows.
Private parties may also have 26 the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operations. If the Company’s non-performing assets increase, earnings will be adversely affected.
Any increases in the allowance for credit losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operations. If the Company’s non-performing assets increase, earnings will be adversely affected.
The Company’s financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading. 21 Changes in prevailing interest rates may reduce the Company’s profitability.
The 22 Company’s financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading. Changes in prevailing interest rates may reduce the Company’s profitability.
The Company may have higher loan losses than it has allowed for in its allowance for loan losses. The Company’s actual loans losses could exceed its allowance for loan losses and therefore its allowance for loan losses may not be adequate. A significant portion of the Company’s loan portfolio is secured by commercial real estate.
The Company may have higher loan losses than it has allowed for in its allowance for credit losses. The Company’s actual loan losses could exceed its allowance for credit losses and therefore its allowance for credit losses may not be adequate. A significant portion of the Company’s loan portfolio is secured by commercial real estate.
Any such losses could have a material adverse effect on the Company’s financial condition and results of operations. 22 Competition with other financial institutions may have an adverse effect on the Company’s ability to retain and grow its client base, which could have a negative effect on its financial condition or results of operations.
Any such losses could have a material adverse effect on the Company’s financial condition and results of operations. 23 Competition with other financial institutions may have an adverse effect on the Company’s ability to retain and grow its client base, which could have a negative effect on its financial condition or results of operations.
During the normal course of the 23 Company’s business, it has experienced and it expects to continue to experience attempts to breach its systems, none of which has been material to the Company to date, and it may be unable to protect sensitive data and the integrity of its systems.
During the normal course of the 24 Company’s business, it has experienced and it expects to continue to experience attempts to breach its systems, none of which has been material to the Company to date, and it may be unable to protect sensitive data and the integrity of its systems.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for loan losses.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for credit losses.
The Company’s non-performing assets adversely affect net income in various ways: 19 • the Company records interest income only on the cash basis or cost-recovery method for nonaccrual loans and it does not record interest income for other real estate owned; • the Company must provide for probable loan losses through a current period charge to the provision for loan losses; • noninterest expense increases when the Company writes down the value of properties in its other real estate owned portfolio to reflect changing market values; • there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and • the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.
The Company’s non-performing assets adversely affect net income in various ways: 20 • the Company records interest income only on the cash basis or cost-recovery method for nonaccrual loans and it does not record interest income for other real estate owned; • the Company must provide for estimated credit losses through a current period charge to the provision for credit losses; • noninterest expense increases when the Company writes down the value of properties in its other real estate owned portfolio to reflect changing market values; • there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and • the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.
If the Company is required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, the Company’s earnings and capital 17 could be adversely affected.
If the Company is required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, the Company’s earnings and capital 18 could be adversely affected.
Imposition of limits by bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings. In 2006, the Office of the Comptroller of the Currency, the FDIC and the FRB (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).
Imposition of limits by bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings. In 2006, the Office of the Comptroller of the Currency, the FDIC and the Federal Reserve (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).
The Company’s success significantly depends upon the growth in population, income levels, deposits, and housing starts in the Company's markets. If the communities in which the Company operates do not grow or if prevailing economic conditions locally or nationally are unfavorable, the Company’s business may not succeed.
The Company’s success significantly depends upon the growth in population, income levels, deposits, and housing starts in the Company's local market. If the communities in which the Company operates do not grow or if prevailing economic conditions locally or nationally are unfavorable, the Company’s business may not succeed.
At December 31, 2022, no loan participations were delinquent 18 60 days or more. If the Bank underwriting of these participation loans is not sufficient, non-performing loans may increase, and earnings may decrease. The Company may be exposed to risk of environmental liabilities with respect to properties to which it takes title.
At December 31, 2023, no loan participations were delinquent 19 60 days or more. If the Bank underwriting of these participation loans is not sufficient, non-performing loans may increase, and earnings may decrease. The Company may be exposed to risk of environmental liabilities with respect to properties to which it takes title.
These provisions, and the corporate and banking laws and regulations applicable to us: • enable the board of directors to increase the size of the board and fill the vacancies created by the increase; • provide that directors may only be removed for cause and by a majority of the votes entitled to be cast; • enable the board of directors to amend our bylaws without shareholder approval, subject, however, to any provision of the articles of incorporation, bylaws, or the Pennsylvania Business Corporation Law that requires action to be taken by the shareholders and the general power of the shareholders to change such action in accordance with the Bylaws and Pennsylvania Business Corporation Law; • require advance notice for shareholder proposals and director nominations; • require a supermajority vote of the shareholders to approve a merger that has not been approved by the board of directors, and to amend certain provisions in the articles of incorporation and the bylaws; and • require prior regulatory approval of any transaction involving control of our organization.
These provisions, and the corporate and banking laws and regulations applicable to us: • enable the board of directors to increase the size of the board and fill the vacancies created by the increase; • provide that directors may only be removed for cause and by a majority of the votes entitled to be cast; • enable the board of directors to amend our bylaws without shareholder approval, subject, however, to any provision of the articles of incorporation, bylaws, or the Pennsylvania Business Corporation Law that requires action to be taken by the shareholders and the general power of the shareholders to change such action in accordance with the Bylaws and Pennsylvania Business Corporation Law; • require advance notice for shareholder proposals and director nominations; • require a supermajority vote of the shareholders to approve a merger that has not been approved by the board of directors, and to amend certain provisions in the articles of incorporation and the bylaws; and • require prior regulatory approval of any transaction involving control of our organization. 30 The foregoing may discourage potential acquisition proposals and could delay or prevent a change in control.
In addition, if charge-offs in future periods exceed the allowance for loan losses, the Company will need additional provisions to increase the allowance for loan losses.
In addition, if charge-offs in future periods exceed the allowance for credit losses, the Company will need additional provisions to increase the allowance for credit losses.
However, the Company generally imposes an internal limit that is more conservative than the legal maximum. The Bank’s lending limit is significantly less than the limit for most of its competitors and may affect its ability to seek relationships with larger businesses in its market area.
However, the Company generally imposes an internal limit that is more conservative than the legal maximum. The Bank’s lending limit may be less than the limit for some of its competitors and may affect its ability to seek relationships with larger businesses in its market area.
Such loans are generally more risky than loans secured by residential real estate or consumer loans because those loans are typically not secured by real estate collateral.
Such loans are generally more risky than loans secured by consumer loans because those loans are typically not secured by real estate collateral.
Commercial real estate loans represent 324.9% of our risk-based capital at December 31, 2022 and the outstanding balance of our commercial real estate loan portfolio has increased by greater than 50% during the 36 months preceding December 31, 2022. In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).
Commercial real estate loans represent 374.5% of our risk-based capital at December 31, 2023 and the outstanding balance of our commercial real estate loan portfolio has increased by greater than 50% during the 36 months preceding December 31, 2023. In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).
The Company’s deposits are insured up to applicable limits by the Deposit Insurance Fund ("DIF") of the FDIC and are subject to deposit insurance assessments to maintain deposit insurance. As an FDIC-insured institution, the Company is required to pay quarterly deposit insurance premium assessments to the FDIC.
The Bank's deposits are insured up to applicable limits by the Deposit Insurance Fund ("DIF") of the FDIC and are subject to deposit insurance assessments to maintain deposit insurance. As an FDIC-insured institution, the Bank is required to pay quarterly deposit insurance premium assessments to the FDIC.
Reputation risk, or the risk to the Company’s business, earnings and capital from negative public opinion surrounding the Company and the financial institutions industry generally, is inherent in its business.
Negative public opinion surrounding the Company and the financial institutions industry generally could damage its reputation and adversely impact its earnings. Reputation risk, or the risk to the Company’s business, earnings and capital from negative public opinion surrounding the Company and the financial institutions industry generally, is inherent in its business.
This high pace of growth places significant demands on the Company’s management and operational resources. In order to manage such growth effectively, the Company must implement effective operational systems, procedures and internal controls. Failure to implement these systems, procedures and controls on a timely basis could materially and adversely affect the Company’s results of operation or financial condition.
In order to manage such growth effectively, the Company must implement effective operational systems, procedures and internal controls. Failure to implement these systems, procedures and controls on a timely basis could materially and adversely affect the Company’s results of operation or financial condition.
The national economy continues to experience elevated levels of inflation. As of December 31, 2022, the year over year consumer price index (“CPI”) increase was 6.5%, primarily driven by increases in food and energy prices. As a result, the Federal Reserve raised interest rates by 425 basis points in 2022 to combat rising inflation.
The national economy continues to experience elevated levels of inflation. As of December 31, 2023, the year over year consumer price index (“CPI”) increase was 3.4%, primarily driven by increases in food and housing prices. As a result, the Federal Reserve raised interest rates by 100 basis points in 2023 to combat rising inflation.
The Company’s inability to identify, recruit, and retain talented personnel could limit its growth and could materially adversely affect its business, results of operations, financial condition, and the value of its securities. 20 Changes in economic conditions, in particular an economic slowdown in Pennsylvania, could materially and negatively affect the Company’s business.
