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Merger | 3 Months Ended
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Mar. 31, 2022
Business Combinations [Abstract] |
Merger | 2. MERGER Effective September 18, 2021 the Company completed its merger with GNBF by acquiring 100% of the outstanding common shares of GNBF. Pursuant to the Merger Agreement, GNBF merged with and into LINKBANCORP, Inc. with LINKBANCORP, Inc. as the surviving corporation. Additionally, LINKBANK, the wholly owned subsidiary of LINKBANCORP, Inc. merged with and into The Gratz Bank, a wholly owned subsidiary of GNBF with The Gratz Bank as the surviving bank subsidiary of the Company. This transaction, in total, is herein referred to as the Merger. The Merger constituted a business combination and was accounted for as a reverse acquisition using the acquisition method of accounting, in accordance with the provisions of FASB ASC 805 Business Combinations. As such, GNBF was the accounting acquirer and LINKBANCORP, Inc. was the accounting acquiree and the historical financial statements of the combined company are the historical financial statements of GNBF. Under the Merger Agreement, GNBF shareholders had the opportunity to elect to receive $87.68 per share in cash or 7.3064 of LINKBANCORP, Inc. common shares for each share they own. The agreement provided for proration procedures intended to ensure that, in the aggregate, at least 80% of the GNBF common shares outstanding be exchanged for LINKBANCORP, Inc. common stock. The Merger was effective on September 18, 2021, with the GNBF shareholders collectively electing to receive cash for 14.865% of their shares and LINKBANCORP, Inc. common shares for 85.135% of existing GNBF shares. These elections resulted in LINKBANCORP issuing 4.85 million common shares to GNBF shareholders which represented approximately 49.4% of the post-merger outstanding common shares of the Company. In accordance with FASB ASC 805-40-30-2, the fair value consideration of a reverse acquisition is determined based on a number of hypothetical equity interest the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition. The total fair value consideration was $71.5 million which consisted of $54.0 million for the fair value of common stock issued, $10.1 million in cash consideration and $7.4 million for the fair value of LINKBANCORP, Inc. options and warrants. The consideration assigned to cash and common stock in this reverse acquisition was determined based on the hypothetical number of equity interests that GNBF would have had to issue to give LINK shareholders a 50.62% ownership, the same percentage equity interest in the combined entity that results from the reverse acquisition. The allocation of the consideration assigned to cash and common stock was allocated between the actual cash to be paid by the legal acquirer with the resultant amount being assigned to common equity. The following table summarizes the fair value consideration paid for GNBF as of the date of acquisition:
(Dollars in thousands except per share amounts) |  |  |
Total GNBF common shares outstanding |  |  | 779,000 |
GNBF shares outstanding exchanged for LINKBANCORP, Inc. common stock |  |  | 663,240 |
GNBF shares outstanding exchanged for cash |  |  | 115,760 |
Exchange Ratio |  |  | 7.3064 |
LINKBANCORP, Inc. shares to be issued to GNBF shareholders |  |  | 4,845,897 |
LINKBANCORP, Inc. Shares currently outstanding |  |  | 4,968,550 |
Total LINKBANCORP, Inc. shares to be outstanding |  |  | 9,814,447 |
GNBF pro forma common share % ownership |  |  | 49.38 | %
LINKBANCORP, Inc. pro forma common share % ownership |  |  | 50.62 | %
Reverse Acquisition Hypothetical Purchase Price Consideration |  |  |
GNBF shares outstanding exchanged for LINKBANCORP, Inc. common stock |  |  | 663,240 |
Ownership % to be owned by current GNBF shareholders |  |  | 49.38 | %
Hypothetical GNBF shares outstanding based on GNBF % ownership |  |  | 1,343,267 |
Ownership % by legacy LINKBANCORP, Inc. shareholders |  |  | 50.62 | %
Hypothetical GNBF shares to be issued as consideration |  |  | 680,027 |
Fair value of GNBF shares (LINKBANCORP, Inc. fair value per share of $12.90 as of 9/17/2021 multiplied by the exchange rate) |  | $ | 94.25 |
Purchase price assigned to hypothetical GNBF shares issued to LINKBANCORP, Inc. shareholders |  | $ | 64,094 |
LINKBANCORP, Inc. options and warrants |  |  | 1,962,484 |
Fair value per options and warrants |  | $ | 3.76 |
Purchase price assigned to LINKBANCORP, Inc. options and warrants |  |  | 7,379 |
Total purchase price consideration |  | $ | 71,473 |
Pro Forma Purchase Price Allocation Between Stock & Cash: |  |  |
Cash consideration |  | $ | 10,077 |
Common Stock |  |  | 61,396 |
Total Purchase Price For Accounting Purposes |  | $ | 71,473 |
The Company accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, for each transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition. In conjunction with the adoption of ASU 2015-16, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition date, the Company records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. The Company is continuing to finalize the fair values of loans, intangible assets, and income taxes. As a result, the recorded fair value adjustments are preliminary and may change as additional information becomes available. Based on management's preliminary valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Merger is allocated in the table below.
