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Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2020

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number: 001-33033

 

LIMESTONE BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Kentucky

  

61-1142247

(State or other jurisdiction of

incorporation or organization)

  

(I.R.S. Employer

Identification No.)

  

  

2500 Eastpoint Parkway, Louisville, Kentucky

  

40223

(Address of principal executive offices)

  

(Zip Code)

 

(502) 499-4800

(Registrant’s telephone number, including area code)

 


Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares

LMST

Nasdaq

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐    

Accelerated filer  ☒    

Non-accelerated filer  ☐ 

Smaller reporting company  

 

Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

6,499,249 Common Shares and 1,000,000 Non-Voting Common Shares were outstanding at July 31, 2020.

 

 


 

 

INDEX

 

  

  

Page

PART I –

FINANCIAL INFORMATION

  

ITEM 1.

FINANCIAL STATEMENTS

3

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

  

  

CONDITION AND RESULTS OF OPERATIONS

31

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

48

ITEM 4.

CONTROLS AND PROCEDURES

48

  

  

  

PART II –

OTHER INFORMATION

  

ITEM 1.

LEGAL PROCEEDINGS

49

ITEM 1A.

RISK FACTORS

49

ITEM 2.

UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF PROCEEDS

50

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

50

ITEM 4.

MINE SAFETY DISCLOSURES

50

ITEM 5.

OTHER INFORMATION

50

ITEM 6.

EXHIBITS

50

 

2

 


 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The following consolidated financial statements of Limestone Bancorp, Inc. and subsidiary, Limestone Bank, Inc. are submitted:

 

Unaudited Consolidated Balance Sheets for June 30, 2020 and December 31, 2019

Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019

Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019

Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

Notes to Unaudited Consolidated Financial Statements

 

3

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Balance Sheets

(dollars in thousands except share data)

 

  

June 30,

2020

  

December 31,

2019

 

Assets

        

Cash and due from banks

 $9,990  $8,241 

Interest bearing deposits in banks

  39,027   21,962 

Cash and cash equivalents

  49,017   30,203 

Securities available for sale

  202,596   209,000 

Loans, net of allowance of $10,228 and $8,376, respectively

  965,531   917,895 

Premises and equipment, net

  19,000   19,658 

Premises held for sale

  1,149   900 

Other real estate owned

  1,625   3,225 

Federal Home Loan Bank stock

  6,142   6,237 

Bank owned life insurance

  16,238   16,037 

Deferred taxes, net

  27,054   27,765 

Goodwill

  6,252   6,252 

Other intangible assets, net

  2,372   2,500 

Accrued interest receivable and other assets

  7,532   6,107 

Total assets

 $1,304,508  $1,245,779 
         

Liabilities and Stockholders’ Equity

        

Deposits

        

Non-interest bearing

 $224,901  $187,551 

Interest bearing

  899,887   839,424 

Total deposits

  1,124,788   1,026,975 

Federal Home Loan Bank advances

  20,644   61,389 

Accrued interest payable and other liabilities

  7,020   8,665 

Junior subordinated debentures

  21,000   21,000 

Subordinated capital notes

  17,000   17,000 

Senior debt

  5,000   5,000 

Total liabilities

  1,195,452   1,140,029 

Commitments and contingent liabilities (Note 15)

      

Stockholders’ equity

        

Common stock, no par, 39,000,000 shares authorized, 6,265,872 and 6,251,975 voting, and 1,220,000 and 1,220,000 non-voting issued and outstanding, respectively

  140,639   140,639 

Additional paid-in capital

  24,643   24,508 

Retained deficit

  (51,861

)

  (55,683

)

Accumulated other comprehensive loss

  (4,365

)

  (3,714

)

Total stockholders' equity

  109,056   105,750 

Total liabilities and stockholders’ equity

 $1,304,508  $1,245,779 

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Income

(dollars in thousands, except per share data)

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
Interest income                                

Loans, including fees

  $ 11,356     $ 10,465     $ 22,967     $ 20,719  

Taxable securities

    1,307       1,608       2,774       3,181  

Tax exempt securities

    77       88       147       181  

Federal funds sold and other

    46       215       165       481  
      12,786       12,376       26,053       24,562  

