LMST Limestone Bancorp Inc

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 %  

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Limestone Bancorp, Inc.John T. Taylor, 502-499-4800Chief Executive Officer