The Company’s inability to identify, recruit, and retain talented personnel could limit its growth and could materially adversely affect its business, results of operations, financial condition, and the value of its securities. 21 Changes in economic conditions, in particular an economic slowdown in Pennsylvania, Maryland, Delaware, Northern Virginia, and Southern New Jersey could materially and negatively affect the Company’s business.
To conduct the Company’s business, it relies heavily on new technology-driven products and services and on communications and information systems. the Company’s future success will depend, in part, on its ability to address the needs of the Bank’s customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in operations.
The Company’s future success will depend, in part, on its ability to address the needs of the Bank’s customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in operations.
At December 31, 2022, non-performing assets, which consist of non-performing loans and other real estate owned, were $2.7 million, or 0.23% of total assets.
At December 31, 2023, non-performing assets, which consist of non-performing loans and other real estate owned, were $7.3 million, or 0.32% of total assets.
Broadly, those estimates are used in measuring the fair value of certain financial instruments, establishing provision for loan losses and potential litigation liability. Market volatility may make it difficult to determine the fair value for certain of the Company’s assets and liabilities.
The Company makes various estimates that affect reported amounts and disclosures. Broadly, those estimates are used in measuring the fair value of certain financial instruments, establishing provision for credit losses and potential litigation liability. Market volatility may make it difficult to determine the fair value for certain of the Company’s assets and liabilities.
In September 2022, the Company completed its IPO whereby it issued and sold 5,101,205 shares of common stock. In February 2023, the Company completed a private placement of $10.0 million in common stock.
In September 2022, the Company completed its IPO whereby it issued and sold 5,101,205 shares of common stock. In February 2023, the Company completed a private placement of $10.0 million in common stock. On November 30, 2023, the Company completed its acquisition of Partners Bancorp and issued 20,683,158 shares of common stock.
The merger with Partners Bancorp and any future acquisitions could disrupt the Company’s business and adversely affect our results of operations, financial condition and cash flows. On February 22, 2023, the Company announced the entry into a Merger Agreement with Partners Bancorp.
The merger with Partners Bancorp and any future acquisitions could disrupt the Company’s business and adversely affect our results of operations, financial condition and cash flows. On November 30, 2023, the Company completed the acquisition of Partners Bancorp.
At December 31, 2022, commercial real estate loan participations for which the Bank was not the lead lender totaled $48.7 million, or 9.0% of our commercial real estate loan portfolio, and commercial business loan participations for which the Bank was not the lead lender totaled $8.5 million, or 1.6% of our commercial business loan portfolio.
At December 31, 2023, commercial real estate loan participations for which the Bank was not the lead lender totaled $73.1 million, or 5.8% of our commercial real estate loan portfolio. Commercial business loan participations for which the Bank was not the lead lender totaled $5.5 million, or 2.3% of our commercial business loan portfolio.
Regulatory and Legal Risks The Company and the Bank are subject to extensive government regulation and supervision that could interfere with their ability to conduct their business and may negatively impact their financial results, restrict their activities, have an adverse impact on their operations, and impose financial requirements or limitations on the conduct of their business.
The occurrence of any such event or a combination of the foregoing factors could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on its financial condition and results of operations. 25 Regulatory and Legal Risks The Company and the Bank are subject to extensive government regulation and supervision that could interfere with their ability to conduct their business and may negatively impact their financial results, restrict their activities, have an adverse impact on their operations, and impose financial requirements or limitations on the conduct of their business.
The foregoing may discourage potential acquisition proposals and could delay or prevent a change in control. 29 The Company is an “emerging growth company” under the JOBS Act, and the Company cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies will make the Company’s common stock less attractive to investors.
The Company is an “emerging growth company” under the JOBS Act, and the Company cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies will make the Company’s common stock less attractive to investors.
Commercial real estate loans may increase the Company’s exposure to credit risk. At December 31, 2022, the Company’s commercial real estate loans totaled $540.9 million, or 58.3%, of our total loan portfolio.
Commercial real estate loans may increase the Company’s exposure to credit risk. At December 31, 2023, the Company’s commercial real estate loans totaled $1.26 billion, or 56.4%, of our total loan portfolio.
Repayment of commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2022, $103.8 million, or 11.2% of our total loan portfolio, consisted of commercial business loans (excluding PPP loans, which are expected to be fully guaranteed by the SBA).
Repayment of commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2023, $238.3 million, or 10.63% of our total loan portfolio, consisted of commercial business loans.
The FDIC issued a final rule in October 2022 to increase initial base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023.
The FDIC issued a final rule in October 2022 to increase initial base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023. If there are financial institution failures, the Bank may be required to pay higher FDIC premiums or special assessments.
The Company attempts to maintain an appropriate allowance for loan losses to provide for probable losses in its loan portfolio.
The Company attempts to maintain an appropriate allowance for credit losses to provide for estimated losses over the life of the loan portfolio.
During 2022, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates. The Federal Reserve has signaled that further tightening is anticipated.
During 2023, in response to accelerated inflation, the Federal Reserve continued to implement monetary tightening policies, resulting in increased interest rates. The Federal Reserve has signaled that interest rates may remain elevated.
The Bank underwrites each commercial real estate loan and commercial business loan that it participates in and establishes the loan classification and loan provision using the same criteria it uses for loans the Bank originates.
Construction loan participations for which the Bank was not the lead lender totaled $14.5 million, or 8.1% of our construction loan portfolio. The Bank underwrites each commercial real estate loan and commercial business loan that it participates in and establishes the loan classification and loan provision using the same criteria it uses for loans the Bank originates.
Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on its business, results of operations and financial condition. Negative public opinion surrounding the Company and the financial institutions industry generally could damage its reputation and adversely impact its earnings.
Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on its business, results of operations and financial condition. The Bank is subject to risks and losses resulting from fraudulent activities that could adversely impact its financial performance and results of operations.
The Company is subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and it could be negatively impacted by these laws.
Regulations relating to privacy, information security and data protection could increase the Company’s and the Bank’s costs, affect or limit how they collect and use personal information and adversely affect their business opportunities. 26 The Company is subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and it could be negatively impacted by these laws.
The Company primarily serve individuals, businesses and municipalities located in Chester, Cumberland, Dauphin, Lancaster, Northumberland, Schuylkill, and York Counties, Pennsylvania. As of December 31, 2022, a majority of our loan portfolio was secured by real estate and other assets located in these areas in Pennsylvania.
As of December 31, 2023, a majority of our loan portfolio was secured by real estate and other assets located in the local market.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for the Company. Regulations relating to privacy, information security and data protection could increase the Company’s and the Bank’s costs, affect or limit how they collect and use personal information and adversely affect their business opportunities.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for the Company.
The Company's business strategy anticipates the rapid expansion of its business to pursue existing and potential market opportunities. On February 22, 2023, the Company announced the entry into a Merger Agreement with Partners Bancorp that if approved will more than double the size of the Company.
The Company's business strategy anticipates the rapid expansion of its business to pursue existing and potential market opportunities. On November 30, 2023, the Company completed the acquisition of Partners Bancorp which more than doubled the size of the Company. This high pace of growth places significant demands on the Company’s management and operational resources.
Removed
Additionally, promptly following the recent failures of Silicon Valley Bank ("SVB") and Signature Bank in March of 2023, the federal banking regulators announced that the FDIC will use funds from the DIF to ensure that all depositors in SVB and Signature Bank are made whole at no cost to taxpayers.
Added
The Company primarily serves individuals, businesses and municipalities located in Chester, Cumberland, Dauphin, Lancaster, Northumberland, Schuylkill, and York Counties in Pennsylvania, Wicomico, Charles, Anne Arundel, and Worcester counties in Maryland, Sussex county in Delaware, Camden and Burlington counties in New Jersey, Spotsylvania county in Virginia, and the cities of Fredericksburg and Reston, Virginia (the "local market").
Removed
We anticipate that the FDIC will impose special assessments on all banks to replenish the DIF.
Added
For example, in 2023, the FDIC issued a special assessment for banks with total consolidated assets of $5 billion or more in order to recover losses sustained by the DIF as a result of the March 2023 failures of Silicon Valley Bank and Signature bank.
Removed
The COVID-19 pandemic could adversely affect the Company’s financial condition and results of operations. The COVID-19 pandemic had a significant economic impact on the communities in which the Company operates, its borrowers and depositors, and the national economy generally.
Added
To conduct the Company’s business, it relies heavily on new technology-driven products and services and on communications and information systems.
Removed
Although the domestic and global economies have significantly recovered from the COVID-19 pandemic as health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic remain and may persist for some time.
Added
The Bank is susceptible to fraudulent activity that may be committed against it or its clients, which may result in financial losses or increased costs to the Bank or its clients, disclosure or misuse of its information or its client’s information, misappropriation of assets, privacy breaches against its clients, litigation or damage to the Bank’s reputation.
