Limestone Bancorp Reports Net Income of $4.9 million, or $0.64 per Diluted Share, for the 4th Quarter of 2022 and $18.3 million, or $2.40 per Diluted Share, for the Year Ended December 31, 2022

Declares Quarterly Dividend of $0.05 per Common Share

Limestone Bancorp, Inc. (NASDAQ:LMST) (the "Company"), parent company of Limestone Bank, Inc. (the "Bank"), today reported unaudited results for the fourth quarter of 2022. Net income available to common shareholders for the fourth quarter of 2022 was $4.9 million, or $0.64 per basic and diluted common share, compared with $3.4 million, or $0.45 per basic and diluted common share, for the fourth quarter of 2021. Net income for the year ended December 31, 2022, was $18.3 million, or $2.40 per basic and diluted common share, compared with net income of $14.9 million, or $1.96 per basic and diluted common share, for the year ended December 31, 2021. The fourth quarter and year ended 2022 included $691,000 of merger expenses related to the Company's pending merger transaction with Peoples Bancorp, Inc. and its subsidiary, Peoples Bank, or $0.07 per basic and diluted common share.

John T. Taylor, Chief Executive Officer, noted, "Over the past year, the Limestone team delivered solid results for shareholders and continued to execute for our customers while managing risk in an inflationary environment. The team achieved 11% loan growth, 17% pretax, pre-provision income¹ growth, and a 14% return on average equity. Asset quality remains strong and net interest margin expanded 14 basis points year over year, which is directionally consistent with the Federal Reserve's tightening actions and our approach to interest rate risk management. Additionally, our team continues to work diligently with the Peoples Bank team to plan and prepare for the completion of our pending merger after required regulatory and shareholder approvals are received."

Also today, the Board of Directors declared a quarterly cash dividend of $0.05 per common share. The dividend will be paid on February 21, 2023, to shareholders of record as of February 6, 2023.

Net Interest Income and Average Earning Assets – Net interest income increased to $13.4 million for the fourth quarter of 2022, compared to $12.9 million for the third quarter of 2022, and $11.0 million for the fourth quarter of 2021. Net interest margin increased to 3.82% for the fourth quarter of 2022, compared with 3.73% for the third quarter of 2022, and 3.32% for the fourth quarter of 2021.

The yield on earning assets increased to 4.89% in the fourth quarter of 2022, compared to 4.37% in the third quarter of 2022, and 3.71% in the fourth quarter of 2021. Quarter over quarter, average loans increased $13.6 million to $1.11 billion. Compared to the prior year fourth quarter, average loans increased $154.6 million, average investment securities decreased $11.1 million, and average lower yielding fed funds sold decreased $70.4 million.

The Federal Reserve increased the fed funds target by 425 basis points over its last seven meetings of 2022. Conversely, the Bank's fed funds sold, floating rate investment securities, loans with variable rate pricing features, and new loan originations benefitted from the upward movement in short-term rates during 2022. The cost of interest-bearing liabilities were also impacted, although to a lesser extent.

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 $245,000, $279,000, and $967,000 for the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively. This represents seven basis points, eight basis points, and 29 basis points of yield on earning assets and net interest margin for the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively. Loan fee income for the fourth and third quarters of 2022 did not include any fees earned on Paycheck Protection Program (PPP) loans, compared to $261,000 in the fourth quarter of 2021, which represented eight basis points of earning asset yield and net interest margin for the fourth quarter of 2021.

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 1.44% for the fourth quarter of 2022, compared to 0.85% in the third quarter of 2022, and 0.53% in the fourth quarter of 2021. The movement in short-term rates impacted the cost of interest-bearing liabilities.

Net interest income increased to $49.1 million for the year ended December 31, 2022, compared with $44.2 million for the year ended December 31, 2021. Net interest margin increased to 3.62% in the year ended December 31, 2022, compared with 3.48% for the year ended December 31, 2021.

The yield on earning assets increased to 4.27% for the year ended December 31, 2022, compared to 3.92% for the year ended December 31, 2021. During the year ended December 31, 2022, average loans increased $113.8 million to $1.07 billion and average investment securities increased $20.2 million, while average lower yielding fed funds sold decreased $51.7 million compared to the year ended December 31, 2021. Average PPP loans were $294,000 and $15.5 million for the year ended December 31, 2022 and 2021, respectively. The amount of loan fee income included in total interest income was $1.0 million and $4.3 million for the year ended December 31, 2022 and 2021, respectively. This represented eight basis points and 33 basis points of yield on earning assets and net interest margin for the year ended December 31, 2022 and 2021, respectively. Loan fee income included PPP fees of $45,000 and $2.8 million for the year ended December 31, 2022 and 2021, respectively, which represented approximately one basis point and 21 basis points of earning asset yield and net interest margin, respectively.

The cost of interest-bearing liabilities was 0.86% for 2022, compared to 0.59% for 2021. The cost of interest-bearing liabilities was negatively impacted by the increases in short-term interest rates.

