2023 Community Bank Case Study Competition Journal

2023 COMMUNITY BANK CASE STUDY COMPETITION

Earnings Performance

LINKBANK’s net income from 2020-2022 is $4,193M, $289M, and $5,598M respectively. When adjusting for one-time expenses, the bank’s income is $4,193M, $4,873, and $6,571. While income appears to be growing healthily, it is concerning that the bank doubled in size in Q3 of 2021 but could only grow net income 34.8% YoY in 2022 even with conversion-related

2019

2021

LNKB Financials (thousands)

2018

2020

2022

$3,802

$4,006 $4,193 $289 $5,598

Net Income $

$3,802 $4,006 $4,193 $4,873 $6,571

Adjusted Net Income

Net Interest Income

$11,052 $11,804 $11,390 $15,458 $31,695

NIM

3.20% 3.24% 2.80% 2.76% 3.02%

ROA

1.10% 1.04% 0.98% 0.03% 0.48%

Adjusted ROA

1.10% 1.10% 1.03% 0.87% 0.63%

Efficiency ratio

49.8% 49.0% 52.1% 85.1% 64.4%

Adjusted Efficiency Ratio

49.8% 49.0% 52.1% 62.8% 62.2%

from the initial collapse. LINKBANK has faced adversity before and will have to do so again within the near future. Part I: Financial Analysis We conducted a financial analysis of LINKBANK using 10-K filings and data from the Uniform Bank Performance Report. Over the past five years LINKBANK was formed, grew organically, completed a reverse merger in 2021, completed an IPO in September of 2022, and is preparing for a merger of equals in 2023. During this period, LINKBANK experienced very high levels of growth, more than ten times in size in terms of assets. We also created a peer group of banks based on geography, and a range of asset size and market cap. We found that LINKBANK is positioned well to navigate the current high interest rate environment, and with opportunities to grow earnings, especially earned interest income.

expenses taken out of the equation. Interest and dividend income from 2020-2022 was $11,494M, $15,924M, and $40,264M. The interest expense during this same period was $2,717M, $2,390, and $7,279. With rates rapidly increasing during 2022, interest income and expense are expected to grow at a rate disproportionate to the bank’s assets. The net interest income generated an NIM of 2.65%, 2.76%, and 3.02% during these years. The bank has been highly focused on growing loans and customers rather than margins during the past three years. Now, we are told the bank is placing the highest emphasis on growing deposits, specifically non-interest bearing deposits so that NIM will improve. The final piece of the income statement worth analyzing is the Other Comprehensive Loss. Recent news within the banking industry has highlighted the importance of monitoring losses from AFS securities. Even though this is a non-cash

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