Removed
Specifically, despite growth in economic activity and the demand for goods and services as COVID-19 restrictions were lifted, labor shortages and supply chain disruptions have contributed to an increase in inflation, and the risk of a recession. The ongoing and dynamic nature of COVID-19 makes it difficult to predict future developments.
Added
The Bank is most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, checking transactions, and debit cards that it has issued to its customers and through its online banking portals.
Removed
The Company expects the impact of COVID-19 to continue to be present, and last for an undetermined amount of time. The expected impact of COVID-19 on the Company’s business, results of operations, financial condition and capital levels, cannot be determined and is uncertain.
Added
The Company maintains a system of internal controls and insurance coverage to mitigate against such risks, including data processing system failures and errors, and customer fraud.
Removed
Adverse weather events could negatively affect the Company’s local economies or disrupt it operations, which would have an adverse effect on its business or results of operations. Adverse weather events can disrupt the Company’s operations, result in damage to its properties and negatively affect the local economies in which it operates.
Added
If its internal controls fail to prevent or detect any such occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on the Company’s business, financial condition and results of operations.
Removed
In addition, these weather events may result in a decline in value or destruction of properties securing the Company’s loans and an increase in delinquencies, foreclosures and loan losses.
Added
Severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, and other external events could significantly impact our business. Severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, geopolitical conflicts, and other adverse external events could have a significant impact on the Company’s ability to conduct business.
Removed
Other Risks Adverse developments affecting the financial services industry, such as bank failures or concerns involving liquidity, may have a material effect on the Company’s operations. Recent events relating to the failures of certain banking entities in March 2023, i.e.
Added
Such events could affect the operations of the bank branches, stability of the Bank’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause the Company to incur additional expenses.
Removed
Silicon Valley Bank and Signature Bank, have caused general uncertainty and concern regarding the liquidity adequacy of the banking sector as a whole.
Added
Additionally, demand for the Company’s products and services may decline; loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans may decline in value, which could increase loan losses; the allowance for credit losses may have to be increased if borrowers experience financial difficulties; a material decrease in net income could affect the Company’s ability to pay cash dividends; cybersecurity risks may be increased as the result of employees working remotely; critical services provided by third-party vendors may become unavailable; government actions and mandates may affect the Company’s workforce and infrastructure; and the Company may experience staffing shortages and unanticipated unavailability or loss of key employees.
Removed
Uncertainty may be compounded by the reach and depth of media attention, including social media, and its ability to disseminate concerns or rumors about any events of these kinds or other similar risks, and have in the past and may in the future lead to market-wide liquidity problems.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties . The Company's principal offices are located at 1250 Camp Hill Bypass, Suite 202, Camp Hill, Pennsylvania. The Company owns and leases other premises for use as Solutions Centers in Dauphin, Chester, Cumberland, Lancaster, Northumberland, Schuylkill, and York counties within Pennsylvania. The following table sets forth the locations of Bank facilities.
Biggest changeItem 2. Properties . The Company's principal offices are located at 1250 Camp Hill Bypass, Suite 202, Camp Hill, Pennsylvania. This facility is leased by the Bank.
Description Address Owned / Leased Camp Hill Headquarters 1250 Camp Hill Bypass, Suite 202 Camp Hill, PA 17011 Leased Camp Hill Solutions Center 3045 Market Street Camp Hill, PA 17011 Leased Gratz Solutions Center 32 West Market Street Gratz, PA 17030 Owned Harrisburg Solutions Center 2057 EG Drive Harrisburg, PA 17110 Leased Herndon Solutions Center 4231 State Route 147 Herndon, PA 17830 Owned Lancaster Solutions Center 2010 Fruitville Pike Lancaster, PA 17601 Leased Minersville Solutions Center 260 West Sunbury Street Minersville, PA 17954 Owned Pottsville Solutions Center 2221 West Market Street Pottsville, PA 17901 Leased Treverton Solutions Center 450 West Shamokin Street Trevorton, PA 17881 Owned Valley View Solutions Center 1625 West Main Street Valley View, PA 17983 Owned West Chester Solutions Center 1436 Pottstown Pike West Chester, PA 19380 Leased West Chester Loan Production Office 535 N.
The following table sets forth the locations of Bank facilities as of December 31, 2023. 32 Description Address Owned / Leased Pennsylvania Locations: Camp Hill Headquarters 1250 Camp Hill Bypass, Suite 202 Camp Hill, PA 17011 Leased Camp Hill Solutions Center 3045 Market Street Camp Hill, PA 17011 Leased Gratz Solutions Center 32 West Market Street Gratz, PA 17030 Owned Harrisburg Solutions Center 2057 EG Drive Harrisburg, PA 17110 Leased Herndon Solutions Center 4231 State Route 147 Herndon, PA 17830 Owned Lancaster Solutions Center 2010 Fruitville Pike Lancaster, PA 17601 Leased Minersville Solutions Center 260 West Sunbury Street Minersville, PA 17954 Owned Pottsville Solutions Center 2221 West Market Street Pottsville, PA 17901 Leased Treverton Solutions Center 450 West Shamokin Street Trevorton, PA 17881 Owned Valley View Solutions Center 1625 West Main Street Valley View, PA 17983 Owned West Chester Loan Production Office 535 N.
Church Street, Suite 350 West Chester, PA 19380 Leased York Loan Production Office 155 North George Street, Suite 201 York, PA 17401 Leased
Church Street, Suite 350 West Chester, PA 19380 Leased West Chester Solutions Center 1436 Pottstown Pike West Chester, PA 19380 Leased York Loan Production Office 155 North George Street, Suite 201 York, PA 17401 Leased Delaware Locations: Dagsboro Solutions Center 28280 Clayton Street Dagsboro, DE 19939 Owned Laurel Solutions Center 200 E.
Added
We own or lease other premises for use as Solutions Centers and loan production offices in Dauphin, Chester, Cumberland, Lancaster, Northumberland, Schuylkill, and York Counties within Pennsylvania, Wicomico, Charles, Anne Arundel, and Worcester Counties in Maryland, Sussex County in Delaware, Camden and Burlington Counties in New Jersey, Spotsylvania County, Virginia, and the cities of Fredericksburg and Reston, Virginia.
Added
We believe that the properties currently owned or leased are adequate for present levels of operation.
Added
Market Street Laurel, DE 19956 Owned Rehoboth Solutions Center 18572 Coastal Highway, Rehoboth Beach, DE 19971 Leased Rehoboth Loan Production Office 19264 Miller Road, Unit A, Rehoboth Beach, DE 19971 Leased Seaford Solutions Center 910 Norman Eskridge Highway, Seaford, DE 19973 Leased Maryland Locations: Annapolis Loan Production Office 2661 Riva Road, Building 1000, Suite 1035, Annapolis, MD 21404 Leased Delmar Solutions Center 9550 Ocean Highway Delmar, MD 21875 Owned Delmarva Regional Headquarters 2245 Northwood Dr.
Added
Salisbury, MD 21801 Owned East Salisbury Solutions Center 241 Beaglin Park Drive Salisbury, MD 21804 Owned Eastern Shore Drive Solutions Center 241 Beaglin Park Drive Salisbury, MD 21804 Owned La Plata Solutions Center 115 East Charles Street, La Plata, MD 20646 Land Leased; Building Owned North Salisbury Solutions Center 2727 N.
Added
Salisbury Boulevard Salisbury, MD 21801 Owned Pecan Square Solutions Center 241 Beaglin Park Drive Salisbury, MD 21804 Owned 26th Street Ocean City Solutions Center 201 B 26th Street, Ocean City, MD 21842 Leased 33 West Ocean City Solutions Center 12720 Ocean Gateway, Unit 4, Ocean City, MD 21842 Leased New Jersey Locations: Cherry Hill Solutions Center 2099 Route 70 East, Cherry Hill, NJ 08003 Leased Evesham Solutions Center 145 North Maple Avenue, Marlton, NJ 08053 Owned Moorestown Client Solutions Center 227 West Camden Avenue, Moorestown, NJ 08057 Leased Virginia Locations: Reston Solutions Center 1821 Michael Faraday Drive, Suite 101, Reston, VA 20190 Leased Salem Church Solutions Center 4210 Plank Road, Fredericksburg, VA 22407 Leased Spotsylvania Solution Center 7415 Laughlin Boulevard, Spotsylvania, VA 22553 Leased William Street Solutions Center 410 William Street, Fredericksburg, VA 22401 50% Owned / 50% Leased 34

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings . At December 31, 2022, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. Item 4. Mine Safety Disclosures .
Biggest changeItem 3. Legal Proceedings . At December 31, 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 4. Mine Safety Disclosures .

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring the quarter ended December 31, 2022, the Company repurchased no shares of its common stock. Item 6. Reserved . 32
Biggest changeDuring the quarter ended December 31, 2023, the Company repurchased no shares of its common stock.
The merger agreement with GNBF provides that, for three years following the effective time of the Gratz Merger, the Company will pay a quarterly cash dividend in an amount equal to or greater than $0.30 per share per year, provided sufficient funds are legally available therefore and that the Company and the Bank remain “well-capitalized” in accordance with applicable regulatory guidelines.
