Limestone Bancorp Reports Net Income of $2.0 million or $0.27 per Diluted Share for the 2nd Quarter of 2018 and $3.9 million or $0.57 per Diluted Share for the Six Months Ended June 30, 2018

Limestone Bancorp, Inc. (NASDAQ: LMST) (“the Company”), parent company of Limestone Bank (“the Bank”), today reported unaudited results for the second quarter of 2018. Net income available to common shareholders for the second quarter of 2018 was $2.0 million, or $0.27 per basic and diluted common share, compared with $1.7 million, or $0.27 per basic and diluted share, for the second quarter of 2017. Net income available to common shareholders for the six months ended June 30, 2018, was $3.9 million, or $0.57 per diluted common share, compared with net income available to common shareholders of $3.3 million, or $0.54 per diluted share, for the six months ended June 30, 2017.

Basic and diluted earnings per common share for the second quarter of 2018 and the first six months of 2018 were impacted by the Company’s issuance of 1.150 million shares of common and non-voting common stock on March 30, 2018. The share issuance raised $14.95 million of new common capital for the Company of which $5.0 million was contributed to the Bank.

Net Interest Income – Net interest income before provision expense increased to $8.4 million for the second quarter of 2018, compared with $7.6 million in the second quarter of 2017. Average loans increased to $734.7 million for the second quarter of 2018, compared with $654.8 million in the second quarter of 2017. Net interest margin increased to 3.57% in the second quarter of 2018, compared with 3.42% in the second quarter of 2017.

The yield on earning assets increased to 4.51% in the second quarter of 2018, compared to 4.11% in the second quarter of 2017 and cost of interest bearing liabilities was 1.13% in the second quarter of 2018, compared to 0.80% in the second quarter of 2017.

Net interest income before provision expense increased to $16.6 million for the first six months of 2018, compared with $15.3 million in the first six months of 2017. Average loans increased to $729.5 million for the first six months of 2018, compared with $652.1 million in the first six months of 2017. Net interest margin increased to 3.60% in the first six months of 2018, compared with 3.49% in the first six months of 2017.

The yield on earning assets increased to 4.48% in the first six months of 2018, compared to 4.17% in the first six months of 2017 and cost of interest bearing liabilities was 1.05% in the first six months of 2018, compared to 0.79% in the first six months of 2017.

Provision and Allowance for Loan Losses – Because of continuing improvement in asset quality and management’s assessment of risk in the loan portfolio, a negative provision for loan losses of $150,000 was recorded in the second quarter and for the first six months of 2018, compared to no provision in the second quarter or first six months of 2017.

The allowance for loan losses to total loans was 1.15% at June 30, 2018, compared to 1.17% at March 31, 2018, and 1.36% at June 30, 2017. The reduced level of the allowance in 2018, compared to 2017 was primarily driven by declining charge-off levels and improving trends in credit quality. Net loan recoveries were $528,000 for the first six months of 2018, compared to net loan charge-offs of $82,000 for the first six months of 2017.

Non-performing Assets – Non-performing assets, which include loans past due 90 days and still accruing, loans on nonaccrual, and other real estate owned (“OREO”), decreased to $7.7 million, or 0.74% of total assets at June 30, 2018, compared with $8.8 million, or 0.88% of total assets at March 31, 2018, and $12.8 million, or 1.34% of total assets at June 30, 2017. Non-performing loans decreased to $3.2 million, or 0.42% of total loans at June 30, 2018, compared with $4.4 million, or 0.60% of total loans at March 31, 2018, and from $6.5 million, or 0.99% of total loans at June 30, 2017. The decrease from the previous quarter was primarily driven by $659,000 in principal payments received on nonaccrual loans, as well as $620,000 in loans transferred to OREO.

OREO at June 30, 2018, increased to $4.5 million, compared with $4.4 million at March 31, 2018, and decreased compared to $6.3 million at June 30, 2017. The Company acquired $620,000 in OREO and sold $284,000 in OREO during the second quarter of 2018. Fair value write-downs arising from lower marketing prices totaled $265,000 in the second quarter of 2018, compared with no write-downs in the second quarter of 2017.

In addition to nonaccrual loans and OREO, loans classified as Troubled Debt Restructures (TDRs) and on accrual totaled $916,000 at June 30, 2018, compared to $922,000 at March 31, 2018 and $1.2 million at June 30, 2017.