Interest expense

                               

Deposits

    2,127       2,965       4,899       5,552  

Federal Home Loan Bank advances

    73       255       293       536  

Senior debt

    51       98       107       194  

Junior subordinated debentures

    172       258       387       521  

Subordinated capital notes

    253             495        
      2,676       3,576       6,181       6,803  

Net interest income

    10,110       8,800       19,872       17,759  

Provision for loan losses

    1,100             2,150        

Net interest income after provision for loan losses

    9,010       8,800       17,722       17,759  
                                 

Non-interest income

                               

Service charges on deposit accounts

    441       571       1,109       1,067  

Bank card interchange fees

    863       596       1,613       1,104  

Income from bank owned life insurance

    116       118       212       217  

Net loss on sales and calls of investment securities

    (5

)

    (5

)

    (5

)

    (5

)

Other

    186       166       396       347  
      1,601       1,446       3,325       2,730  

Non-interest expense

                               

Salaries and employee benefits

    4,633       3,915       9,171       7,830  

Occupancy and equipment

    983       854       1,982       1,752  

Professional fees

    235       179       443       344  

Marketing expense

    104       212       318       439  

FDIC Insurance

    67       103       67       211  

Data processing expense

    380       315       739       628  

State franchise and deposit tax

    360       315       720       630  

Deposit account related expense

    460       310       911       591  

Other real estate owned expense

    22       142       38       308  

Litigation and loan collection expense

    59       34       124       80  

Communications expense

    247       189       465       379  

Insurance expense

    111       112       214       226  

Postage and delivery

    152       134       320       275  

Other

    423       410       959       812  
      8,236       7,224       16,471       14,505  

Income before income taxes

    2,375       3,022       4,576       5,984  

Income tax expense (benefit)

    393       (611

)

    754       (488

)

Net income

    1,982       3,633       3,822       6,472  

Basic and diluted income per common share

  $ 0.26     $ 0.49     $ 0.51     $ 0.87  

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)

                                          

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net income

  $ 1,982     $ 3,633     $ 3,822     $ 6,472  

Other comprehensive income (loss):

                               

Unrealized gain (loss) on securities:

                               

Unrealized gain (loss) arising during the period

    3,254       1,882       (872

)

    3,877  

Less reclassification adjustment for gains (losses) included in net income

    (5

)

    (5

)

    (5

)

    (5

)

Net unrealized gain (loss) recognized in comprehensive income (loss)

    3,259       1,887       (867

)

    3,882  

Tax effect

    (762

)

    (471

)

    216       (889

)

Other comprehensive income (loss)

    2,497       1,416       (651

)

    2,993  
                                 

Comprehensive income

  $ 4,479     $ 5,049     $ 3,171     $ 9,465  

 

See accompanying notes to unaudited consolidated financial statements.

 

6

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

For Three and Six Months Ended June 30, 2020 and 2019

(Dollar amounts in thousands except share and per share data)

 

    Shares     Amount  
    Common     Common  
   

Common

   

Non-Voting

Common

   

Total

Common

   

Common and Non-Voting Common

   

Additional

Paid-In Capital

   

 

 

Retained Deficit

   

Accumulated Other Comprehensive Loss

   

Total

 
                                                                 

Balances, January 1, 2020

    6,251,975       1,220,000       7,471,975     $ 140,639     $ 24,508     $ (55,683

)

  $ (3,714

)

  $ 105,750  

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    17,330             17,330             (37

)

                (37

)

Forfeited unvested stock

                                               

Stock-based compensation expense

                            106                   106  

Net income

                                  1,840             1,840  

Net change in accumulated other comprehensive loss, net of taxes

                                        (3,148

)

    (3,148

)

Balances, March 31, 2020

    6,269,305       1,220,000       7,489,305     $ 140,639     $ 24,577     $ (53,843

)

  $ (6,862

)

  $ 104,511  

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    (3,433

)

          (3,433

)

          (38

)

                (38

)

Forfeited unvested stock

                                               

Stock-based compensation expense

                            104                   104  

Net income

                                  1,982             1,982  

Net change in accumulated other comprehensive loss, net of taxes

                                        2,497       2,497  

Balances, June 30, 2020

    6,265,872       1,220,000       7,485,872     $ 140,639     $ 24,643     $ (51,861

)

  $ (4,365

)

  $ 109,056  

 

See accompanying notes to unaudited consolidated financial statements.