The merger agreement with GNBF provides that, for three years following the effective time of the Gratz Merger (September 2021), the Company will pay a quarterly cash dividend in an amount equal to or greater than $0.30 per share per year, provided sufficient funds are legally available therefore and that the Company and the Bank remain “well-capitalized” in accordance with applicable regulatory guidelines.
The Company declared and paid cash dividends equal to $0.30 and $0.205 per share of common stock for the years ended December 31, 2022 and 2021, respectively.
The Company declared and paid cash dividends equal to $0.30 per share of common stock for the years ended December 31, 2023 and 2022, respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . Market Information The common stock of LINKBANCORP, Inc. is traded under the symbol "LNKB" on the Nasdaq Capital Market. As of the close of business on March 28, 2023, there were 525 shareholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . Market Information The common stock of LINKBANCORP, Inc. is traded under the symbol "LNKB" on the Nasdaq Capital Market. As of the close of business on March 25, 2024, there were approximately 786 shareholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDecember 31, 2022 December 31, 2021 Non-Accrual Loans Non-Accrual Loans (In Thousands) Total Loans Amount Percent of Loans in Category Total Loans Amount Percent of Loans in Category Agriculture loans $ 15,591 $ — — $ 9,341 $ — — Commercial loans 103,874 35 0.03 % 98,604 39 0.04 % Paycheck Protection Program ("PPP") loans 881 — — 23,774 — — Commercial real estate loans 540,914 231 0.04 % 338,749 144 0.04 % Residential real estate loans 250,832 1,652 0.66 % 231,302 449 0.19 % Consumer and other loans 10,057 — — 7,087 2 0.03 % Municipal loans 5,466 — — 6,182 — — Total $ 927,615 $ 1,918 0.21 % $ 715,039 $ 634 0.09 % Excluding PPP loans $ 926,734 $ 1,918 0.21 % $ 691,265 $ 634 0.09 % Allowance for credit losses on loans $ 4,666 $ 3,152 Ratio of allowance for loan losses to total loans 0.50 % 0.44 % Ratio of non-accrual loans to total loans 0.21 % 0.09 % Ratio of allowance for loan losses to non-accrual loans 243.27 % 497.16 % The table below provides an allocation of the allowance for loan losses by loan category at December 31, 2022 and 2021.
Biggest changeDecember 31, 2023 Non-Accrual Loans (In Thousands) Total Loans Amount Percent of Loans in Category Agriculture loans $ 65,861 $ — — Construction loans 178,483 191 0.11 % Commercial & industrial loans 238,343 61 0.03 % Commercial real estate loans Multifamily 180,788 — — Owner occupied 501,732 2,548 0.51 % Non-owner occupied 580,972 1,229 0.21 % Residential real estate loans First liens 402,433 2,707 0.67 % Second liens and lines of credit 70,747 294 0.42 % Consumer and other loans 16,756 7 0.04 % Municipal loans 5,244 - — Total $ 2,241,359 $ 7,037 0.31 % Allowance for credit losses $ 23,767 Ratio of allowance for credit losses to total loans 1.06 % Ratio of non-accrual loans to total loans 0.31 % Ratio of allowance for credit losses to non-accrual loans 337.74 % December 31, 2022 Non-Accrual Loans Total Loans Amount Percent of Loans in Category Agriculture loans $ 15,591 $ — — Commercial & industrial loans 103,874 35 0.03 % Paycheck Protection Program ("PPP") 881 — — Commercial real estate loans 540,914 231 0.04 % Residential real estate loans 250,832 1,652 0.66 % Consumer and other loans 10,057 — — Municipal loans 5,466 — — Total $ 927,615 $ 1,918 0.21 % Excluding PPP loans $ 926,734 $ 1,918 Allowance for credit losses $ 4,666 Ratio of allowance for credit losses to total loans 0.50 % Ratio of non-accrual loans to total loans 0.21 % Ratio of allowance for credit losses to non-accrual loans 243.27 % 42 The table below provides an allocation of the allowance for credit losses by loan category at December 31, 2023 and 2022.
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.
Total uninsured deposits are 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.
A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired 44 loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.
A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.
The Company's common stock now trades on the Nasdaq Capital Market under the symbol "LNKB." 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.
The Company's common stock trades on the Nasdaq Capital Market under the symbol "LNKB." 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.
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 areas in which the Company's management applies critical assumptions and estimates include the following: Allowance for loan losses: The loan portfolio is the biggest asset on the Company's balance sheet.
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 areas 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 notes are redeemable at the option of the Company, in whole or in part, subject to any required regulatory approvals after five years. Additionally, on April 8, 2022, LINKBANCORP issued subordinated debt with a carrying value of $20.0 million.
The notes are redeemable at the option of the Company, in whole or in part, subject to any required regulatory approvals after five years. Additionally, on April 8, 2022, the Company issued subordinated debt with a carrying value of $20.0 million.
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 33 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.
In pursuing this mission, the Company specifically desires to invest in the development of strong future leaders for the banking industry and our communities, to contribute to economically and socially flourishing communities, and to demonstrate the continued viability and integral role of community banking for our economic and social development.
The Company operates primarily through its sole subsidiary, LINKBANK (the "Bank"), which provides traditional lending, deposit gathering and cash services to retail customers, small businesses and nonprofit organizations.
The Company operates primarily through its subsidiary, LINKBANK (the "Bank"), which provides traditional lending, deposit gathering and cash services to retail customers, small businesses and nonprofit organizations.
Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are concentrated in South Central Pennsylvania in Dauphin, Chester, Cumberland, Lancaster, Northumberland, and Schuylkill Counties, and are influenced by local economic conditions.
Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are concentrated in South Central Pennsylvania in Dauphin, Chester, Cumberland, Lancaster, Northumberland, and Schuylkill Counties.
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 years presented. Average balances are derived from daily balances over the years indicated. The average balances for loans are net of allowance for loan losses, but include non-accrual loans.
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 years presented. Average balances are derived from daily balances over the years indicated. The average balances for loans are net of allowance for credit losses, but include non-accrual loans.
Off-Balance Sheet Arrangements and Contractual Obligations See Note 18 within the Notes to the Consolidated Financial Statements beginning for more information regarding the Company’s off-balance sheet arrangements. For disclosures of the Company’s future obligations under operating leases, please see Note 8 within the Notes to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements and Contractual Obligations See Note 17 within the Notes to the Consolidated Financial Statements beginning for more information regarding the Company’s off-balance sheet arrangements. For disclosures of the Company’s future obligations under operating leases, please see Note 8 within the Notes to the Consolidated Financial Statements.
Year Ended December 31, 2022 vs. 2021 Increase (Decrease) Due To: (Dollars in thousands) Rate Volume Net Interest Income: Int. Earn.
Year Ended December 31, 2023 vs. 2022 Increase (Decrease) Due To: (Dollars in thousands) Rate Volume Net Interest Income: Int. Earn.
This increase was partially offset by an increase in interest expense resulting from increased average rates paid on interest-bearing liabilities as a result of the rising interest rate environment and an increase in the average balance of deposits as a result of the completion of the Gratz Merger.
This increase was partially offset by an increase in interest expense resulting from increased average rates paid on interest-bearing liabilities as a result of the rising interest rate environment and an increase in the average balance of deposits.
For disclosures of the Company’s contractual obligations related to certificates of deposits, please see Note 10 within the Notes to the Consolidated Financial Statements.
For disclosures of the Company’s contractual obligations related to certificates of deposits, please see Note 9 within the Notes to the Consolidated Financial Statements.
These brokered deposits mature in 2023. Management utilizes brokered deposits as a supplement to core deposit funding from time to time and does not consider brokered deposits to be a primary source of funding. The table below presents the daily average balances by deposit type and weighted average rates paid thereon for the years ended December 31, 2022 and 2021.
Management utilizes brokered deposits as a supplement to core deposit funding from time to time and does not consider brokered deposits to be a primary source of funding. 44 The table below presents the daily average balances by deposit type and weighted average rates paid thereon for the years ended December 31, 2023 and 2022.
As of December 31, 2022 and 2021, the Bank met the capital requirements to be considered “well capitalized.” See Note 17 within the Notes to the Consolidated Financial Statements for more information regarding our capital resources.
As of December 31, 2023 and 2022, the Bank met the capital requirements to be considered “well capitalized.” See Note 16 within the Notes to the Consolidated Financial Statements for more information regarding our capital resources.
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 December 31, 2022, the Company had remaining available capacity with FHLB, subject to certain collateral restrictions, of approximately $301.4 million.
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 December 31, 2023, the Company had remaining available capacity with the FHLB, subject to certain collateral restrictions, of approximately $305.7 million.
Our attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of the Company’s business management. We manages our liquidity in accordance with a board of directors-approved asset liability policy, which is administered by the Company’s asset-liability committee (“ALCO”).
