Limestone Bancorp Reports Net Income of $3.6 Million, or $0.49 Per Diluted Share, for the 2nd Quarter of 2019 and $6.5 Million, or $0.87 Per Diluted Share, for the Six Months Ended June 30, 2019

Limestone Bancorp, Inc. (NASDAQ: LMST) (“the Company”), parent company of Limestone Bank (“the Bank”), today reported unaudited results for the second quarter of 2019. Net income available to common shareholders for the second quarter of 2019 was $3.6 million, or $0.49 per basic and diluted common share, compared with $2.0 million, or $0.27 per basic and diluted share, for the second quarter of 2018. Net income for the six months ended June 30, 2019, was $6.5 million, or $0.87 per diluted common share, compared with net income of $3.9 million, or $0.57 per diluted share, for the six months ended June 30, 2018.

Net income before taxes was $3.0 million and $6.0 million for the second quarter of 2019 and for the first six months of 2019, respectively, compared to $2.5 million and $4.7 million for the second quarter and first six months of 2018, respectively. Income tax benefit was $611,000 and $488,000 for the second quarter of 2019 and for the first six months of 2019, respectively, compared to income tax expense of $483,000 and $812,000 for the second quarter of 2018 and for the first six months of 2018, respectively.

Income Taxes – During the first quarter of 2019, the Company benefitted $341,000, or $0.05 per basic and diluted share, from the establishment of a net deferred tax asset related to a change in Kentucky tax law enacted during the quarter. The new law eliminates the Kentucky bank franchise tax, which is assessed at a rate of 1.1% of average capital, and implements a state income tax for the Bank at a statutory rate of 5%. The new Kentucky income tax will go into effect on January 1, 2021.

In addition, the Company had state net operating loss carryforwards (“NOLs”) of $30.2 million, which were previously subject to a full valuation allowance and will begin to expire in 2025. In April 2019, tax legislation was enacted which allowed for certain Kentucky NOLs to be utilized in a combined filing return. Therefore, the Company will begin filing a Kentucky combined filing in 2021, and as a result, a state NOL tax benefit, net of federal impact, of $1.2 million, or approximately $0.16 per basic and diluted share, was recognized in the second quarter of 2019.

Net Interest Income – Net interest income decreased to $8.8 million for the second quarter of 2019, compared with $9.0 million in the first quarter of 2019 and increased from $8.4 million in the second quarter of 2018. Average loans increased to $793.5 million for the second quarter of 2019, compared to $766.5 million for the first quarter of 2019 and $734.7 million for the second quarter of 2018. Net interest margin decreased to 3.42% in the second quarter of 2019, compared with 3.61% for the first quarter of 2019 and 3.57% for the second quarter of 2018.

The yield on earning assets decreased to 4.81% for the second quarter of 2019, compared to 4.90% for the first quarter of 2019 and increased from 4.51% in the second quarter of 2018. Loan fee income can meaningfully impact net interest income, loan yields, and net interest margin. The amount of loan fee income included in total interest income was $167,000, $546,000, and $92,000 for the quarters ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. This represents six basis points, 22 basis points, and four basis points of yield on earning assets and net interest margin for the quarters ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. The cost of interest bearing liabilities was 1.68% for the second quarter of 2019, compared to 1.57% for the first quarter of 2019 and 0.42% for the second quarter of 2018.

Net interest income increased to $17.8 million for the first six months of 2019, compared with $16.6 million in the first six months of 2018. Average loans increased to $780.0 million for the first six months of 2019, compared to $729.5 million for the first six months of 2018. Net interest margin decreased to 3.51% in the first six months of 2019, compared with 3.60% for the first six months of 2018.

The yield on earning assets increased to 4.86% for the first six months of 2019, compared to 4.48% for the first six months of 2018. The amount of loan fee income included in total interest income was $713,000 and $189,000 for the six months ended June 30, 2019 and June 30, 2018, respectively. This represents 14 basis points and four basis points of yield on earning assets and net interest margin for the six months ended June 30, 2019 and 2018, respectively. The cost of interest bearing liabilities was 1.62% for the first six months of 2019, compared to 1.05% in the first six months of 2018.

Provision and Allowance for Loan Losses – The allowance for loan losses to total loans was 1.10% at June 30, 2019, compared to 1.10% at March 31, 2019, and 1.15% at June 30, 2018. Net loan recoveries were $146,000 and net loan charge-offs of $48,000, respectively, for the three and six months ended June 30, 2019, compared to net loan recoveries of $204,000 and $528,000, respectively, for the three and six months ended June 30, 2018. Based upon historically strong trends in asset quality and management’s assessment of risk in the loan portfolio, no provision for loan losses was recorded for the three and six months ended June 30, 2019, compared to a negative provision for loan loss of $150,000 recorded for the three and six months ended June 30, 2018.

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”), remained unchanged at $6.2 million, or 0.55% of total assets, at June 30, 2019, compared with $6.2 million, or 0.57% of total assets, at March 31, 2019, and decreased compared to $8.6 million, or 0.83% of total assets, at June 30, 2018. Non-performing loans increased to $2.9 million, or 0.37% of total loans, at June 30, 2019, compared with $2.8 million, or 0.36% of total loans, at March 31, 2019, and decreased from $4.1 million, or 0.55% of total loans, at June 30, 2018.

OREO decreased to $3.2 million at June 30, 2019, compared with $3.3 million at March 31, 2019, and $4.5 million at June 30, 2018. Fair value write-downs arising from changing marketing strategies totaled $110,000 and $260,000 for the three and six months ended June 30, 2019, respectively, compared to $265,000 and $325,000 for the three and six months ended June 30, 2018, respectively.

Non-interest Income and Expense – Non-interest income for the second quarter of 2019 increased $99,000 to $1.4 million, compared with $1.3 million for the second quarter of 2018. The increase from the second quarter of 2018 was primarily due to an increase in bank card interchange fees of $150,000. Non-interest expense decreased $181,000, or 2.4% to $7.2 million for the second quarter of 2019, compared with $7.4 million for the second quarter of 2018. The decrease from the second quarter of 2018 was primarily due to a decrease of $96,000 in marketing expense and $95,000 in OREO expense.

Non-interest income for the first six months of 2019 increased $132,000 to $2.7 million, compared with $2.6 million for the first six months of 2018. The increase was primarily due to an increase in bank card interchange fees of $257,000 partially offset by a decrease in service charges on deposit accounts of $92,000. Non-interest expense decreased $69,000, or 0.5% to $14.5 million for the first six months of 2019, compared with $14.6 million for the first six months of 2018. The decrease was primarily due to decreases of $169,000 in marketing expense and $110,000 in FDIC insurance expense partially offset by an increase in salaries and employee benefits of $157,000, or 2.0%, and an increase in deposit account related expense of $151,000.

Capital – At June 30, 2019, the Bank’s Tier 1 leverage ratio was 10.01%, compared with 9.88% at March 31, 2019, and its Total risk-based capital ratio was 13.26% at June 30, 2019, compared with 13.01% at March 31, 2019. At June 30, 2019, the Company’s Tier 1 leverage ratio was 9.46%, compared with 9.30% at March 31, 2019, and its Total risk-based capital ratio was 12.56%, compared with 12.32% at March 31, 2019. At June 30, 2019, the Company’s Common equity Tier 1 risk-based capital ratio was 9.82%, compared with 9.57% at March 31, 2019.

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, 2018.

Additional Information
Unaudited supplemental financial information for the second quarter ending June 30, 2019, 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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John T. Taylor
Chief Executive Officer
(502) 499-4800