 

7

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

For Three and Six Months Ended June 30, 2020 and 2019

(Dollar amounts in thousands except share and per share data)

 

    Shares     Amount  
    Common     Common  
   

Common

   

Non-Voting

Common

   

Total

Common

   

Common and Non-Voting Common

   

Additional

Paid-In Capital

   

 

 

Retained Deficit

   

Accumulated Other Comprehensive Loss

   

Total

 
                                                                 

Balances, January 1, 2019

    6,242,720       1,220,000       7,462,720     $ 140,639     $ 24,287     $ (66,201

)

  $ (6,628

)

  $ 92,097  

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    1,642             1,642             (276

)

                (276

)

Forfeited unvested stock

    (3,748

)

          (3,748

)

                             

Stock-based compensation expense

                            82                   82  

Net income

                                  2,839             2,839  

Net change in accumulated other comprehensive loss, net of taxes

                                        1,577       1,577  

Balances, March 31, 2019

    6,240,614       1,220,000       7,460,614     $ 140,639     $ 24,093     $ (63,362

)

  $ (5,051

)

  $ 96,319  

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    (2,532

)

          (2,532

)

          (39

)

                (39

)

Forfeited unvested stock

    (250

)

          (250

)

                             

Stock-based compensation expense

                            93                   93  

Net income

                                  3,633             3,633  

Net change in accumulated other comprehensive loss, net of taxes

                                        1,416       1,416  

Balances, June 30, 2019

    6,237,832       1,220,000       7,457,832     $ 140,639     $ 24,147     $ (59,729

)

  $ (3,635

)

  $ 101,422  

 

See accompanying notes to unaudited consolidated financial statements.

 

8

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Cash Flows

For Six Months Ended June 30, 2020 and 2019

(dollars in thousands)

 

   

2020

   

2019

 

Cash flows from operating activities

               

Net income

  $ 3,822     $ 6,472  

Adjustments to reconcile net income to net cash from operating activities

               

Depreciation and amortization

    1,080       979  

Provision for loan losses

    2,150        

Net amortization on securities

    321       363  

Stock-based compensation expense

    210       175  

Deferred taxes, net

    927       (317

)

Net write-down of other real estate owned

          260  

Net realized loss on sales and calls of investment securities

    5       5  

Net write-down on premises held for sale

    61       55  

Increase in cash surrender value of life insurance, net of premium expense

    (201

)

    (207

)

Amortization of operating lease right-of-use assets

    375       123  

Net change in accrued interest receivable and other assets

    (1,425

)

    (552

)

Net change in accrued interest payable and other liabilities

    (1,645

)

    (1,903

)

Net cash from operating activities

    5,680       5,453  
                 

Cash flows from investing activities

               

Purchases of available for sale securities

    (18,309

)

    (13,894

)

Proceeds from sales and calls of available for sale securities

    8,530       2,452  

Proceeds from maturities and prepayments of available for sale securities

    14,990       7,534  

Purchases of Federal Home Loan Bank stock

    (600

)

     

Proceeds from mandatory redemptions of Federal Home Loan Bank stock

    695       540  

Proceeds from sale of other real estate owned

    1,600        

Net change in loans

    (50,212

)

    (38,476

)

Purchases of premises and equipment

    (553

)

    (208

)

Proceeds from sale of premises and equipment

          1  

Net cash from investing activities

    (43,859

)

    (42,051

)

                 

Cash flows from financing activities

               

Net change in deposits

    97,813       44,246  

Repayment of Federal Home Loan Bank advances

    (135,745

)

    (65,079

)

Advances from Federal Home Loan Bank

    95,000       70,000  

Common shares withheld for taxes

    (75

)

    (315

)