Our attempts to maintain adequate 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”).
Asset quality remained strong at December 31, 2022 with non-performing assets, which is defined as non-accrual loans, loans delinquent greater than 90 days and still accruing interest, and other real estate owned, was $2.7 million or 0.29% of total gross loans.
Asset quality remained strong at December 31, 2023 with non-performing assets, which is defined as non-accrual loans, loans delinquent greater than 90 days and still accruing interest, and other real estate owned, was $7.3 million or 0.32% of total gross loans.
In general, the Company began to experience an increase in rates on interest earning assets as a result of the Federal Reserve's decisions in 2022 that increased the Fed Funds target rate from 0% to 0.25% at the beginning of 2022 to 4.25% to 4.50% at December 31, 2022.
In general, the Company continued to experience an increase in rates on interest earning assets as a result of the Federal Reserve's decisions in 2023 that increased the Fed Funds target rate from 4.25% to 4.50% at the beginning of 2023 to 5.25% to 5.50% at December 31, 2023.
As of December 31, 2022, the total uninsured deposits includes $36.8 million 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.
As of December 31, 2023, the total uninsured deposits includes $41.2 million 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.
The increase in interest expense was due to the increase in the average rates paid on interest bearing liabilities, which increased 37 basis points from 0.58% for the year ended December 31, 2021 to 0.95% for the year ended December 31, 2022 primarily as a result of the increase in rates of our money market demand deposits and borrowings.
The increase in interest expense was due to the increase in the average rates paid on interest bearing liabilities, which increased 187 basis points from 0.95% for the year ended December 31, 2022 to 2.82% for the year ended December 31, 2023 primarily as a result of the increase in rates of our money market demand deposits, interest bearing demand deposits and time deposits.
(2) Income stated on a tax equivalent basis which is non-GAAP and is reconciled to GAAP at the bottom of the table.
(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.
Interest Income: Interest income increased to $40.3 million for the year ended December 31, 2022, compared with $18.5 million for the year ended December 31, 2021 primarily due to an increase in interest income on loans as a result of the growth in average loans, following the completion of the Gratz Merger.
Interest Income: Interest income increased to $65.2 million for the year ended December 31, 2023, compared with $40.3 million for the year ended December 31, 2022 primarily due to an increase in interest income on loans as a result of the growth in average loans, following the completion of the Partners Merger.
This increase can be mostly attributed to an increase in interest income resulting from a higher average balance in loans as a result of the completion of the Gratz Merger, as well as a 59 basis points increase in the average yield on interest-earning assets.
This increase can be mostly attributed to an increase in interest income resulting from a higher average balance in loans as well as a 106 basis points increase in the average yield on interest-earning assets.
This growth included an increase in average yield on interest earning assets which increased 59 basis points from 3.59% for the year ended December 31, 2021 to 4.18% for the year ended December 31, 2022.
This growth included an increase in the average yield on interest earning assets which increased 106 basis points from 4.18% for the year ended December 31, 2022 to 5.24% for the year ended December 31, 2023.
These rate increases coupled with new loan originations in 2022 resulted in the higher average yield on loans compared to 2021. Interest Expense: Interest expense increased by $4.9 million or 204.6% to $7.3 million for the year ended December 31, 2022, compared to $2.4 million for the year ended December 31, 2021.
These rate increases coupled with new loan originations in 2023 resulted in the higher average yield on loans compared to 2022. Interest Expense: Interest expense increased by $19.2 million or 263.9% to $26.5 million for the year ended December 31, 2023, compared to $7.3 million for the year ended December 31, 2022.
The income tax expense recognized for the year ended December 31, 2022 was the direct result of our net income adjusted for tax free income and non-deductible expenses. We recognized income tax expense for the year ended December 31, 2022 at an effective tax rate of 17.9% which is less than our statutory tax rate of 21%.
The income tax benefit recognized for the year ended December 31, 2023 was partially the result of our net income adjusted for tax free income and non-deductible expenses. We recognized income tax benefit for the year ended December 31, 2023 at an effective tax rate of 21.9% which is greater than our statutory tax rate of 21%.
Also see Note 6 - Allowance for Loan Losses in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Also see Note 5 - Allowance for Credit Losses in the accompanying notes to the consolidated financial statements included in this report.
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.
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.
Income Tax Benefit/Expense: Income tax expense for the year ended December 31, 2022 totaled $1.2 million compared to income tax benefit of $189 thousand for 2021 as a result of an increase in income before income tax expense.
Income Tax Benefit/Expense: Income tax benefit for the year ended December 31, 2023 totaled $3.4 million compared to an income tax expense of $1.2 million for 2022 as a result of a decrease in income before income tax expense.
The allowance for loan losses represents management's estimate of probable incurred losses in the loan portfolio at the balance sheet date. A provision for loan losses is recorded to adjust the level of the allowance for loan losses as deemed necessary by management. The allowance for loan losses consists of general, allocated, and unallocated components.
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.
This increase in rates was also impacted by an increase in the average balances of interest bearing liabilities, which increased $349.8 million to $763.3 million for the year ended December 31, 2022 compared to $413.5 million for the year ended December 31, 2021 as a result of the increase in the average balance of our deposits and borrowings.
This increase in rates was also impacted by an increase in the average balances of interest bearing liabilities, which increased $176.3 million to $939.6 million for the year ended December 31, 2023 compared to $763.3 million for the year ended December 31, 2022 as a result of the increase in the average balance of our deposits and borrowings due to the completion of the Partners Merger.
The average balance of loans increased $426.1 million during the year ended December 31, 2022 as compared to the prior year primarily as a result of the loan growth that the Company achieved since the closing of the Gratz Merger.
The average balance of loans increased $276.0 million during the year ended December 31, 2023 as compared to the prior year due primarily to the loan growth that the Company achieved as a result of the closing of the Partners Merger.
Assets acquired and liabilities assumed in a business combination are recorded at their estimated fair value on their purchase date. As provided for under accounting principles generally accepted in the United States of America, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities.
As provided for under accounting principles generally accepted in the United States of America, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities. Management continues to finalize the fair values of acquired assets and assumed liabilities.
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 43 attract and retain deposits by adjusting the interest rates offered.
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.
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.
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.
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.
Subordinated debt with a carrying value of $20.3 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 SOFR. The notes have a term of ten years, with a maturity date of October 1, 2030.
There were $20.9 million in short-term FHLB advances outstanding at December 31, 2022. 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 December 31, 2022.
There were $10.0 million in short-term FHLB advances outstanding at December 31, 2023. In addition to our available borrowing capacity at the FHLB, the Company has bank-level lines of credit with multiple financial institutions and a line at the Federal Reserve Bank Discount Window that provides additional liquidity at December 31, 2023.
The Company completes a comprehensive quarterly evaluation to determine its provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, and changes in net loan balances, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors.
The evaluation reflects analyses of individual borrowers and historical loss experience, and changes in net loan balances, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors. Refer to Note 5 of the Notes to the Consolidated Financial Statements for additional details on the provision for credit losses.
This Management’s Discussion and Analysis is presented in the following sections: • Partners Merger • Completion of Gratz Merger • Completion of Initial Public Offering • Overview and Strategy • Recent Market Conditions • Comparison of Financial Condition at December 31, 2022 and 2021 • Comparison of Operating Results for the Year Ended December 31, 2022 and 2021 • Liquidity, Commitments, and Capital Resources • Off-Balance Sheet Arrangements • Critical Accounting Estimates • Recently Issued Accounting Standards Partners Merger On February 22, 2023, LINKBANCORP and Partners Bancorp entered into the Merger Agreement that provides that Partners Bancorp will merge with and into LINKBANCORP, with LINKBANCORP as the surviving corporation (the “Partners Merger”).
This Management’s Discussion and Analysis is presented in the following sections: • Completion of Partners Merger • Completion of Gratz Merger • Completion of Initial Public Offering • Overview and Strategy • Recent Market Conditions • Comparison of Financial Condition at December 31, 2023 and 2022 • Comparison of Operating Results for the Years Ended December 31, 2023 and 2022 • Liquidity, Commitments, and Capital Resources • Off-Balance Sheet Arrangements • Critical Accounting Estimates • Recently Issued Accounting Standards Completion of Partners Merger On November 30, 2023, the LINKBANCORP completed its merger with Partners Bancorp ("Partners"), and its wholly owned subsidiaries, The Bank of Delmarva and Virginia Partners Bank, pursuant to which Partners merged with and into the Company with the Company as the surviving corporation (the "Partners Merger").
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.
ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Company’s board of directors. 49 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.
The balance of subordinated debt was $40.5 million and $20.7 million at December 31, 2022 and 2021, respectively. Total shareholders’ equity increased by $28.9 million, or 26.4%, from $109.6 million at December 31, 2021, to $138.6 million at December 31, 2022.
The balance of subordinated debt was $61.4 million and $40.5 million at December 31, 2023 and 2022, respectively. Total shareholders’ equity increased by $127.2 million, or 91.8%, from $138.6 million at December 31, 2022, to $265.8 million at December 31, 2023.