Non-interest Income and Expense – Non-interest income for the second quarter of 2018 increased $101,000 to $1.3 million, compared with $1.2 million for the second quarter of 2017. The increase from the second quarter of 2017 was primarily due to an increase in bankcard interchange fees of $52,000 as well as a $43,000 increase in service charges on deposit accounts.

Non-interest expense increased $280,000 to $7.4 million for the second quarter of 2018, compared with $7.1 million for the second quarter of 2017. The increase from the second quarter of 2017 was primarily due to an increase in OREO expense of $240,000 which was primarily attributable to fair value write-downs arising from lower marketing prices.

Capital – At June 30, 2018, the Bank’s Tier 1 leverage ratio was 9.37%, compared with 9.31% at March 31, 2018, and its Total risk-based capital ratio was 12.26% at June 30, 2018, compared with 12.43% at March 31, 2018. At June 30, 2018, the Bank’s Common equity Tier I risk-based capital ratio was 11.23%, compared with 11.18% at March 31, 2018. At June 30, 2018, the Company’s Tier 1 leverage ratio was 8.70%, compared with 9.18% at March 31, 2018, and its Total risk-based capital ratio was 11.76%, compared with 12.56% at March 31, 2018. At June 30, 2018, the Company’s Common equity Tier I risk-based capital ratio was 8.92%, compared with 8.98% at March 31, 2018.

On June 26, 2018, the Company completed the repurchase and retirement of all of its issued and outstanding Series E and Series F Non-Voting Perpetual Preferred Shares for an aggregate price of $3.504 million paid in cash. The Series E and Series F Shares had an aggregate liquidation preference of $10.5 million.

Deferred Tax Assets and Liabilities – The Company has a net deferred tax asset of $30.6 million at June 30, 2018. Deferred tax assets and liabilities are shown below:

			June 30,				December 31,
			2018				2017
			(in thousands)
Deferred tax assets:
Net operating loss carry-forward			$	24,795			$	25,645
Allowance for loan losses				1,802				1,723
Other real estate owned write-down				2,500				2,432
Other				2,393				2,388
				31,490				32,188
Deferred tax liabilities:
FHLB stock dividends				557				557
Other				310				318
				867				875
Net deferred tax asset			$	30,623			$	31,313

About Limestone Bancorp, Inc.

Limestone Bancorp, Inc. (NASDAQ: LMST) is a Louisville, Kentucky-based bank holding company which operates banking centers in 12 counties through its wholly-owned subsidiary Limestone Bank. The Bank’s markets include metropolitan Louisville in Jefferson County and the surrounding counties of Henry and Bullitt, and extend south along the Interstate 65 corridor. The Bank serves southern and south central Kentucky from banking centers in Butler, Green, Hart, Edmonson, Barren, Warren, Ohio and Daviess counties. The Bank also has a banking center in Lexington, Kentucky, the second largest city in the state. Limestone Bank is a traditional community bank with a wide range of personal and business banking products and services.

Forward-Looking Statements

Statements in this press release relating to Limestone Bancorp’s plans, objectives, expectations or future performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “possible,” “seek,” “plan,” “strive” or similar words, or negatives of these words, identify forward-looking statements that involve risks and uncertainties. Although the Company's management believes the assumptions underlying the forward-looking statements contained herein are reasonable, any of these assumptions could be inaccurate. Therefore, there can be no assurance the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from those discussed in forward-looking statements include, but are not limited to: economic conditions both generally and more specifically in the markets in which the Company and its subsidiaries operate; competition for the Company's customers from other providers of financial services; government legislation and regulation, which change from time to time and over which the Company has no control; changes in interest rates; material unforeseen changes in liquidity, results of operations, or financial condition of the Company's customers; and other risks detailed in the Company's filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company. See Risk Factors outlined in the Company's Form 10-K for the year ended December 31, 2017.

Additional Information

Unaudited supplemental financial information for the second quarter ending June 30, 2018, follows.

