Limestone Bancorp, Inc. (NASDAQ: LMST) (the “Company”), parent company of Limestone Bank, Inc. (the “Bank”), today reported unaudited results for the second quarter of 2022. Net income available to common shareholders for the second quarter of 2022 was $4.0 million, or $0.53 per basic and diluted common share, compared with $3.9 million, or $0.51 per basic and diluted common share, for the second quarter of 2021. Net income for the six months ended June 30, 2022, was $7.6 million, or $1.00 per basic and diluted common share, compared with net income of $7.1 million, or $0.94 per basic and diluted common share, for the six months ended June 30, 2021.

John T. Taylor, Chief Executive Officer, noted, “We continue to be pleased with the Company’s strong financial performance and remain focused on our disciplined approach to community banking and credit underwriting. Our efforts are proving successful as loan growth was 2.5% for the second quarter of 2022 after posting an increase of 4.5% in the first quarter. Asset quality remains strong and net interest margin expanded nine basis points quarter over quarter, which is directionally consistent with the Fed’s tightening actions and our approach to interest rate risk management. I also want to commend our associates for their commitment to the Bank and I am proud to report that Limestone was again, in 2022, named one of the Best Places to Work in Kentucky.”

Total assets were $1.42 billion at June 30, 2022, up $8.4 million from the previous quarter. The loan portfolio increased $26.5 million, or 2.5%, during the quarter to $1.07 billion at June 30, 2022, while securities and fed funds sold declined $16.3 million.

Net Interest Income and Average Earning Assets – Net interest income increased to $11.7 million for the second quarter of 2022, compared to $11.1 million for the first quarter of 2022, and $10.9 million for the second quarter of 2021. Net interest margin increased to 3.51% for the second quarter of 2022, compared with 3.42% for the first quarter of 2022, and 3.45% for the second quarter of 2021.

The yield on earning assets increased to 3.95% in the second quarter of 2022, compared to 3.82% in the first quarter of 2022, and 3.91% in the second quarter of 2021. Quarter over quarter, average loans increased $24.5 million to $1.05 billion, while average lower yielding fed funds sold decreased $8.3 million. PPP loans averaged $172,000 for the second quarter of 2022 and $605,000 for the first quarter of 2022. Compared to the prior year second quarter, average loans increased $91.1 million and average investment securities increased $31.1 million, while average lower yielding fed funds sold decreased $57.4 million. PPP loans averaged $26.9 million for the second quarter of 2021.

While the Federal Reserve increased the fed funds target by 25 basis points on March 16, 2022, 50 basis points on May 4, 2022, and 75 basis points on June 15, 2022, the yield on earning assets for fiscal year 2021 and the first quarter of 2022 were impacted by the low interest rate environment. During the second quarter of 2022, the Bank’s fed funds sold, floating rate investment securities, loans with variable rate pricing features, and new loan originations began to benefit from the upward movement in short-term rates and are expected to continue to benefit as rates continue to rise. The cost of interest-bearing liabilities was also impacted to a lesser extent, but is also expected to increase as short-term interest rates continue to rise.

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 $173,000, $324,000, and $933,000 for the quarters ended June 30, 2022, March 31, 2022, and June 30, 2021, respectively. This represents six basis points, 10 basis points, and 29 basis points of yield on earning assets and net interest margin for the quarters ended June 30, 2022, March 31, 2022, and June 30, 2021, respectively. Loan fee income for the second quarter of 2022 did not include any fees earned on PPP loans, compared to $45,000 in the first quarter of 2022, and $692,000 in the second quarter of 2021, which represents two basis points, and 22 basis points of earning asset yield and net interest margin for those quarters, respectively.

The following table reconciles the as reported yield on earning assets to the yield on earning assets excluding PPP fees, a non-GAAP financial measure:

The cost of interest-bearing liabilities was 0.58% for the second quarter of 2022, compared to 0.53% in the first quarter of 2022, and 0.61% in the second quarter of 2021. Quarter over quarter, average deposits decreased and were replaced with higher cost FHLB funding. Compared to the prior year second quarter, the cost of interest-bearing liabilities benefitted as a result of an improvement in deposit mix, as well as the downward repricing of time deposits between periods.

Net interest income increased to $22.8 million for the first six months of 2022, compared with $21.6 million in the first six months of 2021. Net interest margin decreased to 3.47% in the first six months of 2022, compared with 3.49% for the first six months of 2021.