The growth in the average balance of interest earning assets which increased $447.9 million to $971.7 million for the year ended December 31, 2022 compared to $523.8 million for the year ended December 31, 2021 contributed $18.6 million in growth of interest income.
The growth in the average balance of interest earning assets which increased $279.1 million to $1.25 billion for the year ended December 31, 2023 compared to $971.7 million for the year ended December 31, 2022 contributed $12.7 million in growth of interest income.
During 2022, return of principal on held to maturity securities totaled $2.6 million.
During 2023, return of principal on held to maturity securities totaled $3.4 million.
(3) Includes the balances of nonaccrual loans. 41 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 years indicated.
(4) Includes the effect of the interest rate swap, which reduced interest expense by $392,000 during the current fiscal year. 47 Rate/Volume Analysis The following table reflects the sensitivity of the Company’s interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the years indicated.
The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields, but were not material adjustments to the yields. Yields on earning assets are shown on a fully taxable-equivalent basis assuming a tax rate of 21%.
The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields, but were not material adjustments to the yields.
December 31, 2022 December 31, 2021 (In Thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Demand, noninterest-bearing $ 173,938 0.00 % $ 99,747 0.00 % Demand, interest-bearing 271,681 0.63 % 175,133 0.59 % Money market and savings 229,979 0.83 % 112,511 0.18 % Time deposits, other 205,636 0.83 % 110,928 0.77 % Total Deposits $ 881,234 0.61 % $ 498,319 0.42 % The Company has deposits that exceed the FDIC insurance limit of $250,000 of $408.4 million and $317.2 million at December 31, 2022 and 2021, respectively.
December 31, 2023 December 31, 2022 (In Thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Demand, noninterest-bearing $ 245,703 0.00 % $ 173,938 0.00 % Demand, interest-bearing 269,615 2.11 % 271,681 0.63 % Money market and savings 278,418 2.53 % 229,979 0.83 % Time deposits, other 301,101 3.29 % 205,636 0.83 % Total Deposits $ 1,094,837 2.07 % $ 881,234 0.61 % The Company has deposits that exceed the FDIC insurance limit of $250,000 of $713.4 million and $408.4 million at December 31, 2023 and 2022, respectively.
During the first quarter of 2023, the Company also established $8.3 million of available credit at the Federal Reserve Bank's Discount Window. 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.
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.
The allocated component relates to loans that are classified as impaired. Generally, our impaired loans are collateral-dependent and impairment is measured through the collateral method. When the measurement of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through the allowance for loan losses.
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.
Comparison of Financial Condition at December 31, 2022 and December 31, 2021 Total assets at December 31, 2022, were $1.16 billion, an increase of $230.9 million, or 24.8%, from $932.8 million at December 31, 2021.
Comparison of Financial Condition at December 31, 2023 and December 31, 2022 Total assets at December 31, 2023, were $2.67 billion, an increase of $1.51 billion, or 129.4%, from $1.16 billion at December 31, 2022.
Our revenues consist primarily of interest income earned on loans and investments. Interest income is partially offset by interest expense incurred on deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the balances of interest-earning assets and interest-bearing liabilities and their relative interest rates. Net interest income is typically further reduced by a provision for loan losses.
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.
Loans acquired in a business combination transaction are evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit component.
The valuation of acquired loans involves significant estimates, assumptions and judgment based on information available as of the acquisition date. Loans acquired in a business combination transaction are evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit component.
Management expects that the current economic environment will continue to increase competition for deposits, which may create additional upward pressure on the Company's cost of funds in the coming quarters.
The increase in the rates paid on interest-bearing liabilities during 2023 was directly correlated to the increase in the Federal Reserve's benchmark borrowing rate which increased a total of 100 basis points during 2023. 48 Management expects that the current economic environment will continue to increase competition for deposits, which may create additional upward pressure on the Company's cost of funds in the coming quarters.
Comparison of Results of Operations for the Years Ended December 31, 2022 and 2021 General: Net income was $5.6 million for the year ended December 31, 2022, or $0.49 per diluted share, an increase of $5.3 million compared to net income of $289 thousand, or $0.04 per diluted share, for the year ended December 31, 2021.
These increases were partially offset by a net loss of $12.0 million, and dividends paid of $4.9 million. 45 Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022 General: Net loss was $12.0 million for the year ended December 31, 2023, or ($0.67) per diluted share, a decrease of $17.6 million compared to net income of $5.6 million, or $0.49 per diluted share, for the year ended December 31, 2022.
Provision for Loan Losses: The provision for loan losses increased by $642 thousand from $648 thousand for the year ended December 31, 2021 to $1.3 million for the year ended December 31, 2022. The amount of the provision for loans losses recognized 42 during 2022 can be attributed to a few factors.
For the year ended December 31, 2023, the provision for credit losses consisted of $9.3 million related to loans, $90 thousand related to unfunded commitments, and a credit of $21 thousand related to securities. The amount of the provision for credit losses recognized during 2023 can be attributed to a few factors.
The decrease was primarily due to return of principal of $11.9 million and the changes in fair value. The securities available-for-sale portfolio had a net unrealized loss of $8.1 million at December 31, 2022 compared with a net unrealized gain of $2.3 million at December 31, 2021.
The securities available-for-sale portfolio had a net unrealized loss of $4.9 million at December 31, 2023 compared with a net unrealized loss of $8.1 million at December 31, 2022. Partially offsetting the increase in securities available-for-sale were proceeds from principal repayments of $8.3 million.
Cash $ 56,783 $ 533 0.94 % $ 35,279 $ 381 1.08 % Securities Taxable (1) 78,629 2,175 2.77 % 73,960 939 1.27 % Tax-Exempt 40,388 1,468 3.63 % 44,719 1,585 3.54 % Total Securities 119,017 3,643 3.06 % 118,679 2,524 2.13 % Total Cash Equiv. and Investments 175,800 4,176 2.38 % 153,958 2,905 1.89 % Total Loans (3) 795,908 36,396 4.57 % 369,849 15,924 4.31 % Total Interest-Earning Assets 971,708 40,572 4.18 % 523,807 18,829 3.59 % Other Assets 88,485 46,615 Total Assets $ 1,060,193 $ 570,422 Interest bearing demand $ 271,681 $ 1,713 0.63 % $ 175,133 $ 1,034 0.59 % Money market demand 229,979 1,911 0.83 % 112,511 198 0.18 % Time deposits 205,636 1,713 0.83 % 110,928 859 0.77 % Total Borrowings 55,980 1,942 3.47 % 14,881 299 2.01 % Total Interest-Bearing Liabilities 763,276 7,279 0.95 % 413,453 2,390 0.58 % Non Int Bearing Deposits 173,938 99,747 Total Cost of Funds $ 937,214 $ 7,279 0.78 % $ 513,200 $ 2,390 0.47 % Other Liabilities 15,806 5,965 Total Liabilities $ 953,020 $ 519,165 Shareholders' Equity $ 107,173 $ 51,257 Total Liabilities & Shareholders' Equity $ 1,060,193 $ 570,422 Net Interest Income/Spread (FTE) 33,293 3.22 % 16,439 3.01 % Tax-Equivalent Basis Adjustment (308 ) (333 ) Net Interest Income $ 32,985 $ 16,106 Net Interest Margin 3.39 % 3.07 % (1) Taxable income on securities includes income from available for sale securities and income from certificates of deposits with other banks.
Cash $ 55,501 $ 1,966 3.54 % $ 56,783 $ 533 0.94 % Securities Taxable (1) 84,860 3,260 3.84 % 78,629 2,175 2.77 % Tax-Exempt 38,591 1,495 3.87 % 40,388 1,468 3.63 % Total Securities 123,451 4,755 3.85 % 119,017 3,643 3.06 % Total Cash Equiv. and Investments 178,952 6,721 3.76 % 175,800 4,176 2.38 % Total Loans (3) 1,071,864 58,791 5.48 % 795,908 36,396 4.57 % Total Interest-Earning Assets 1,250,816 65,512 5.24 % 971,708 40,572 4.18 % Other Assets 106,267 88,485 Total Assets $ 1,357,083 $ 1,060,193 Interest bearing demand $ 269,615 $ 5,684 2.11 % $ 271,681 $ 1,713 0.63 % Money market demand 278,418 7,053 2.53 % 229,979 1,911 0.83 % Time deposits 301,101 9,901 3.29 % 205,636 1,713 0.83 % Total Borrowings (4) 90,468 3,849 4.25 % 55,980 1,942 3.47 % Total Interest-Bearing Liabilities 939,602 26,487 2.82 % 763,276 7,279 0.95 % Non Int Bearing Deposits 245,703 173,938 Total Cost of Funds $ 1,185,305 $ 26,487 2.23 % $ 937,214 $ 7,279 0.78 % Other Liabilities 19,850 15,806 Total Liabilities $ 1,205,155 $ 953,020 Shareholders' Equity $ 151,928 $ 107,173 Total Liabilities & Shareholders' Equity $ 1,357,083 $ 1,060,193 Net Interest Income/Spread (FTE) 39,025 2.42 % 33,293 3.22 % Tax-Equivalent Basis Adjustment (314 ) (308 ) Net Interest Income $ 38,711 $ 32,985 Net Interest Margin 3.09 % 3.39 % (1) Taxable income on securities includes income from available for sale securities and income from certificates of deposits with other banks.