LIMESTONE BANCORP, INC. Unaudited Financial Information (in thousands, except share and per share data)
			Three				Three				Three				Six				Six
			Months				Months				Months				Months				Months
			Ended				Ended				Ended				Ended				Ended
			6/30/18				3/31/18				6/30/17				6/30/18				6/30/17
Income Statement Data
Interest income			$	10,585			$	10,015			$	9,134			$	20,600			$	18,359
Interest expense				2,211				1,834				1,546				4,045				3,030
Net interest income				8,374				8,181				7,588				16,555				15,329
Provision (negative provision) for loan losses				(150	)			—				—				(150	)			—
Net interest income after provision				8,524				8,181				7,588				16,705				15,329
Service charges on deposit accounts				591				568				548				1,159				1,049
Bank card interchange fees				446				401				394				847				731
Bank owned life insurance income				138				99				104				237				206
Gain (loss) on sales and calls of securities, net				(6	)			—				(5	)			(6	)			(5	)
Other				178				183				205				361				457
Non-interest income				1,347				1,251				1,246				2,598				2,438
Salaries & employee benefits				3,885				3,788				3,803				7,673				7,750
Occupancy and equipment				880				895				844				1,775				1,665
Professional fees				222				205				241				427				544
Marketing expense				308				300				262				608				516
FDIC insurance				139				182				357				321				699
Data processing expense				307				324				318				631				610
State franchise and deposit tax				282				282				225				564				450
Deposit account related expense				221				219				219				440				424
Other real estate owned expense				237				82				(3	)			319				(19	)
Litigation and loan collection expense				48				53				40				101				43
Other				876				839				819				1,715				1,696
Non-interest expense				7,405				7,169				7,125				14,574				14,378
Income before income taxes				2,466				2,263				1,709				4,729				3,389
Income tax expense				483				329				—				812				—
Net income				1,983				1,934				1,709				3,917				3,389
Less:
Earnings allocated to participating securities				27				34				42				66				88
Net income available to common			$	1,956			$	1,900			$	1,667			$	3,851			$	3,301
Weighted average shares – Basic				7,323,237				6,173,397				6,096,981				6,743,113				6,076,112
Weighted average shares – Diluted				7,323,237				6,173,397				6,096,981				6,743,113				6,076,112
Basic earnings per common share			$	0.27			$	0.31			$	0.27			$	0.57			$	0.54
Diluted earnings per common share			$	0.27			$	0.31			$	0.27			$	0.57			$	0.54
Cash dividends declared per common share			$	0.00			$	0.00			$	0.00			$	0.00			$	0.00

LIMESTONE BANCORP, INC. Unaudited Financial Information (in thousands, except share and per share data)
			Three				Three				Three				Six				Six
			Months				Months				Months				Months				Months
			Ended				Ended				Ended				Ended				Ended
			6/30/18				3/31/18				6/30/17				6/30/18				6/30/17
Average Balance Sheet Data
Assets			$	1,013,008			$	987,390			$	941,982			$	1,000,270			$	939,811
Loans				734,709				724,203				654,801				729,485				652,078
Earning assets				943,023				915,762				899,393				929,468				895,862
Deposits				842,757				834,695				870,138				838,748				861,893
Long-term debt and advances				76,209				74,063				29,759				75,142				32,840
Interest bearing liabilities				783,123				777,140				773,301				780,148				770,397
Stockholders’ equity				88,701				73,205				37,018				80,996				35,384
Performance Ratios
Return on average assets				0.79	%			0.79	%			0.73	%			0.79	%			0.73	%
Return on average equity				8.97				10.71				18.52				9.75				19.31
Yield on average earning assets (tax equivalent)				4.51				4.45				4.11				4.48				4.17
Cost of interest bearing liabilities				1.13				0.96				0.80				1.05				0.79
Net interest margin (tax equivalent)				3.57				3.63				3.42				3.60				3.49
Efficiency ratio				76.13				76.01				80.61				76.07				80.90
Loan Charge-off Data
Loans charged-off			$	(293	)		$	(47	)		$	(307	)		$	(340	)		$	(633	)
Recoveries				497				371				226				868				551
Net recoveries (charge-offs)			$	204			$	324			$	(81	)		$	528			$	(82	)
Nonaccrual Loan Activity
Nonaccrual loans at beginning of period			$	4,370			$	5,457			$	8,102			$	5,457			$	9,216
Net principal pay-downs				(659	)			(995	)			(1,944	)			(1,654	)			(3,396	)
Charge-offs				(209	)			(1	)			(242	)			(210	)			(471	)
Loans foreclosed and transferred to OREO				(620	)			(110	)			(40	)			(730	)			(140	)
Loans returned to accrual status				—				—				(63	)			—				(199	)
Loans placed on nonaccrual during the period				288				19				696				307				1,499
Nonaccrual loans at end of period			$	3,170			$	4,370			$	6,509			$	3,170			$	6,509
Troubled Debt Restructurings (TDRs)
Accruing			$	916			$	922			$	1,235			$	916			$	1,235
Nonaccrual				700				1,362				1,967				700				1,967
Total			$	1,616			$	2,284			$	3,202			$	1,616			$	3,202
Other Real Estate Owned (OREO) Activity
OREO at beginning of period			$	4,385			$	4,409			$	6,571			$	4,409			$	6,821
Real estate acquired				620				110				40				730				140
Valuation adjustment write-downs				(265	)			(60	)			—				(325	)			—
Proceeds from sales of properties				(284	)			(70	)			(320	)			(354	)			(708	)
Gain (loss) on sales, net				54				(4	)			27				50				65
OREO at end of period			$	4,510			$	4,385			$	6,318			$	4,510			$	6,318