Total Consideration in the Merger |  |  | $ | 71,473 |
Calculated Fair Value of Assets Acquired |  |  |  |
| Cash and cash equivalents | $ | 49,962 |  |  |
| Securities available for sale |  | 3,111 |  |  |
| Loans |  | 415,905 |  |  |
| Premises and equipment |  | 2,087 |  |  |
| Right-of-use asset |  | 4,544 |  |  |
| Intangible assets |  | 1,246 |  |  |
| Investment in bank owned life insurance |  | 4,784 |  |  |
| Deferred taxes |  | 3,675 |  |  |
| Other assets |  | 4,394 |  |  |
Total Assets Acquired |  | 489,708 |  |  |
Calculated Fair Value of Liabilities Assumed |  |  |  |
| Deposits |  | 391,160 |  |  |
| Long term borrowings |  | 33,034 |  |  |
| Subordinated debt |  | 20,740 |  |  |
| Operating lease liabilities |  | 4,544 |  |  |
| Other liabilities |  | 2,265 |  |  |
Total Liabilities Assumed |  | 451,743 |  |  |
Net Assets Acquired |  |  |  | 37,965 |
Goodwill From the Merger |  |  | $ | 33,508 |
The following table summarizes the Merger as of September 18, 2021:
Total Consideration in the Merger |  |  |  | $ | 71,473 |
LINKBANCORP, Inc. stockholders’ equity |  | $ | 43,124 |  |  |
LINKBANCORP, Inc. goodwill and intangibles |  |  | (1,353 | ) |  |
Fair Value Adjustments: |  |  |  |  |
Loans |  |  |  |  |
Interest rate |  |  | (1,521 | ) |  |
General credit |  |  | (6,346 | ) |  |
Credit adjustment for loans acquired with deteriorated credit quality |  |  | (1,243 | ) |  |
Remove existing deferred loan fees, net at acquisition |  |  | 1,192 |  |  |
Remove the allowance for loan losses present at acquisition |  |  | 4,953 |  |  |
Intangible assets |  |  | 1,146 |  |  |
Other assets |  |  | (991 | ) |  |
Time deposits |  |  | (231 | ) |  |
Subordinated debt |  |  | (765 | ) |  |
|  |  |  |  | 37,965 |
Goodwill From the Merger |  |  | $ | 33,508 |
Pursuant to the accounting requirements, the Company assigned a fair value to the assets acquired and liabilities assumed of LINKBANCORP, Inc. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The assets acquired and liabilities assumed in the acquisition of LINKBANCORP, Inc. were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition. The items most susceptible to adjustment are the fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition. Fair values of the major categories of assets acquired and liabilities assumed were determined as follows: Investment securities available-for-sale The estimated fair values of the investment securities available for sale, primarily comprised of U.S. Government agency mortgage-backed securities were determined using Level 1 and Level 2 inputs in the fair value hierarchy. A fair value premium of $96 thousand was recorded and will be amortized over the estimated life of the investments using the interest rate method. Loans Acquired loans (performing and non-performing) are initially recorded at their acquisition-date fair values using Level 3 inputs. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected lifetime losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Company has prepared three separate loan fair value adjustments that it believed a market participant might employ in estimating the entire fair value adjustment for the acquired loan portfolio. The three fair value adjustments employed were for loans acquired without evidence of credit quality deterioration, the Company prepared the interest rate loan fair value and credit fair value adjustments and for ASC 310-30 purchased credit impaired loans a specific credit fair value adjustment was made. The acquired loans were recorded at fair value at the acquisition date without carryover of LINKBANCORP, Inc.’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with an unpaid principal balance of $425.0 million. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present the fair value of the loans acquired.