Completion of 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 $34.7 million after deducting underwriting discounts and commissions of $2.5 million and other offering expenses of $1.1 million.
Effective November 4, 2022, The Gratz Bank legally changed its name and began to operate under one brand under the name LINKBANK. Completion of 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 following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities available for sale and held-to-maturity as of December 31, 2022. Weighted average yields have been computed on a fully taxable-equivalent 35 basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their contractual maturity date.
Weighted average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their contractual maturity date. 39 Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
The increase was primarily due to: Primary Cash Inflows • Cash provided by operating activities of $2.3 million; • Net increase in deposits of $175.1 million; • Proceeds from the IPO of $34.7 million; • Proceeds from the issuance of subordinated debt of $20.0 million; • Net cash from investment securities (sales, calls, maturities, and principal repayments) of $16.2 million; and • Proceeds from redemption of certificates of deposits with other banks of $7.2 million.
The increase was primarily due to: Primary Cash Inflows • Proceeds from sales of available for sale investment securities of $91.4 million; • Net cash acquired in the Partners Merger of $41.7 million; • Net increase in deposits of $51.8 million; • Net cash from investment securities (calls, maturities, and principal repayments) of $11.7 million; • Proceeds from redemption of certificates of deposits with other banks of $5.6 million; and • Net proceeds from issuance of common stock of $10.1 million.
Recent Market Conditions The Company’s financial condition and performance are all highly dependent on the business environment in the market area in which we operate and in the United States as a whole.
Recent Market Conditions The Company’s financial condition and performance are all highly dependent on the business environment in the market area in which we operate and in the United States as a whole. 2023’s major economic headwinds included the spring banking crisis, slower but still stubbornly high inflation, rising interest rates, and mounting geopolitical risks, including the war in Ukraine and the Israeli/Hamas war in Gaza.
For the Year Ended December 31, 2022 2021 (Dollars in thousands) Avg Bal Interest (2) Yield/Rate Avg Bal Interest (2) Yield/Rate Int. Earn.
Yields on earning assets are shown on a fully taxable-equivalent basis assuming a tax rate of 21%. 46 For the Year Ended December 31, 2023 2022 (Dollars in thousands) Avg Bal Interest (2) Yield/Rate Avg Bal Interest (2) Yield/Rate Int. Earn.
At December 31, 2022, the scheduled maturities of time deposits that meet or exceed the FDIC insurance limit or otherwise uninsured were as follows: (In Thousands) December 31, 2022 Due within 3 months or less $ 617 Due after 3 months and within 6 months 564 Due after 6 months and within 12 months 34,828 Due after 12 months 9,607 $ 45,616 At December 31, 2022 and 2021, other borrowings consisted of $0 and $19.8 million in borrowings under the Paycheck Protection Program Liquidity Facility (“PPPLF”), which were assumed as part of the Gratz Merger.
At December 31, 2023, the scheduled maturities of time deposits that meet or exceed the FDIC insurance limit or otherwise uninsured were as follows: (In Thousands) December 31, 2023 Due within 3 months or less $ 59,161 Due after 3 months and within 6 months 32,081 Due after 6 months and within 12 months 28,022 Due after 12 months 15,060 $ 134,324 At December 31, 2023 and 2022, other borrowings consisted of $10.0 million and $20.9 million, respectively in short-term FHLB Advances.
(In Thousands) Amount of Allowance Allocated Percent of Loans in Each Category to Total Loans Total Loans Ratio of Allowance Allocated to Loans in Each Category December 31, 2022 Agriculture loans $ 33 1.68 % $ 15,591 0.21 % Commercial loans 583 11.20 % 103,874 0.56 % Paycheck Protection Program ("PPP") loans — 0.09 % 881 — Commercial real estate loans 2,462 58.31 % 540,914 0.46 % Residential real estate loans 1,536 27.04 % 250,832 0.61 % Consumer and other loans 40 1.08 % 10,057 0.40 % Municipal loans 12 0.59 % 5,466 0.22 % Unallocated Allowance — Total $ 4,666 100.00 % $ 927,615 0.50 % December 31, 2021 Agriculture loans $ 23 1.31 % $ 9,341 0.25 % Commercial loans 582 13.79 % 98,604 0.59 % Paycheck Protection Program ("PPP") loans — 3.32 % 23,774 — Commercial real estate loans 799 47.37 % 338,749 0.24 % Residential real estate loans 1,634 32.35 % 231,302 0.71 % Consumer and other loans 22 0.99 % 7,087 0.31 % Municipal loans 15 0.86 % 6,182 0.24 % Unallocated Allowance 77 Total $ 3,152 100.00 % $ 715,039 0.44 % The allowance for loan losses increased $1.5 million from $3.2 million at December 31, 2021 to $4.7 million at December 31, 2022.
(In Thousands) Amount of Allowance Allocated Percent of Loans in Each Category to Total Loans Total Loans Ratio of Allowance Allocated to Loans in Each Category December 31, 2023 Agriculture loans $ 12 2.94 % $ 65,861 0.02 % Construction loans 959 7.96 % 178,483 0.54 % Commercial & industrial loans 2,940 10.63 % 238,343 1.23 % Commercial real estate loans - Multifamily 1,483 8.07 % 180,788 0.82 % Owner occupied 6,572 22.39 % 501,732 1.31 % Non-owner occupied 5,773 25.92 % 580,972 0.99 % Residential real estate loans - First liens 4,778 17.95 % 402,433 1.19 % Second liens and lines of credit 1,072 3.16 % 70,747 1.52 % Consumer and other loans 99 0.75 % 16,756 0.59 % Municipal loans 79 0.23 % 5,244 1.51 % Total $ 23,767 100.00 % $ 2,241,359 1.06 % December 31, 2022 Agriculture loans $ 33 1.68 % $ 15,591 0.21 % Commercial & industrial loans 583 11.20 % 103,874 0.56 % Paycheck Protection Program ("PPP") loans - 0.10 % 881 — Commercial real estate loans 2,462 58.31 % 540,914 0.46 % Residential real estate loans 1,536 27.04 % 250,832 0.61 % Consumer and other loans 40 1.08 % 10,057 0.40 % Municipal loans 12 0.59 % 5,466 0.22 % Total $ 4,666 100.00 % $ 927,615 0.50 % The allowance for credit losses increased $19.1 million from $4.7 million at December 31, 2022 to $23.8 million at December 31, 2023.
In connection with the announcement of the Partners Merger, LINKBANCORP completed a private placement of $10.0 million with certain directors of LINKBANCORP as well as other accredited investors. Completion of Gratz Merger On September 18, 2021, LINKBANCORP completed its merger with GNB Financial Services, Inc. (the “Gratz Merger”), with LINKBANCORP as the surviving corporation.
The Bank of Delmarva and Virginia Partners Bank merged with and into LINKBANK with LINKBANK as the surviving bank (the "Bank Mergers"). In connection with the announcement of the Partners Merger in the first quarter of 2023, LINKBANCORP completed a private placement of $10.0 million with certain directors of LINKBANCORP as well as other accredited investors.
Our allowance for loan losses and our credit fair value adjustment totaled $9.7 million and $10.2 million at December 31, 2022 and 2021, respectively, and represented 1.04% and 1.41% of our total gross loans, respectively. Additional information related to the provision for loan losses and net (charge-offs) recoveries is presented in the table below.
This is compared to $2.7 million of non-performing assets at December 31, 2022, which equated to 0.29% of gross loans. The increase in non-performing assets was due primarily to the Partners Merger. 43 Additional information related to the provision for credit losses and net (charge-offs) recoveries is presented in the table below.
Changes in the deposit types are presented in the table below: (in thousands) December 31, 2022 December 31, 2021 Change % Demand, noninterest-bearing $ 192,773 $ 129,243 $ 63,530 49.2 % Demand, interest-bearing 254,478 256,258 (1,780 ) (0.7 ) Money market and savings 228,048 205,843 22,205 10.8 Time deposits, $250,000 and over 45,616 56,266 (10,650 ) (18.9 ) Time deposits, other 225,857 124,055 101,802 82.1 Total deposits $ 946,772 $ 771,665 $ 175,107 22.7 % 39 Of the increase in total deposits of $175.1 million, brokered deposits of $70.0 million are included within time deposits, other, at December 31, 2022, compared to $0 at December 31, 2021.
