Limestone Bancorp, Inc. (NASDAQ: LMST) (“the Company”), parent company of Limestone Bank (“the Bank”), today reported unaudited results for the fourth quarter of 2018. Net income for the fourth quarter of 2018 was $2.4 million, or $0.33 per basic and diluted common share, compared with $33.3 million, or $5.31 per basic and diluted share, for the fourth quarter of 2017. Net income for the year ended December 31, 2018, was $8.8 million, or $1.23 per basic and diluted common share, compared with $38.5 million, or $6.15 per basic and diluted common share, for the year ended December 31, 2017.

Net income before taxes was $10.8 million for the year ended December 31, 2018, compared with $6.6 million for the year ended December 31, 2017. Income tax expense was $2.0 million for 2018 and income tax benefit was $31.9 million for 2017 due to the reversal of the Company’s deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enactment of the Tax Cuts and Jobs Act of 2017.

Net Interest Income – Net interest income was $8.7 million for the fourth quarter of 2018, compared to $8.4 million in the third quarter of 2018, and $8.0 million in the fourth quarter of 2017. Average loans increased to $765.5 million for the fourth quarter of 2018, compared with $748.4 million in the third quarter of 2018, and $695.6 million for the fourth quarter of 2017. Net interest margin was relatively stable at 3.46% for the fourth quarter of 2018, compared to 3.45% for the third quarter of 2018, and 3.50% for the fourth quarter of 2017.

The yield on earning assets increased to 4.66% for the fourth quarter of 2018, compared to 4.56% for the third quarter of 2018, and 4.24% for the fourth quarter of 2017. The cost of interest bearing liabilities was 1.46% for the fourth quarter of 2018, compared to 1.32% for the third quarter of 2018, and 0.88% for the fourth quarter of 2017.

Net interest income increased to $33.7 million for the year ended December 31, 2018, compared with $31.1 million for 2017. Average loans increased to $743.4 million for 2018, compared with $667.5 million for 2017. Net interest margin increased to 3.53% for 2018, compared with 3.48% for 2017. The yield on earning assets increased to 4.55% for the year ended December 31, 2018, compared to 4.18% for 2017 and cost of interest bearing liabilities was 1.23% for 2018, compared to 0.83% for 2017.

Provision and Allowance for Loan Losses – Because of 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 $500,000 was recorded for the year ended December 31, 2018, compared to a negative provision for loan losses of $800,000 for 2017. No provision was recorded in the fourth quarter of 2018, compared to a negative provision of $800,000 in the fourth quarter of 2017.

The allowance for loan losses to total loans was 1.16% at December 31, 2018, compared to 1.14% at September 30, 2018, and 1.15% at December 31, 2017. Net loan recoveries were $1.2 million for 2018, compared to net loan recoveries of $35,000 for 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 $6.4 million, or 0.60% of total assets at December 31, 2018, compared with $7.4 million, or 0.70% of total assets at September 30, 2018, and $11.1 million, or 1.14% of total assets, at December 31, 2017. Non-performing loans decreased to $2.9 million, or 0.38% of total loans at December 31, 2018, compared with $3.6 million, or 0.48% of total loans at September 30, 2018, and $6.7 million, or 0.94% of total loans, at December 31, 2017. The decrease from the previous year was primarily driven by $3.6 million in principal payments received on nonaccrual loans, $730,000 of nonaccrual loans migrating to OREO, and $293,000 of charge-offs offset by $1.2 million in loans placed on nonaccrual during 2018.

OREO at December 31, 2018, decreased to $3.5 million, compared with $3.8 million at September 30, 2018, and $4.4 million at December 31, 2017. During the year, the Company sold $876,000 in OREO and acquired $730,000 in new OREO properties. Fair value write-downs arising from changing marketing strategies and new appraisals totaled $850,000 for 2018, compared to $2.0 million for 2017.

Non-interest Income and Expense – Non-interest income increased $375,000 to $5.8 million for the year ended December 31, 2018, compared with $5.4 million for the year ended December 31, 2017. The increase between years was primarily attributable to a $310,000 increase in bank card interchange fees, a $232,000 increase in other non-interest income, and a $102,000 increase in service charges on deposit accounts, partially offset by a reduction in the gain on sales of securities of $294,000.