Unpaid principal balance at Merger |  | $ | 425,015 |
Interest rate fair value adjustment on pools of homogeneous loans |  |  | (1,520 | )
Credit fair value adjustment on pools of homogeneous loans |  |  | (6,347 | )
Credit fair value adjustment on purchased credit impaired loans |  |  | (1,243 | )
Fair value of acquired loans |  | $ | 415,905 |
For loans acquired without evidence of credit quality deterioration were grouped into homogeneous pools by characteristics such as loan type, term, collateral, and rate. Market rates for similar loans were obtained from various internal and external data sources. From each pool a monthly expected cash flow was prepared that incorporated expected monthly payments, impact of prepayments and expected monthly net charge-offs. A discounted cash flow was calculated for each pool to estimate the fair value. In this analysis the fair value adjustment was bifurcated into two components an interest rate fair value adjustment and a general credit fair value adjustment. Additionally, it is noted the credit fair value adjustment incorporated assumptions for: 1) expected lifetime credit migration losses; and 2) estimated fair value adjustment for certain qualitative factors. Both the interest rate and credit fair value adjustments relate to loans acquired with evidence of credit quality deterioration will be substantially recognized as interest income on a level yield amortization method over the expected life of the loans. For loans acquired with evidence of credit quality deterioration, ASC 310-30 loans, the fair value was calculated with a non-accretable fair value discount based on an adjusted collateral value and if there was a collateral shortfall a non-accretable discount was established. This non-accretable discount would not be amortized for GAAP purposes. In additional an accretable yield fair value discount was created to reflect the time value of money a market participant would discount the loan for the time it would take to recover the adjusted collateral value. The accretable yield fair value will be recognized over the workout period of the loan on a level yield basis as a component of interest income. The following table presents the acquired purchased credit impaired loans receivable at the Merger Date:
Contractual principal and interest at Merger |  | $ | 8,509 |
Nonaccretable difference |  |  | (2,716 | )
Expected cash flows at Merger |  |  | 5,793 |
Accretable yield |  |  | (409 | )
Fair value of purchased credit impaired loans |  | $ | 5,384 |
Facilities Leases The Company assumed leases on four facilities of LINKBANCORP, Inc. The Company believed that the current lease costs were at market terms therefore no fair value adjustment is needed. LINKBANCORP, Inc. did not operate any owned facilities. Core Deposit Intangible The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate commensurate with market participants. To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the higher cost of alternative funding sources available through national brokered CD offering rates and FHLB advance rates. The projected cash flows were developed using expected deposit attrition. The core deposit intangible will be amortized over ten years using the sum-of-years digits method. Time Deposits The fair value adjustment for time deposits was based on a discounted cash flow methodology of the contract rates and contractual repayments of fixed maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit fair value adjustment will be amortized into income on a level yield amortization method over the contractual life of the deposits. Long Term Borrowings The Company reviewed the cost of the borrowings to market interest rates for similar instruments and believed that the rates were comparable and that no fair value adjustment was recorded. Subordinated Debt The fair value of the subordinated debt was determined using a discounted cash flow method using a market participant discount rate for similar instruments. The subordinated debt fair value adjustment will be amortized into income on a level yield amortization method based upon the assumed market rate and the term of the subordinated debt. Pro Forma Combined Results of Operations The following pro forma financial information presents the consolidated results of operations of GNBF and LINKBANCORP, Inc. as if the Merger occurred as of January 1, 2021 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of discounts (premiums) associated with the fair value adjustments of acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustments to acquired time deposits and other debt, and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2021. Merger related expenses incurred by the Company during the three months ended March 31, 2021 are not reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had GNBF merged with LINKBANCORP, Inc. at the beginning of 2021. The pro forma amounts for the three months ended March 31, 2021 do not reflect the anticipated cost savings that had not yet been realized.
|  |  | Three months ended March 31, |
(Dollars in thousands) |  |  | 2021 |
Net interest income |  |  | $ | 6,283 |
Non-interest income |  |  |  | 680 |
Net income (loss) |  |  |  | 4,190 |
Basic earnings (loss) per common share |  |  | $ | 0.44 |
Diluted earnings (loss) per common share |  |  | $ | 0.43 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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