Net cash from financing activities

    56,993       48,852  

Net change in cash and cash equivalents

    18,814       12,254  

Beginning cash and cash equivalents

    30,203       35,361  

Ending cash and cash equivalents

  $ 49,017     $ 47,615  
                 

Supplemental cash flow information:

               

Interest paid

  $ 6,549     $ 6,771  

Supplemental non-cash disclosure:

               

Transfer from loans to other real estate

           

Transfer from premises and equipment to premises held for sale

    310        

Financed sales of other real estate owned

    1,360        

Initial recognition of right-of-use lease assets

          507  

 

See accompanying notes to unaudited consolidated financial statements.

 

9

 

LIMESTONE BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

 

 

 

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation – The consolidated financial statements include Limestone Bancorp, Inc. (Company) and its subsidiary, Limestone Bank, Inc. (Bank). The Company owns a 100% interest in the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the entire year. A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

 

Use of Estimates – To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

 

In March 2020, the World Health Organization declared novel coronavirus disease 2019 (“COVID-19”) as a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in markets in which the Company is located or does business.

 

The extent to which the COVID-19 pandemic impacts the Company’s business, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may have a material adverse effect on all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, or deferred tax assets.

 

Reclassifications – Some items in the prior year financial statements were reclassified to conform to the current presentation. The reclassifications did not impact net income or stockholders’ equity.

 

New Accounting Standards – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under the CECL model, certain financial assets that are carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined. The impact of CECL model implementation is being evaluated, but it is expected that a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance. In December 2018, the OCC, The Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to the credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from adoption of the new accounting standard. In October 2019, the FASB voted to delay implementation for smaller reporting companies, private companies, and not-for-profit entities. The Company currently qualifies as a smaller reporting company. Companies qualifying for the delay will be required to implement CECL for fiscal year and interim periods beginning after December 15, 2022.

 

 

Note 2 – Securities

 

Securities are classified as available for sale (AFS). AFS securities may be sold if needed for liquidity, asset liability management, or other reasons. AFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.

 

10

 

The amortized cost and fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

 

  

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

 
  

(in thousands)

 

June 30, 2020

                

Available for sale

                

U.S. Government and federal agency

 $20,302  $772  $  $21,074 

Agency mortgage-backed: residential

  85,048   3,152   (21

)

  88,179 

Collateralized loan obligations

  44,730      (3,042

)

  41,688 

State and municipal

  28,708   917   (57

)

  29,568 

Corporate bonds

  23,347   313   (1,573

)

  22,087 

Total available for sale

 $202,135  $5,154  $(4,693

)

 $202,596 

 

 

 

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

 
December 31, 2019                

Available for sale

                

U.S. Government and federal agency

 $22,281  $196  $(147

)

 $22,330 

Agency mortgage-backed: residential

  91,269   1,186   (255

)

  92,200 

Collateralized loan obligations

  49,831      (412

)

  49,419 

State and municipal

  27,819   550   (3

)

  28,366 

Corporate bonds

  16,472   213      16,685 

Total available for sale

 $207,672  $2,145  $(817

)

 $209,000 

 

Sales and calls of securities were as follows:

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  (in thousands)  (in thousands) 

Proceeds

 $2,530  $1,452  $8,530  $2,452 

Gross gains

     1      1 

Gross losses

  5   6   5   6 

 

The amortized cost and fair value of our debt securities are shown by contractual maturity. Expected maturities may differ from actual maturities when borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities not due at a single maturity date are shown separately.

 

  

June 30, 2020

 
  

Amortized

Cost

  

Fair

Value

 
  

(in thousands)

 

Maturity

        

Available for sale

        

Within one year

 $15,142  $14,048 

One to five years

  41,133   42,486 

Five to ten years

  37,615   36,545 

Beyond ten years

  23,197   21,338 

Agency mortgage-backed: residential

  85,048   88,179 

Total

 $202,135  $202,596 

                                                                                  

Securities pledged at June 30, 2020 and December 31, 2019 had carrying values of approximately $85.1 million and $75.8 million, respectively, and were pledged to secure public deposits.

