LMST Limestone Bancorp Inc

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.

         

LIMESTONE BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

  Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended 9/30/18 9/30/17 9/30/18 9/30/17

 

 

Income Statement Data Interest income $ 11,120 $ 9,446 $ 31,720 $ 27,805 Interest expense   2,708   1,659   6,753   4,689 Net interest income 8,412 7,787 24,967 23,116 Provision (negative provision) for loan losses   (350 )   —   (500 )   — Net interest income after provision 8,762 7,787 25,467 23,116   Service charges on deposit accounts 608 568 1,767 1,617 Bank card interchange fees 411 387 1,258 1,118 Bank owned life insurance income 100 103 337 309 Gain (loss) on sales and calls of securities, net — — (6 ) (5 ) Other   390   266   751   723 Non-interest income 1,509 1,324 4,107 3,762   Salaries & employee benefits 3,893 3,683 11,566 11,433 Occupancy and equipment 896 836 2,671 2,501 Professional fees 186 232 613 776 Marketing expense 259 364 867 880 FDIC insurance 118 356 439 1,055 Data processing expense 281 321 912 931 State franchise and deposit tax 282 225 846 675 Deposit account related expense 213 222 653 646 Other real estate owned expense 271 111 590 92 Litigation and loan collection expense 61 78 162 121 Other   770   889   2,485   2,585 Non-interest expense 7,230 7,317 21,804 21,695   Income before income taxes 3,041 1,794 7,770 5,183 Income tax expense   604   —   1,416   — Net income   2,437   1,794 6,354   5,183   Weighted average shares – Basic 7,455,316 6,259,864 7,059,472 6,245,418 Weighted average shares – Diluted 7,455,316 6,259,864 7,059,472 6,245,418   Basic earnings per common share $ 0.33 $ 0.29 $ 0.90 $ 0.83 Diluted earnings per common share $ 0.33 $ 0.29 $ 0.90 $ 0.83 Cash dividends declared per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00          

LIMESTONE BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

  Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended 9/30/18 9/30/17 9/30/18 9/30/17

 

 

Average Balance Sheet Data Assets $ 1,037,636 $ 951,687 $ 1,012,862 $ 943,813 Loans 748,444 669,592 735,874 657,980 Earning assets 968,876 907,723 942,748 899,859 Deposits 869,707 870,623 849,181 864,835 Long-term debt and advances 74,994 36,046 75,092 33,921 Interest bearing liabilities 810,917 777,597 790,517 772,824 Stockholders’ equity 87,486 39,159 83,183 36,656     Performance Ratios Return on average assets 0.93 % 0.75 % 0.84 % 0.73 % Return on average equity 11.05 18.18 10.21 18.90 Yield on average earning assets (tax equivalent) 4.56 4.16 4.51 4.17 Cost of interest bearing liabilities 1.32 0.85 1.14 0.81 Net interest margin (tax equivalent) 3.45 3.44 3.55 3.47 Efficiency ratio 72.88 80.31 74.98 80.70     Loan Charge-off Data Loans charged-off $ (143 ) $ (67 ) $ (483 ) $ (700 ) Recoveries   547   159   1,415   710 Net recoveries (charge-offs) $ 404 $ 92 $ 932 $ 10   Nonaccrual Loan Activity Nonaccrual loans at beginning of period $ 3,170 $ 6,509 $ 5,457 $ 9,216 Net principal pay-downs (816 ) (1,068 ) (2,470 ) (4,464 ) Charge-offs (55 ) (57 ) (265 ) (528 ) Loans foreclosed and transferred to OREO — (130 ) (730 ) (270 ) Loans returned to accrual status (77 ) — (77 ) (199 ) Loans placed on nonaccrual during the period   470   515   777   2,014 Nonaccrual loans at end of period $ 2,692 $ 5,769 $ 2,692 $ 5,769   Troubled Debt Restructurings (TDRs) Accruing $ 910 $ 1,226 $ 910 $ 1,226 Nonaccrual   700   1,932   700   1,932 Total $ 1,610 $ 3,158 $ 1,610 $ 3,158   Other Real Estate Owned (OREO) Activity OREO at beginning of period $ 4,510 $ 6,318 $ 4,409 $ 6,821 Real estate acquired — 130 730 270 Valuation adjustment write-downs (260 ) (98 ) (585 ) (98 ) Proceeds from sales of properties (522 ) (30 ) (876 ) (738 ) Gain (loss) on sales, net   22   10   72   75 OREO at end of period $ 3,750 $ 6,330 $ 3,750 $ 6,330              