The $232,000 net increase in other non-interest income for 2018 includes a $150,000 third quarter gain on sale of the Bank’s secondary market residential mortgage servicing rights portfolio, as well as a $632,000 fourth quarter gain on sale of a subdivided lot at the Company’s headquarters, partially offset by a $392,000 fourth quarter impairment charge associated with the transfer of the Bank’s data processing center to Premises Held for Sale.

In December 2018, the Bank completed a core system conversion, which Management believes will provide opportunities for work flow efficiencies and improvements in customer experience. In connection with the completion of the core systems conversion, Management approved the closure of its central data processing facility. Support services personnel will be relocated from the bank-owned data processing facility to other nearby facilities in 2019. In December 2018, the data processing facility was transferred to Premises Held For Sale at fair value, as determined by an independent third party appraisal, less estimated cost to sell. The transfer to held for sale resulted in the $392,000 impairment charge noted above, which is included in other non-interest income. Upon sale of the facility, Management expects to realize annual occupancy expense savings of approximately $200,000.

Non-interest income increased $30,000 to $1.7 million for the fourth quarter of 2018, compared with $1.6 million for the fourth quarter of 2017. The increase was due primarily to a $204,000 increase in other non-interest income as described in the paragraph above and a $170,000 increase in bank card interchange fees, partially offset by a reduction in net gain on sale of securities of $293,000 as compared to 2017.

Non-interest expense decreased $1.6 million to $29.1 million for the year ended December 31, 2018, compared with $30.8 million for the year ended December 31, 2017. The decrease in non-interest expense was due primarily to a $1.1 million decrease in OREO expense and a $855,000 decrease in FDIC insurance attributable to the Bank’s improved risk profile, partially offset by a $399,000 increase in salaries and employee benefits.

Non-interest expense decreased $1.8 million to $7.3 million for the fourth quarter of 2018, compared with $9.1 million for the fourth quarter of 2017. The decrease from the fourth quarter of 2017 was primarily due to a decrease in OREO expense of $1.6 million as well as a decrease in FDIC insurance expense of $239,000 attributable to the Bank’s improved risk profile. This decrease was partially offset by an increase in salaries and employee benefits of $266,000.

Capital – At December 31, 2018, the Bank’s Tier 1 leverage ratio was 9.60%, compared with 8.70% at December 31, 2017, and its Total risk-based capital ratio was 12.88% at December 31, 2018, compared with 11.61% at December 31, 2017. At December 31, 2018, the Company’s Tier I leverage ratio was 9.00%, compared with 7.11% at December 31, 2017, and its Total risk-based capital ratio was 12.23%, compared with 10.55% at December 31, 2017. At December 31, 2018, the Company’s Common equity Tier I risk-based capital ratio was 9.44%, compared with 6.92% at December 31, 2017.

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 quarter and year ending December 31, 2018, follows.