The yield on earning assets decreased to 3.88% for the first six months of 2022, compared to 3.98% for the first six months of 2021. Average loans for the first six months of 2022 increased $77.7 million to $1.04 billion and average investment securities increased $42.6 million, while average lower yielding fed funds sold decreased $39.9 million compared to the first six months of 2021. Average PPP loans were $419,000 and $23.5 million for the first six months of 2022 and 2021, respectively. The amount of loan fee income included in total interest income was $497,000 and $1.8 million for the six months ended June 30, 2022 and 2021, respectively. This represents seven basis points and 29 basis points of yield on earning assets and net interest margin for the six months ended June 30, 2022 and 2021, respectively. Loan fee income included PPP fees of $45,000 and $1.1 million for the six months ended June 30, 2022 and 2021, respectively, which represented less than one basis point and 18 basis points of earning asset yield and net interest margin for those six-month periods, respectively.

The cost of interest-bearing liabilities was 0.56% for the first six months of 2022, compared to 0.64% in the first six months of 2021. The cost of interest-bearing liabilities for the first six months of 2022 benefitted from an improvement in deposit mix, as well as the downward repricing of time deposits between periods compared to the first six months of 2021.

The cost of interest-bearing liabilities was impacted by the recent increases in short-term interest rates and is expected to continue to increase as short-term interest rates continue to rise. Time deposits declined $3.9 million during the second quarter of 2022 as approximately $59.4 million of time deposits with an average rate of 0.29% matured and were redeemed or repriced at lower interest rates. During the second quarter of 2022, newly originated or renewed time deposits had an average rate of 0.75% and an average term of approximately 10 months. As of June 30, 2022, time deposits comprised $256.1 million of the Company’s liabilities including $47.9 million with a current average rate of 0.58%, which reprice or mature in the third quarter of 2022. The following table denotes contractual time deposit maturities and average rates as of June 30, 2022:

Provision and Allowance for Loan Losses – The allowance for loan losses to total loans was 1.17% at June 30, 2022, compared to 1.16% at March 31, 2022, and 1.33% at June 30, 2021.

Net loan charge-offs were $95,000 and $181,000, for the three and six months ended June 30, 2022, compared to net loan charge-offs of $118,000 and $156,000, for the three and six months ended June 30, 2021. A provision for loan loss of $450,000 and $1.2 million, or $0.04 and $0.12 per common share after taxes, was recorded in the second quarter and the first six months of 2022, respectively, compared to no provision for loan loss in the second quarter of 2021 and $350,000, or $0.03 per common share after taxes, for the first six months of 2021. The 2022 and 2021 loan loss provisions were attributable to growth trends within the portfolio and net loan charge-offs impacting historical loss percentages during the periods.

Non-interest Income and Expense – Non-interest income for the second quarter of 2022 increased $121,000 to $2.3 million, compared with $2.1 million for the second quarter of 2021. The increase was primarily related to an increase in transaction volumes which led to an increase in service charges on deposit accounts of $170,000 and an increase in bank owned life insurance income of $106,000 due to additional policies being purchased in March 2022, offset by a non-recurring $191,000 gain on the sale of OREO from the second quarter of 2021. Non-interest expense increased $273,000, or 3.4%, to $8.2 million for the second quarter of 2022, compared with $8.0 million for the second quarter of 2021. Salaries and benefits expense increased $184,000 from the second quarter of 2021. While FTEs declined between the periods, salaries expense increased as a result of the inflationary impact on talent acquisition and the administration of annual salary adjustments.

Non-interest income for the first six months of 2022 increased $475,000 to $4.5 million, compared with $4.0 million for the first six months of 2021. The increase was primarily due to an increase in service charges on deposit accounts of $256,000 and $143,000 in bank owned life insurance income as discussed above. Non-interest income for the first six months of 2022 also included a $163,000 non-recurring gain on sale of premises held for sale from the first quarter of 2022, while the first six months of 2021 included a $191,000 non-recurring gain on sale of OREO from the second quarter of 2021. Non-interest expense increased $260,000, or 1.6%, to $16.2 million for the first six months of 2022, compared with $15.9 million for the first six months of 2021. The increase was primarily due to an increase of $266,000 in salaries and benefits as discussed above.

About Limestone Bancorp, Inc.

Limestone Bancorp, Inc. (NASDAQ: LMST) is a Louisville, Kentucky-based bank holding company which operates banking centers in 14 counties through its wholly-owned subsidiary Limestone Bank. The Bank’s markets include metropolitan Louisville in Jefferson County and the surrounding counties of Bullitt and Henry and extend south along the Interstate 65 corridor. The Bank serves south central, southern, and western Kentucky from banking centers in Barren, Butler, Daviess, Edmonson, Green, Hardin, Hart, Ohio, and Warren counties. The Bank also has banking centers in Lexington, Kentucky, the second largest city in the state, and Frankfort, Kentucky, the state capital. 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: the impact and duration of the COVID-19 pandemic; 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 inflation and efforts to control it; 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, 2021.

Additional Information

Unaudited supplemental financial information for the second quarter ending June 30, 2022, follows.