LIMESTONE BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

  Three Three Three Three Three Months Months Months Months Months Ended Ended Ended Ended Ended   9/30/18 6/30/18 3/31/18   12/31/17   9/30/17   Income Statement Data Interest income $ 11,120 $ 10,585 $ 10,015 $ 9,717 $ 9,446 Interest expense   2,708   2,211   1,834   1,716   1,659 Net interest income 8,412 8,374 8,181 8,001 7,787 Provision (negative provision) for loan losses   (350 )   (150 )   —   (800 )   — Net interest income after provision 8,762 8,524 8,181 8,801 7,787   Service charges on deposit accounts 608 591 568 636 568 Bank card interchange fees 411 446 401 403 387 Bank owned life insurance income 100 138 99 103 103 Gain (loss) on sales and calls of securities, net — (6 ) — 293 — Other   390   178   183   207   266 Non-interest income 1,509 1,347 1,251 1,642 1,324   Salaries & employee benefits 3,893 3,885 3,788 3,657 3,683 Occupancy and equipment 896 880 895 919 836 Professional fees 186 222 205 202 232 Marketing expense 259 308 300 218 364 FDIC insurance 118 139 182 357 356 Data processing expense 281 307 324 325 321 State franchise and deposit tax 282 282 282 281 225 Deposit account related expense 213 221 219 250 222 Other real estate owned expense 271 237 82 1,881 111 Litigation and loan collection expense 61 48 53 58 78 Other   770   876   839   924   889 Non-interest expense 7,230 7,405 7,169 9,072 7,317   Income before income taxes 3,041 2,466 2,263 1,371 1,794 Income tax expense (benefit)   604   483   329   (31,899 )   — Net income $ 2,437 $ 1,983 $ 1,934 $ 33,270 $ 1,794   Weighted average shares – Basic 7,455,316 7,424,742 6,285,420 6,259,864 6,259,864 Weighted average shares – Diluted 7,455,316 7,424,742 6,285,420 6,259,864 6,259,864   Basic earnings per common share $ 0.33 $ 0.27 $ 0.31 $ 5.31 $ 0.29 Diluted earnings per common share $ 0.33 $ 0.27 $ 0.31 $ 5.31 $ 0.29 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)

    As of   9/30/18   6/30/18   3/31/18     12/31/17     9/30/17   Assets Loans $ 757,051 $ 749,234 $ 729,432 $ 712,115 $ 682,511 Allowance for loan losses   (8,634 )   (8,580 )   (8,526 )   (8,202 )   (8,977 ) Net loans 748,417 740,654 720,906 703,913 673,534 Loans held for sale — — — 70 — Securities held to maturity — — — — 41,424 Securities available for sale 184,870 178,896 160,812 152,720 149,797 Federal funds sold & interest bearing deposits 31,761 33,534 30,073 25,966 37,812 Cash and due from financial institutions 5,770 7,013 7,610 8,137 9,557 Premises and equipment 17,027 16,813 16,789 16,789 16,975 Bank owned life insurance 15,551 15,456 15,323 15,229 15,131 FHLB Stock 7,233 7,323 7,323 7,323 7,323 Other real estate owned 3,750 4,510 4,385 4,409 6,330 Deferred taxes, net 30,230 30,623 30,997 31,313 — Accrued interest receivable and other assets   5,882   5,699   5,886   4,932   5,082 Total Assets $ 1,050,491 $ 1,040,521 $ 1,000,104 $ 970,801 $ 962,965   Liabilities and Equity Certificates of deposit $ 457,239 $ 435,454 $ 431,921 $ 424,235 $ 445,577 Interest checking 87,407 88,955 92,048 99,383 94,523 Money market 159,499 150,048 150,974 151,388 156,905 Savings   34,320   35,220   35,984   34,632   35,946 Total interest bearing deposits 738,465 709,677 710,927 709,638 732,951 Demand deposits   135,561   136,553   135,984   137,386   133,896 Total deposits 874,026 846,230 846,911 847,024 866,847 FHLB advances 51,591 71,630 26,752 11,797 16,847 Junior subordinated debentures 21,000 21,000 23,025 23,250 23,475 Senior debt 10,000 10,000 10,000 10,000 10,000 Accrued interest payable and other liabilities   5,662   5,262   5,186   6,057   5,728 Total liabilities 962,279 954,122 911,874 898,128 922,897   Preferred stockholders’ equity — — 2,771 2,771 2,771 Common stockholders’ equity   88,212   86,399   85,459   69,902   37,297 Total stockholders’ equity   88,212   86,399   88,230   72,673   40,068 Total Liabilities and Stockholders’ Equity $ 1,050,491 $ 1,040,521 $ 1,000,104 $ 970,801 $ 962,965   Ending shares outstanding 7,456,590 7,454,993 7,409,864 6,259,864 6,259,864 Book value per common share $ 11.83 $ 11.59 $ 11.53 $ 11.17 $ 5.96 Tangible book value per common share 11.83 11.59 11.53 11.17 5.96    