Changes in the deposit types are presented in the table below: (in thousands) December 31, 2023 December 31, 2022 Change % Demand, noninterest-bearing $ 655,953 $ 192,773 $ 463,180 240.3 % Demand, interest-bearing 438,765 254,478 184,287 72.4 Money market and savings 577,448 228,048 349,400 153.2 Time deposits, $250,000 and over 134,324 45,616 88,708 194.5 Time deposits, other 491,983 225,857 266,126 117.8 Total deposits $ 2,298,473 $ 946,772 $ 1,351,701 142.8 % Of the increase in total deposits of $1.35 billion, brokered deposits of $119.4 million are included within time deposits, other, at December 31, 2023, compared to $70.0 million at December 31, 2022.
Refer to Note 6 of the Notes to the Consolidated Financial Statements for additional details on the provision for loan losses. Non-interest Income: Non-interest income increased by $818 thousand to $3.0 million for the year ended December 31, 2022, from the $2.1 million recognized during 2021.
Non-interest Income: Non-interest income decreased by $1.9 million to $1.1 million for the year ended December 31, 2023, from the $3.0 million recognized during 2022.
The increase in total assets was primarily due to the increases in loans receivable of $213.1 million, from $714.8 million at December 31, 2021 to $927.9 million at December 31, 2022 and securities held to maturity of $31.8 million, from zero at December 31, 2021 to $31.8 million at December 31, 2022.
The increase in total assets was primarily attributable to the increases in loans receivable of 141.6%, from $927.9 million at December 31, 2022 to $2.24 billion at December 31, 2023 and cash and cash equivalents which increased $50.2 million, from $30.0 million at December 31, 2022 to $80.2 million at December 31, 2023.
The increase was primarily due to an increase in gain on sale of loans of $437 thousand, and an increase in earnings on bank owned life insurance of $244 thousand for the year ended December 31, 2022 compared to 2021.
The decrease was primarily due to a decrease in net realized gain (loss) on the sale of debt securities of $2.4 million, and a decrease in the sale of the guaranteed portion of SBA loans of $288 thousand for the year ended December 31, 2023 compared to 2022.
(In Thousands) Provision Expense (Benefit) Net (Charge-Offs) Recoveries Average Loans Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans 2022 Agriculture loans $ 10 $ — $ 10,946 0.00 % Commercial loans (30 ) 31 96,517 0.03 Paycheck Protection Program ("PPP") loans — — 7,740 — Commercial real estate loans 1,663 — 430,235 — Residential real estate loans (292 ) 194 245,505 0.08 Consumer and other loans 19 (1 ) 8,824 (0.01 ) Municipal loans (3 ) — 5,812 — Unallocated (77 ) — — Total $ 1,290 $ 224 $ 805,580 0.03 % Excluding PPP loans $ 1,290 $ 224 $ 797,840 0.03 % 2021 Agriculture loans $ (97 ) $ — $ 9,386 0.00 % Commercial loans 294 (2 ) 43,102 (0.00 ) Paycheck Protection Program ("PPP") loans — — 6,523 — Commercial real estate loans 503 (18 ) 119,217 (0.02 ) Residential real estate loans 197 (265 ) 181,494 (0.15 ) Consumer and other loans (13 ) — 3,550 — Municipal loans (3 ) — 6,577 — Unallocated (233 ) — — Total $ 648 $ (285 ) $ 369,849 (0.08 )% Excluding PPP loans $ 648 $ (285 ) $ 363,326 (0.08 )% Total deposits grew by $175.1 million or 22.7%, from $771.7 million at December 31, 2021 to $946.8 million at December 31, 2022.
(In Thousands) Provision Expense (Benefit) Net (Charge-Offs) Recoveries Average Loans Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans 2023 Agriculture and farmland loans $ (77 ) $ — $ 53,708 — % Construction loans 133 — 66,509 — Commercial & industrial loans 1,970 (199 ) 119,104 (0.17 ) Commercial real estate loans Multifamily 566 — 117,865 — Owner occupied 3,361 — 172,012 — Non-owner occupied (475 ) — 297,944 — Residential real estate loans First liens 3,018 54 195,063 0.03 Second liens and lines of credit 589 61 33,942 0.18 Consumer and other loans 69 — 11,352 — Municipal loans 73 — 4,365 — Total $ 9,227 $ (84 ) $ 1,071,864 (0.01 )% 2022 Agriculture loans $ 10 $ — $ 10,946 — % Commercial loans (30 ) 31 96,517 0.03 Paycheck Protection Program ("PPP") loans — — 7,740 — Commercial real estate loans 1,663 — 430,235 — Residential real estate loans (292 ) 194 245,505 0.08 Consumer and other loans 19 (1 ) 8,824 (0.01 ) Municipal loans (3 ) — 5,812 — Unallocated (77 ) — — Total $ 1,290 $ 224 $ 805,579 0.03% Excluding PPP loans $ 1,290 $ 224 $ 797,839 0.03% Total deposits grew by $1.35 billion or 142.8%, from $946.8 million at December 31, 2022 to $2.30 billion at December 31, 2023 primarily as a result of deposits assumed in the Partners Merger.
Also see Note 6 - Allowance for Loan Losses in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Also see Note 5 - Allowance for Credit Losses in the accompanying notes to the consolidated financial statements included elsewhere in this report. The balances at December 31, 2022 were reclassified on January 1, 2023 in connection with the adoption of ASU 2016-13 as described in Note 1 of the Consolidated Financial Statements.
Also contributing to the decrease in securities available-for-sale were proceeds from calls and maturities of $1.2 million, and proceeds from sales of $513 thousand. The proceeds from available-for-sale securities sales and the net return of principal repayments were reinvested in 2022 into investment securities classified as held to maturity.
The proceeds from sales of available-for-sale securities and the net return of principal repayments were held within cash and cash equivalents at December 31, 2023 and reinvested into securities classified as held to maturity. The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities available for sale and held-to-maturity as of December 31, 2023.
Primary Cash Outflows • Net increase in loans receivable of $206.4 million; • Purchase of investment securities held to maturity of $34.4 million; and • Payment of dividends of $3.3 million. Securities available-for-sale decreased by $25.0 million, or 24.1%, to $78.8 million at December 31, 2022 from $103.8 million at December 31, 2021.
Primary Cash Outflows • Net increase in loans receivable of $65.9 million; • Net decrease in short-term borrowings of $65.6 million; • Purchase of investment securities held to maturity of $11.3 million; and • Payment of dividends of $4.9 million.
Certificates of deposit due within one year of December 31, 2022 totaled $206.2 million, or 76% of our certificates of deposit, and 22% of total deposits. Of these certificates of deposits, $70 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.
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.
The increase was primarily due to the full-year impact of the Gratz Merger, resulting in increases in (1) salaries and employee benefits of $9.2 million due to increased employee headcount from the combined company and also due to an increase in employees to facilitate loan growth and foster deposit relationships, (2) equipment and data processing of $1.6 million, and (3) FDIC insurance of $409 thousand, and (4) other expenses of $593 thousand.
The increase was primarily due to the impact of the Partners Merger, resulting in increases in (1) merger & system conversion related expenses which increased from $973 thousand for the year ended December 31, 2022 to $11.2 million for the year ended December 31, 2023, (2) salaries and employee benefits of $4.4 million due to increased headcount to accommodate the Company's growth, and (3) occupancy which also resulted from the expansion of the Company's geographic footprint due to the Partners Merger.
Immediately following the Gratz Merger, LINKBANK, a wholly-owned subsidiary of LINKBANCORP, merged with and into The Gratz Bank, a wholly-owned subsidiary of GNBF, with The Gratz Bank as the surviving bank. Effective November 4, 2022, The Gratz Bank legally changed its name and began to operate under one brand under the name LINKBANK. As described in Note 2.
Completion of Gratz Merger On September 18, 2021, LINKBANCORP completed its merger with GNB Financial Services, Inc. (the “Gratz Merger”), with LINKBANCORP as the surviving corporation. Immediately following the Gratz Merger, LINKBANK, a wholly-owned subsidiary of LINKBANCORP, merged with and into The Gratz Bank, a wholly-owned subsidiary of GNBF, with The Gratz Bank as the surviving bank.
These were partially offset by an increase in interest expense of $4.9 million, an increase in the provision for loan losses of $642 thousand, and an increase in noninterest expense of $10.3 million.
The decrease in net income was partially offset by an increase in interest and dividend income of $24.9 million and a decrease in income tax expense of $4.6 million.
Net income for the year ended December 31, 2022 reflected the results of the combined company following the completion of the Gratz Merger on September 18, 2021 whereas net income for the year ended December 31, 2021 reflected the results of GNBF for the period from January 1, 2021 through September 17, 2021 and the results of the combined company following the completion of the Gratz Merger on September 18, 2021 through December 31, 2021. 40 The increase in net income for the year ended December 31, 2022 as compared to the prior year was the result of an increase in interest and dividend income of $21.8 million, and an increase in noninterest income of $818 thousand.
The decrease in net income for the year ended December 31, 2023 as compared to the prior year was primarily the result of an increase in interest expense of $19.2 million, an increase in noninterest expense of $18.0 million due primarily to expenses related to the Partners Merger, and an increase in provision for credit losses of $8.0 million.

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