LIMESTONE BANCORP, INC.
Unaudited Financial Information
(in thousands, except share and per share data)
				Three				Three					Twelve					Twelve
				Months				Months					Months					Months
				Ended				Ended					Ended					Ended
				12/31/18				12/31/17					12/31/18					12/31/17
Income Statement Data
Interest income				$	11,741			$	9,717				$	43,461				$	37,522
Interest expense					3,037				1,716					9,790					6,405
Net interest income					8,704				8,001					33,671					31,117
Provision (negative provision) for loan losses					—				(800	)				(500	)				(800	)
Net interest income after provision					8,704				8,801					34,171					31,917
Service charges on deposit accounts					588				636					2,355					2,253
Bank card interchange fees					573				403					1,831					1,521
Bank owned life insurance income					100				103					437					412
Gain (loss) on sales and calls of securities, net					—				293					(6	)				288
Other					411				207					1,162					930
Non-interest income					1,672				1,642					5,779					5,404
Salaries & employee benefits					3,923				3,657					15,489					15,090
Occupancy and equipment					915				919					3,586					3,420
Professional fees					201				202					814					978
Marketing expense					247				218					1,114					1,098
FDIC insurance					118				357					557					1,412
Data processing expense					280				325					1,192					1,256
State franchise and deposit tax					272				281					1,118					956
Deposit account related expense					170				250					823					896
Other real estate owned expense					278				1,881					868					1,973
Litigation and loan collection expense					83				58					245					179
Other					835				924					3,320					3,509
Non-interest expense					7,322				9,072					29,126					30,767
Income before income taxes					3,054				1,371					10,824					6,554
Income tax expense (benefit)					614				(31,899	)				2,030					(31,899	)
Net income					2,440				33,270					8,794					38,453
Weighted average shares – Basic					7,457,206				6,259,864					7,159,723					6,249,059
Weighted average shares – Diluted					7,457,206				6,259,864					7,159,723					6,249,059
Basic earnings per common share				$	0.33			$	5.31				$	1.23				$	6.15
Diluted earnings per common share				$	0.33			$	5.31				$	1.23				$	6.15
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					Twelve					Twelve
				Months					Months					Months					Months
				Ended					Ended					Ended					Ended
				12/31/18					12/31/17					12/31/18					12/31/17
Average Balance Sheet Data
Assets				$	1,066,216				$	960,269				$	1,026,310				$	947,961
Loans					765,542					695,646					743,352					667,474
Earning assets					1,001,093					916,561					957,454					904,069
Deposits					895,377					862,625					860,825					864,278
Long-term debt and advances					75,339					50,335					75,154					38,057
Interest bearing liabilities					824,300					774,507					799,032					773,247
Stockholders’ equity					89,836					41,397					84,860					37,851
Performance Ratios
Return on average assets					0.91	%				13.75	%				0.86	%				4.06	%
Return on average equity					10.78					318.85					10.36					101.59
Yield on average earning assets (tax equivalent)					4.66					4.24					4.55					4.18
Cost of interest bearing liabilities					1.46					0.88					1.23					0.83
Net interest margin (tax equivalent)					3.46					3.50					3.53					3.48
Efficiency ratio					70.57					97.03					73.82					84.91
Loan Charge-off Data
Loans charged-off				$	(133	)			$	(226	)			$	(616	)			$	(901	)
Recoveries					379					201					1,794					936
Net recoveries (charge-offs)				$	246				$	(25	)			$	1,178				$	35
Nonaccrual Loan Activity
Nonaccrual loans at beginning of period				$	2,692				$	5,769				$	5,457				$	9,216
Net principal pay-downs					(1,124	)				(488	)				(3,594	)				(4,952	)
Charge-offs					(28	)				(137	)				(293	)				(665	)
Loans foreclosed and transferred to OREO					—					—					(730	)				(270	)
Loans returned to accrual status					—					—					(77	)				(199	)
Loans placed on nonaccrual during the period					451					313					1,228					2,327
Nonaccrual loans at end of period				$	1,991				$	5,457				$	1,991				$	5,457
Troubled Debt Restructurings (TDRs)
Accruing				$	910				$	1,217				$	910				$	1,217
Nonaccrual					—					1,829					—					1,829
Total				$	910				$	3,046				$	910				$	3,046
Other Real Estate Owned (OREO) Activity
OREO at beginning of period				$	3,750				$	6,330				$	4,409				$	6,821
Real estate acquired					—					—					730					270
Valuation adjustment write-downs					(265	)				(1,865	)				(850	)				(1,963	)
Proceeds from sales of properties					—					(55	)				(876	)				(793	)
Gain (loss) on sales, net					—					(1	)				72					74
OREO at end of period				$	3,485				$	4,409				$	3,485				$	4,409