LIMESTONE BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

    As of   9/30/18     6/30/18     3/31/18     12/31/17     9/30/17 Quarterly Performance Ratios Return on average assets 0.93 % 0.79 % 0.79 % 13.75 % 0.75 % Return on average equity 11.05 8.97 10.71 318.85 18.18 Yield on average earning assets (tax equivalent) 4.56 4.51 4.45 4.24 4.16 Cost of interest bearing liabilities 1.32 1.13 0.96 0.88 0.85 Net interest margin (tax equivalent) 3.45 3.57 3.63 3.50 3.44 Efficiency ratio 72.88 76.13 76.01 97.03 80.31   Asset Quality Data Nonaccrual loans $ 2,692 $ 3,170 $ 4,370 $ 5,457 $ 5,769 Troubled debt restructurings on accrual 910 916 922 1,217 1,226 Loan 90 days or more past due still on accrual   —   —   —   1   — Total non-performing loans 3,602 4,086 5,292 6,675 6,995 Real estate acquired through foreclosures 3,750 4,510 4,385 4,409 6,330 Other repossessed assets   —   —   —   —   — Total non-performing assets $ 7,352 $ 8,596 $ 9,677 $ 11,084 $ 13,325   Non-performing loans to total loans 0.48 % 0.55 % 0.73 % 0.94 % 1.02 % Non-performing assets to total assets 0.70 0.83 0.97 1.14 1.38 Allowance for loan losses to non-performing loans 239.70 209.99 161.11 122.88 128.33   Allowance for loan losses to total loans 1.14 % 1.15 % 1.17 % 1.15 % 1.32 %   Loans by Risk Category Pass $ 736,193 $ 720,446 $ 695,507 $ 673,033 $ 633,203 Watch 12,314 19,091 17,938 25,715 35,167 Special Mention 114 115 162 164 598 Substandard 8,430 9,582 15,825 13,203 13,543 Doubtful   —   —   —   —   — Total $ 757,051 $ 749,234 $ 729,432 $ 712,115 $ 682,511   Loans by Past Due Status Past due loans: 30 – 59 days $ 1,492 $ 1,134 $ 6,402 $ 1,478 $ 872 60 – 89 days 929 538 472 171 612 90 days or more — — — 1 — Nonaccrual loans   2,692   3,170   4,370   5,457   5,769 Total past due and nonaccrual loans $ 5,113 $ 4,842 $ 11,244 $ 7,107 $ 7,253   Risk-based Capital Ratios - Company Tier I leverage ratio 8.91 % 8.70 % 9.18 % 7.11 % 5.85 % Common equity Tier I risk-based capital ratio 9.21 8.92 8.98 6.92 5.49 Tier I risk-based capital ratio 10.83 10.41 11.03 8.44 7.31 Total risk-based capital ratio 12.07 11.76 12.56 10.55 10.05   Risk-based Capital Ratios – Limestone Bank Tier I leverage ratio 9.51 % 9.37 % 9.31 % 8.70 % 7.73 % Common equity Tier I risk-based capital ratio 11.56 11.23 11.18 10.35 9.66 Tier I risk-based capital ratio 11.56 11.23 11.18 10.35 9.66 Total risk-based capital ratio 12.60 12.26 12.43 11.61 11.10   FTE employees 215 217 214 217 217  

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   9/30/18     6/30/18     3/31/18     12/31/17     9/30/17   Efficiency Ratio (in thousands)   Net interest income $ 8,412 $ 8,374 $ 8,181 $ 8,001 $ 7,787 Non-interest income 1,509 1,347 1,251 1,642 1,324 Less: Net gain (loss) on securities   —   (6 )   —   293   —   Revenue used for efficiency ratio   9,921   9,727   9,432   9,350   9,111   Non-interest expense 7,230 7,405 7,169 9,072 7,317   Efficiency ratio 72.88 % 76.13 % 76.01 % 97.03 % 80.31 %     Nine Months Ended   9/30/18         9/30/17   Efficiency Ratio (in thousands)   Net interest income $ 24,967 $ 23,116 Non-interest income 4,107 3,762 Less: Net gain (loss) on securities   (6 )   (5 ) Revenue used for efficiency ratio   29,080     26,883   Non-interest expense 21,804 21,695   Efficiency ratio 74.98 % 80.70 %

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