LIMESTONE BANCORP, INC. Unaudited Financial Information (in thousands, except share and per share data)
			As of
			6/30/18				3/31/18				12/31/17				9/30/17				6/30/17
Assets
Loans			$	749,234			$	729,432			$	712,115			$	682,511			$	654,938
Allowance for loan losses				(8,580	)			(8,526	)			(8,202	)			(8,977	)			(8,885	)
Net loans				740,654				720,906				703,913				673,534				646,053
Loans held for sale				—				—				70				—				—
Securities held to maturity				—				—				—				41,424				41,635
Securities available for sale				178,896				160,812				152,720				149,797				154,993
Federal funds sold & interest bearing deposits				33,534				30,073				25,966				37,812				51,413
Cash and due from financial institutions				7,013				7,610				8,137				9,557				9,297
Premises and equipment				16,813				16,789				16,789				16,975				17,164
Bank owned life insurance				15,456				15,323				15,229				15,131				15,033
FHLB Stock				7,323				7,323				7,323				7,323				7,323
Other real estate owned				4,510				4,385				4,409				6,330				6,318
Deferred taxes, net				30,623				30,997				31,313				—				—
Accrued interest receivable and other assets				5,699				5,886				4,932				5,082				5,228
Total Assets			$	1,040,521			$	1,000,104			$	970,801			$	962,965			$	954,457
Liabilities and Equity
Certificates of deposit			$	435,454			$	431,921			$	424,235			$	445,577			$	458,068
Interest checking				88,955				92,048				99,383				94,523				97,169
Money market				150,048				150,974				151,388				156,905				153,700
Savings				35,220				35,984				34,632				35,946				36,363
Total interest bearing deposits				709,677				710,927				709,638				732,951				745,300
Demand deposits				136,553				135,984				137,386				133,896				129,518
Total deposits				846,230				846,911				847,024				866,847				874,818
FHLB advances				71,630				26,752				11,797				16,847				2,158
Junior subordinated debentures				21,000				23,025				23,250				23,475				23,700
Senior debt				10,000				10,000				10,000				10,000				10,000
Accrued interest payable and other liabilities				5,262				5,186				6,057				5,728				5,388
Total liabilities				954,122				911,874				898,128				922,897				916,064
Preferred stockholders’ equity				—				2,771				2,771				2,771				2,771
Common stockholders’ equity				86,399				85,459				69,902				37,297				35,622
Total stockholders’ equity				86,399				88,230				72,673				40,068				38,393
Total Liabilities and Stockholders’ Equity			$	1,040,521			$	1,000,104			$	970,801			$	962,965			$	954,457
Ending shares outstanding				7,454,993				7,409,864				6,259,864				6,259,864				6,259,864
Book value per common share			$	11.59			$	11.53			$	11.17			$	5.96			$	5.69
Tangible book value per common share				11.59				11.53				11.17				5.96				5.69

