Limestone Bancorp Reports Net Income of $2.4 million, or $0.33 per Diluted Share for the 3rd Quarter of 2018

Limestone Bancorp, Inc. (NASDAQ: LMST) (“the Company”), parent company of Limestone Bank (“the Bank”), today reported unaudited results for the third quarter of 2018. Net income for the third quarter of 2018 was $2.4 million, or $0.33 per basic and diluted common share, compared with $1.8 million, or $0.29 per basic and diluted share, for the third quarter of 2017. Net income for the nine months ended September 30, 2018, was $6.4 million, or $0.90 per diluted common share, compared with net income of $5.2 million, or $0.83 per diluted share, for the nine months ended September 30, 2017.

Net income before taxes was $3.0 million and $7.8 million for the third quarter of 2018 and for the first nine months of 2018, respectively compared to $1.8 million and $5.2 million for the third quarter and first nine months of 2017, respectively. Income tax expense was $604,000 and $1.4 million for the third quarter of 2018 and for the first nine months of 2018, respectively. The Company did not have income tax expense in 2017 as its deferred tax assets were subject to a full valuation allowance during the first nine months of 2017. The valuation allowance was fully reversed in the fourth quarter of 2017.

Net Interest Income – Net interest income increased to $8.4 million for the third quarter of 2018, compared with $7.8 million in the third quarter of 2017. Average loans increased to $748.4 million for the third quarter of 2018, compared with $669.6 million in the third quarter of 2017. Net interest margin increased to 3.45% in the third quarter of 2018, compared with 3.44% in the third quarter of 2017 reflecting higher interest rates on interest earning assets, net of the impact of the rise in funding costs.

The yield on earning assets increased to 4.56% in the third quarter of 2018, compared to 4.16% in the third quarter of 2017 and cost of interest bearing liabilities was 1.32% in the third quarter of 2018, compared to 0.85% in the third quarter of 2017.

On a sequential quarter basis, interest expense was under pressure due to the rising interest rate environment and the competition for deposits. Third quarter 2018 net interest income increased $38,000, or 0.5% from the second quarter of 2018, while net interest margin declined 12 basis points to 3.45% for the third quarter of 2018 from 3.57% for the second quarter of 2018. Yields on earning assets increased to 4.56% for the third quarter of 2018 from 4.51% for the second quarter of 2018 and the cost of interest bearing liabilities increased to 1.32% for the third quarter of 2018 from 1.13% for the second quarter of 2018. As of September 30, 2018, the Bank’s twelve-month interest bearing deposit beta was 50% of the movement in the Federal Reserve’s target federal funds rate, which increased 100 basis points over the same period.

Net interest income increased to $25.0 million for the first nine months of 2018, compared with $23.1 million in the first nine months of 2017. Average loans increased to $735.9 million for the first nine months of 2018, compared with $658.0 million in the first nine months of 2017. Net interest margin increased to 3.55% in the first nine months of 2018, compared with 3.47% in the first nine months of 2017.

The yield on earning assets increased to 4.51% in the first nine months of 2018, compared to 4.17% in the first nine months of 2017 and cost of interest bearing liabilities was 1.14% in the first nine months of 2018, compared to 0.81% in the first nine months of 2017.

Provision and Allowance for Loan Losses – Because of continuing improvement in asset quality, the level of net loan recoveries during the period, and management’s assessment of risk in the loan portfolio, a negative provision for loan losses of $350,000 and $500,000 was recorded for the third quarter 2018 and the first nine months of 2018, respectively, compared to no provision in the third quarter or first nine months of 2017.

The allowance for loan losses to total loans was 1.14% at September 30, 2018, compared to 1.15% at June 30, 2018, and 1.32% at September 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 $404,000 and $932,000, respectively, for the three and nine months ended September 30, 2018, compared to net loan recoveries of $92,000 and $10,000, respectively, for the three and nine months ended September 30, 2017.

Non-performing Assets – Non-performing assets, which include loans on nonaccrual, accruing troubled debt restructurings, loans past due 90 days and still accruing, and other real estate owned (“OREO”), decreased to $7.4 million, or 0.70% of total assets at September 30, 2018, compared with $8.6 million, or 0.83% of total assets at June 30, 2018, and $13.3 million, or 1.38% of total assets at September 30, 2017. Non-performing loans decreased to $3.6 million, or 0.48% of total loans at September 30, 2018, compared with $4.1 million, or 0.55% of total loans at June 30, 2018, and from $7.0 million, or 1.02% of total loans at September 30, 2017. The decrease from the previous quarter was primarily driven by $816,000 in principal payments received on nonaccrual loans, partially offset by $470,000 in loans placed on non-accrual during the period.

OREO at September 30, 2018, decreased to $3.8 million, compared with $4.5 million at June 30, 2018, and decreased compared to $6.3 million at September 30, 2017. The Company did not acquire any new OREO and sold $522,000 in OREO during the third quarter of 2018. Fair value write-downs arising from lower marketing prices totaled $260,000 in the third quarter of 2018, compared with write-downs of $98,000 in the third quarter of 2017.

Non-interest Income and Expense – Non-interest income for the third quarter of 2018 increased $185,000 to $1.5 million, compared with $1.3 million for the third quarter of 2017. The increase from the third quarter of 2017 was due to increases in service charges on deposit accounts as well as the sale of the Bank’s fully amortized secondary market residential mortgage servicing rights portfolio during the third quarter of 2018, which resulted in a one-time gain of approximately $150,000. The gain on sale is included in other non-interest income. The Bank no longer sells residential mortgages on a servicing retained basis to the secondary market.

Non-interest expense decreased $87,000 to $7.2 million for the third quarter of 2018, compared with $7.3 million for the third quarter of 2017. The decrease from the third quarter of 2017 was primarily due to a decrease in FDIC insurance expense of $238,000 attributable to the Bank’s improved risk profile, a $105,000 decrease in marketing expenses, and a $119,000 decrease in other non-interest expense, which was partially offset by an increase in salaries and employee benefits of $210,000 and an increase in OREO expense of $160,000, due primarily to increased fair value write-downs as compared to the third quarter of 2017.

Capital – At September 30, 2018, the Bank’s Tier 1 leverage ratio was 9.51%, compared with 9.37% at June 30, 2018, and its Total risk-based capital ratio was 12.60% at September 30, 2018, compared with 12.26% at June 30, 2018. At September 30, 2018, the Bank’s Common equity Tier I risk-based capital ratio was 11.56%, compared with 11.23% at June 30, 2018. At September 30, 2018, the Company’s Tier 1 leverage ratio was 8.91%, compared with 8.70% at June 30, 2018, and its Total risk-based capital ratio was 12.07%, compared with 11.76% at June 30, 2018. At September 30, 2018, the Company’s Common equity Tier I risk-based capital ratio was 9.21%, compared with 8.92% at June 30, 2018.

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 third quarter ending September 30, 2018, follows.

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.

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