 

11

 

At June 30, 2020 and December 31, 2019, the Bank held securities issued by the Commonwealth of Kentucky or Kentucky municipalities having a book value of $15.4 million and $14.5 million, respectively. At June 30, 2020 and December 31, 2019, there were no other holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

 

The Bank owns Collateralized Loan Obligations (CLOs), which are debt securities secured by professionally managed portfolios of senior-secured loans to corporations. CLOs are typically managed by large non-bank financial institutions or banks and are typically $300 million to $1 billion in size, contain one hundred or more loans, have five to six credit tranches ranging from AAA, AA, A, BBB, BB, B and equity tranche. Interest and principal are paid first to the AAA tranche then to the next lower rated tranche. Losses are borne first by the equity tranche then by the subsequently higher rated tranche. CLOs may be less liquid than government securities from time to time and volatility in the CLO market may cause the value of these investments to decline.

 

The market value of CLOs may be affected by, among other things, changes in composition of the underlying loans, changes in the cash flows from the underlying loans, defaults and recoveries on the underlying loans, capital gains and losses on the underlying loans, prepayments on the underlying loans, and other conditions or economic factors.

 

At June 30, 2020, $26.4 million and $15.3 million of our CLOs were AA and A rated, respectively. There were no CLOs rated below A and none of the CLOs were subject to ratings downgrade in the six months ended June 30, 2020. All of our CLOs are floating rate, with rates set on a quarterly basis at three-month LIBOR plus a spread. Stress testing was completed on each security in the CLO portfolio as of June 30, 2020. Each security in the portfolio passed, without dollar loss, a stress scenario characterized as severe, which assumed a ten percent per annum constant prepayment rate, a twelve percent per annum constant default rate for four years followed by a four percent rate thereafter, and a forty-five percent recovery rate on a one-year lag.

 

The fair value of the Bank’s corporate bond portfolio was also impacted by market disruption and declining rates. The corporate bond portfolio consists of eleven subordinated debt securities of U.S. banks and bank holding companies with maturities ranging from 2024 to 2037. The securities are either fixed for five years converting to floating at an index over LIBOR or floating at an index over LIBOR from inception. Management regularly monitors the financial condition of these corporate issuers by reviewing their regulatory and public filings.

 

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, underlying credit quality of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuer’s financial condition. As of June 30, 2020, management does not believe any securities in the portfolio with unrealized losses should be classified as other than temporarily impaired.

 

Securities with unrealized losses at June 30, 2020 and December 31, 2019, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

 

  

Less than 12 Months

  

12 Months or More

  

Total

 

Description of Securities

 

Fair

Value

  

Unrealized

Loss

  

Fair

Value

  

Unrealized

Loss

  

Fair

Value

  

Unrealized

Loss

 
  

(in thousands)

 

June 30, 2020

                        

Available for sale

                        

U.S. Government and federal agency

 $  $  $  $  $  $ 

Agency mortgage-backed: residential

  6,100   (21

)

        6,100   (21

)

Collateralized loan obligations

  10,813   (732

)

  30,875   (2,310

)

  41,688   (3,042

)

State and municipal

  3,258   (57

)

        3,258   (57

)

Corporate bonds

  14,760   (1,573

)

        14,760   (1,573

)

Total temporarily impaired

 $34,931  $(2,383

)

 $30,875  $(2,310

)

 $65,806  $(4,693

)

December 31, 2019

                        

Available for sale

                        

U.S. Government and federal agency

 $12,567  $(147

)

 $  $  $12,567  $(147

)

Agency mortgage-backed: residential

  18,457   (97

)

  10,665   (158

)

  29,122   (255

)

Collateralized loan obligations

  9,539   (46

)

  35,336   (366

)

  44,875   (412

)

State and municipal

  911   (3

)

        911   (3

)

Corporate bonds

                  

Total temporarily impaired

 $41,474  $(293

)

 $46,001  $(524

)

 $87,475  $(817

)

 

12

 

 

Note 3 – Loans

 

Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 

Commercial (1)

 $221,292  $145,551 

Commercial Real Estate:

        

Construction

  73,195   64,911 

Farmland

  79,555   79,118 

Nonfarm nonresidential

  254,616   255,459 

Residential Real Estate:

        

Multi-family

  65,113   70,950 

1-4 Family

  204,283   226,629 

Consumer

  38,828   47,790 

Agriculture

  38,286   35,064 

Other

  591   799 

Subtotal

  975,759   926,271 

Less: Allowance for loan losses

  (10,228

)

  (8,376

)

Loans, net

 $965,531  $917,895 

_______________________________________________________________________________________________  

(1)   Includes PPP loans of $41.9 million at June 30, 2020.