LIMESTONE BANCORP, INC. Unaudited Financial Information (in thousands, except share and per share data)
			As of
			6/30/18				3/31/18				12/31/17				9/30/17				6/30/17
Asset Quality Data
Loan 90 days or more past due still on accrual			$	—			$	—			$	1			$	—			$	—
Nonaccrual loans				3,170				4,370				5,457				5,769				6,509
Total non-performing loans				3,170				4,370				5,458				5,769				6,509
Real estate acquired through foreclosures				4,510				4,385				4,409				6,330				6,318
Other repossessed assets				—				—				—				—				—
Total non-performing assets			$	7,680			$	8,755			$	9,867			$	12,099			$	12,827
Non-performing loans to total loans				0.42	%			0.60	%			0.77	%			0.85	%			0.99	%
Non-performing assets to total assets				0.74				0.88				1.02				1.26				1.34
Allowance for loan losses to non-performing loans				270.66				195.10				150.27				155.61				136.50
Allowance for loans evaluated individually			$	319			$	282			$	219			$	425			$	254
Loans evaluated individually for impairment				4,557				5,775				7,173				7,509				8,273
Allowance as % of loans evaluated individually				7.00	%			4.88	%			3.05	%			5.66	%			3.07	%
Allowance for loans evaluated collectively			$	8,261			$	8,244			$	7,983			$	8,552			$	8,631
Loans evaluated collectively for impairment				744,677				723,657				704,942				675,002				646,665
Allowance as % of loans evaluated collectively				1.11	%			1.14	%			1.13	%			1.27	%			1.33	%
Allowance for loan losses to total loans				1.15	%			1.17	%			1.15	%			1.32	%			1.36	%
Loans by Risk Category
Pass			$	720,446			$	695,507			$	673,033			$	633,203			$	610,356
Watch				19,091				17,938				25,715				35,167				29,433
Special Mention				115				162				164				598				604
Substandard				9,582				15,825				13,203				13,543				14,545
Doubtful				—				—				—				—				—
Total			$	749,234			$	729,432			$	712,115			$	682,511			$	654,938
Loans by Past Due Status
Past due loans:
30 – 59 days			$	1,134			$	6,402			$	1,478			$	872			$	1,328
60 – 89 days				538				472				171				612				765
90 days or more				—				—				1				—				—
Nonaccrual loans				3,170				4,370				5,457				5,769				6,509
Total past due and nonaccrual loans			$	4,842			$	11,244			$	7,107			$	7,253			$	8,602
Risk-based Capital Ratios - Company
Tier I leverage ratio				8.70	%			9.18	%			7.11	%			5.85	%			5.65	%
Common equity Tier I risk-based capital ratio				8.92				8.98				6.92				5.49				5.58
Tier I risk-based capital ratio				10.41				11.03				8.44				7.31				7.46
Total risk-based capital ratio				11.76				12.56				10.55				10.05				10.44
Risk-based Capital Ratios – Limestone Bank
Tier I leverage ratio				9.37	%			9.31	%			8.70	%			7.73	%			7.54	%
Common equity Tier I risk-based capital ratio				11.23				11.18				10.35				9.66				9.97
Tier I risk-based capital ratio				11.23				11.18				10.35				9.66				9.97
Total risk-based capital ratio				12.26				12.43				11.61				11.10				11.50
FTE employees				217				214				217				217				221

Non-GAAP Financial Measures Reconciliation

The efficiency ratio is a non-GAAP measure of expense control relative to revenue from net interest income and fee income. The efficiency ratio is calculated by dividing total non-interest expenses as determined under GAAP by net interest income and total non-interest income, but excluding net gains on the sale of securities from the calculation. Management believes this provides a reasonable measure of primary banking expenses relative to primary banking revenue.

			Three Months Ended												Six Months Ended
			6/30/18				3/31/18				6/30/17				6/30/18				6/30/17
Efficiency Ratio			(in thousands)
Net interest income			$	8,374			$	8,181			$	7,588			$	16,555			$	15,329
Non-interest income				1,347				1,251				1,246				2,598				2,438
Less: Net gain (loss) on securities				(6	)			—				(5	)			(6	)			(5	)
Revenue used for efficiency ratio				9,727				9,432				8,839				19,159				17,772
Non-interest expense				7,405				7,169				7,125				14,574				14,378
Efficiency ratio				76.13 %				76.01 %				80.61 %				76.07 %				80.90 %

View source version on businesswire.com: https://www.businesswire.com/news/home/20180718005094/en/