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
				12/31/18				9/30/18					6/30/18					3/31/18				12/31/17
Income Statement Data
Interest income				$	11,741			$	11,120				$	10,585				$	10,015			$	9,717
Interest expense					3,037				2,708					2,211					1,834				1,716
Net interest income					8,704				8,412					8,374					8,181				8,001
Provision (negative provision) for loan losses					—				(350	)				(150	)				—				(800	)
Net interest income after provision					8,704				8,762					8,524					8,181				8,801
Service charges on deposit accounts					588				608					591					568				636
Bank card interchange fees					573				411					446					401				403
Bank owned life insurance income					100				100					138					99				103
Gain (loss) on sales and calls of securities, net					—				—					(6	)				—				293
Other					411				390					178					183				207
Non-interest income					1,672				1,509					1,347					1,251				1,642
Salaries & employee benefits					3,923				3,893					3,885					3,788				3,657
Occupancy and equipment					915				896					880					895				919
Professional fees					201				186					222					205				202
Marketing expense					247				259					308					300				218
FDIC insurance					118				118					139					182				357
Data processing expense					280				281					307					324				325
State franchise and deposit tax					272				282					282					282				281
Deposit account related expense					170				213					221					219				250
Other real estate owned expense					278				271					237					82				1,881
Litigation and loan collection expense					83				61					48					53				58
Other					835				770					876					839				924
Non-interest expense					7,322				7,230					7,405					7,169				9,072
Income before income taxes					3,054				3,041					2,466					2,263				1,371
Income tax expense (benefit)					614				604					483					329				(31,899	)
Net income				$	2,440			$	2,437				$	1,983				$	1,934			$	33,270
Weighted average shares – Basic					7,457,206				7,455,316					7,424,742					6,285,420				6,259,864
Weighted average shares – Diluted					7,457,206				7,455,316					7,424,742					6,285,420				6,259,864
Basic earnings per common share				$	0.33			$	0.33				$	0.27				$	0.31			$	5.31
Diluted earnings per common share				$	0.33			$	0.33				$	0.27				$	0.31			$	5.31
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
				12/31/18					9/30/18					6/30/18					3/31/18					12/31/17
Assets
Loans				$	765,244				$	757,051				$	749,234				$	729,432				$	712,115
Allowance for loan losses					(8,880	)				(8,634	)				(8,580	)				(8,526	)				(8,202	)
Net loans					756,364					748,417					740,654					720,906					703,913
Loans held for sale					—					—					—					—					70
Securities available for sale					201,192					184,870					178,896					160,812					152,720
Federal funds sold & interest bearing deposits					28,398					31,761					33,534					30,073					25,966
Cash and due from financial institutions					6,963					5,770					7,013					7,610					8,137
Premises and equipment					14,655					17,027					16,813					16,789					16,789
Premises held for sale					1,050					—					—					—					—
Bank owned life insurance					15,646					15,551					15,456					15,323					15,229
FHLB Stock					7,233					7,233					7,323					7,323					7,323
Other real estate owned					3,485					3,750					4,510					4,385					4,409
Deferred taxes, net					29,282					30,230					30,623					30,997					31,313
Accrued interest receivable and other assets					5,424					5,882					5,699					5,886					4,932
Total Assets				$	1,069,692				$	1,050,491				$	1,040,521				$	1,000,104				$	970,801
Liabilities and Equity
Certificates of deposit				$	450,886				$	457,239				$	435,454				$	431,921				$	424,235
Interest checking					94,269					87,407					88,955					92,048					99,383
Money market					171,924					159,499					150,048					150,974					151,388
Savings					34,534					34,320					35,220					35,984					34,632
Total interest bearing deposits					751,613					738,465					709,677					710,927					709,638
Demand deposits					142,618					135,561					136,553					135,984					137,386
Total deposits					894,231					874,026					846,230					846,911					847,024
FHLB advances					46,549					51,591					71,630					26,752					11,797
Junior subordinated debentures					21,000					21,000					21,000					23,025					23,250
Senior debt					10,000					10,000					10,000					10,000					10,000
Accrued interest payable and other liabilities					5,815					5,662					5,262					5,186					6,057
Total liabilities					977,595					962,279					954,122					911,874					898,128
Preferred stockholders’ equity					—					—					—					2,771					2,771
Common stockholders’ equity					92,097					88,212					86,399					85,459					69,902
Total stockholders’ equity					92,097					88,212					86,399					88,230					72,673
Total Liabilities and Stockholders’ Equity				$	1,069,692				$	1,050,491				$	1,040,521				$	1,000,104				$	970,801
Ending shares outstanding					7,462,720					7,456,590					7,454,993					7,409,864					6,259,864
Book value per common share				$	12.34				$	11.83				$	11.59				$	11.53				$	11.17
Tangible book value per common share					12.34					11.83					11.59					11.53					11.17