Time deposits increased $16.4 million during the fourth quarter of 2022. Approximately $57.1 million of time deposits with an average rate of 0.79% matured and were redeemed or repriced during the fourth quarter of 2022. During the fourth quarter of 2022, newly originated or renewed time deposits had an average rate of 3.05% and an average term of approximately 9 months. As of December 31, 2022, time deposits comprised $290.2 million of the Company's liabilities including $69.3 million with a current average rate of 0.98%, which reprice or mature in the first quarter of 2023. The following table denotes contractual time deposit maturities and average rates as of December 31, 2022:

Provision and Allowance for Loan Losses – The allowance for loan losses to total loans was 1.17% at December 31, 2022, compared to 1.16% at September 30, 2022, and 1.15% at December 31, 2021.

Net loan recoveries were $1.4 million for 2022, compared to net loan charge-offs of $2.1 million for 2021. During the third quarter of 2022, the Bank received a payoff of $2.0 million on a nonaccrual commercial real estate loan resulting in a recovery of $1.5 million. A provision for loan losses of $130,000 and $80,000, or $0.01 and $0.01 per common share after taxes, was recorded in the fourth quarter and the year ended December 31, 2022, respectively, compared to a provision for loan losses of $500,000 and $1.2 million, or $0.05 and $0.11 per common share after taxes, in the fourth quarter and the year ended December 31, 2021. The loan loss provision for the fourth quarter of 2022 was primarily attributable to net charge-offs for the period. The loan loss provision for the year ended December 31, 2022, was primarily attributable to growth trends within the portfolio, offset by a significant recovery recognized during the third quarter and its impact on the historical loss percentages. The 2021 loan loss provisions were attributable to growth trends within the portfolio and net loan charge-offs impacting historical loss percentages during the period.

Non-interest Income and Expense – Non-interest income for the fourth quarter of 2022 increased $171,000 to $2.2 million, compared with $2.0 million for the fourth quarter of 2021. The increase was primarily related to an increase in service charges on deposit accounts of $98,000 and an increase in bank card interchange fees of $88,000, both of which were due to an increase in transaction volumes as compared to the prior period.

Non-interest expense increased $879,000, or 11.0%, to $8.9 million for the fourth quarter of 2022, compared with $8.0 million for the fourth quarter of 2021. The increase was primarily due to merger expenses of $691,000, or $0.07 per share, related to the pending merger with Peoples Bancorp, Inc. as announced on October 24, 2022. Salaries and benefits expense also increased $246,000 from the fourth quarter of 2021 as a result of the inflationary impact on salary administration, increased health care utilization costs, and increased performance-based incentive compensation.

Non-interest income for the year ended December 31, 2022, increased $438,000 to $8.9 million, compared with $8.4 million for the year ended December 31, 2021. The increase was primarily due to an increase in services charges on deposit accounts of $519,000 and an increase in bank card interchange fees of $162,000, both of which were due to an increase in transaction volumes. Bank owned life insurance income increased $180,000 for the year ended December 31, 2022, due to additional policies being purchased in March 2022. Non-interest income for the twelve months ended December 31, 2022, also included a $163,000 gain on sale of premises held for sale from the first quarter of 2022, while the year ended December 31, 2021, included a $191,000 gain on sale of OREO from the second quarter of 2021, as well as a $465,000 gain on the call of a corporate bond from the third quarter of 2021.

Non-interest expense increased $1.8 million, or 5.6%, to $33.8 million for the year ended December 31, 2022, compared with $32.0 million for the year ended December 31, 2021. The increase was primarily due to an increase of $889,000 in salaries and benefits as discussed above, merger expenses of $691,000 as discussed above, and a $396,000 increase in other non-interest expense primarily related to losses associated with demand deposit charge-offs and fraudulent check and debit card activity during the period. These increases from the prior year were offset by a decrease in communications expense of $262,000 for 2022 as a result of changes in information technology infrastructure during the period.

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 Company's pending merger transaction with Peoples Bancorp, Inc., merger-related expenses and requirements during the pendency of the merger transaction and conditions that must be satisfied for the merger transaction to be completed, including the receipt of required regulatory and shareholder approvals; 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 and Form 10-Q for the nine months ended September 30, 2022.

Additional Information

Unaudited supplemental financial information for the fourth quarter ending December 31, 2022, follows.

Footnotes:

⁽¹⁾ Pretax, pre-provision income (PTPI) is a non-GAAP financial measure calculated by adjusting pretax income or income before income taxes to add back provision for loan losses. Management believes that PTPI is a useful financial measure as it enables the assessment of the Company's ability to generate earnings to cover credit losses through a credit cycle and provides an additional basis for comparing results of operations between periods by isolating the impact of provision for loan losses, which can vary significantly between periods.

⁽²⁾ 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 from the calculation net gains on the sale of securities and expenses disclosed from time to time as non-recurring in nature. Management believes this provides a reasonable measure of primary banking expenses relative to primary banking revenue.