LIMESTONE BANCORP, INC.
Unaudited Financial Information
(in thousands, except share and per share data)
				As of
				12/31/18					9/30/18					6/30/18					3/31/18					12/31/17
Quarterly Performance Ratios
Return on average assets					0.91	%				0.93	%				0.79	%				0.79	%				13.75	%
Return on average equity					10.78					11.05					8.97					10.71					318.85
Yield on average earning assets (tax equivalent)					4.66					4.56					4.51					4.45					4.24
Cost of interest bearing liabilities					1.46					1.32					1.13					0.96					0.88
Net interest margin (tax equivalent)					3.46					3.45					3.57					3.63					3.50
Efficiency ratio					70.57					72.88					76.13					76.01					97.03
Asset Quality Data
Nonaccrual loans				$	1,991				$	2,692				$	3,170				$	4,370				$	5,457
Troubled debt restructurings on accrual					910					910					916					922					1,217
Loan 90 days or more past due still on accrual					—					—					—					—					1
Total non-performing loans					2,901					3,602					4,086					5,292					6,675
Real estate acquired through foreclosures					3,485					3,750					4,510					4,385					4,409
Other repossessed assets					—					—					—					—					—
Total non-performing assets				$	6,386				$	7,352				$	8,596				$	9,677				$	11,084
Non-performing loans to total loans					0.38	%				0.48	%				0.55	%				0.73	%				0.94	%
Non-performing assets to total assets					0.60					0.70					0.83					0.97					1.14
Allowance for loan losses to non-performing loans					306.10					239.70					209.99					161.11					122.88
Allowance for loan losses to total loans					1.16	%				1.14	%				1.15	%				1.17	%				1.15	%
Loans by Risk Category
Pass				$	745,604				$	736,193				$	720,446				$	695,507				$	673,033
Watch					13,164					12,314					19,091					17,938					25,715
Special Mention					113					114					115					162					164
Substandard					6,363					8,430					9,582					15,825					13,203
Doubtful					—					—					—					—					—
Total				$	765,244				$	757,051				$	749,234				$	729,432				$	712,115
Loans by Past Due Status
Past due loans:
30 – 59 days				$	1,593				$	1,492				$	1,134				$	6,402				$	1,478
60 – 89 days					331					929					538					472					171
90 days or more					—					—					—					—					1
Nonaccrual loans					1,991					2,692					3,170					4,370					5,457
Total past due and nonaccrual loans				$	3,915				$	5,113				$	4,842				$	11,244				$	7,107
Risk-based Capital Ratios - Company
Tier I leverage ratio					9.00	%				8.91	%				8.70	%				9.18	%				7.11	%
Common equity Tier I risk-based capital ratio					9.44					9.21					8.92					8.98					6.92
Tier I risk-based capital ratio					11.08					10.83					10.41					11.03					8.44
Total risk-based capital ratio					12.23					12.07					11.76					12.56					10.55
Risk-based Capital Ratios – Limestone Bank
Tier I leverage ratio					9.60	%				9.51	%				9.37	%				9.31	%				8.70	%
Common equity Tier I risk-based capital ratio					11.83					11.56					11.23					11.18					10.35
Tier I risk-based capital ratio					11.83					11.56					11.23					11.18					10.35
Total risk-based capital ratio					12.88					12.60					12.26					12.43					11.61
FTE employees					214					215					217					214					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
				12/31/18					9/30/18					6/30/18					3/31/18					12/31/17
Efficiency Ratio				(in thousands)
Net interest income				$	8,704				$	8,412				$	8,374				$	8,181				$	8,001
Non-interest income					1,672					1,509					1,347					1,251					1,642
Less: Net gain (loss) on securities					—					—					(6	)				—					293
Revenue used for efficiency ratio					10,376					9,921					9,727					9,432					9,350
Non-interest expense					7,322					7,230					7,405					7,169					9,072
Efficiency ratio					70.57	%				72.88	%				76.13	%				76.01	%				97.03	%

				Twelve Months Ended
				12/31/18					12/31/17
Efficiency Ratio				(in thousands)
Net interest income				$	33,671				$	31,117
Non-interest income					5,779					5,404
Less: Net gain (loss) on securities					(6	)				288
Revenue used for efficiency ratio					39,456					36,233
Non-interest expense					29,126					30,767
Efficiency ratio					73.82	%				84.91	%

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