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2020 and 2019:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

June 30, 2020:

                            

Beginning balance

 $2,025  $4,212  $1,909  $593  $409  $2  $9,150 

Provision (negative provision)

  504   210   189   134   65   (2

)

  1,100 

Loans charged off

  (3

)

  (28

)

  (7

)

  (152

)

  (3

)

     (193

)

Recoveries

  6   100   55   6   1   3   171 

Ending balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             
                             

June 30, 2019:

                            

Beginning balance

 $1,447  $4,498  $2,227  $159  $353  $2  $8,686 

Provision (negative provision)

  (45

)

  (46

)

  52   (16

)

  55       

Loans charged off

        (35

)

  (34

)

  (3

)

     (72

)

Recoveries

  90   1   83   44         218 

Ending balance

 $1,492  $4,453  $2,327  $153  $405  $2  $8,832 

 

13

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2020 and 2019:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

June 30, 2020:

                            

Beginning balance

 $1,710  $4,080  $1,743  $485  $355  $3  $8,376 

Provision (negative provision)

  843   351   409   399   152   (4

)

  2,150 

Loans charged off

  (32

)

  (57

)

  (82

)

  (313

)

  (44

)

     (528

)

Recoveries

  11   120   76   10   9   4   230 

Ending balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             
                             

June 30, 2019:

                            

Beginning balance

 $1,299  $4,676  $2,452  $130  $321  $2  $8,880 

Provision (negative provision)

  98   (211

)

  (152

)

  177   88       

Loans charged off

     (15

)

  (117

)

  (214

)

  (4

)

     (350

)

Recoveries

  95   3   144   60         302 

Ending balance

 $1,492  $4,453  $2,327  $153  $405  $2  $8,832 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of June 30, 2020:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

Allowance for loan losses:

                            

Ending allowance balance attributable to loans:

                            

Individually evaluated for impairment

 $  $24  $1  $  $  $  $25 

Collectively evaluated for impairment

  2,532   4,470   2,145   581   472   3   10,203 

Total ending allowance balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             

Loans:

                            

Loans individually evaluated for impairment

 $103  $1,014  $940  $14  $  $  $2,071 

Loans collectively evaluated for impairment

  221,189   406,352   268,456   38,814   38,286   591   973,688 

Total ending loans balance

 $221,292  $407,366  $269,396  $38,828  $38,286  $591  $975,759 

 

14

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, 2019:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

Allowance for loan losses:

                            

Ending allowance balance attributable to loans:

                            

Individually evaluated for impairment

 $3  $37  $2  $  $  $  $42 

Collectively evaluated for impairment

  1,707   4,043   1,741   485   355   3   8,334 

Total ending allowance balance

 $1,710  $4,080  $1,743  $485  $355  $3  $8,376 
                             
                             

 

Loans:

                            

Loans individually evaluated for impairment

 $74  $1,064  $892  $98  $42  $  $2,170 

Loans collectively evaluated for impairment

  145,477   398,424   296,687   47,692   35,022   799   924,101 

Total ending loans balance

 $145,551  $399,488  $297,579  $47,790  $35,064  $799  $926,271 

 

Impaired Loans

 

Impaired loans include restructured loans and loans on nonaccrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss has been provided.

 

The following tables present information related to loans individually evaluated for impairment by class of loans as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019:

 

  

As of June 30, 2020

  

Three Months Ended

June 30, 2020

  

Six Months Ended

June 30, 2020

 
  

Unpaid

Principal

Balance

  

Recorded

Investment

  

Allowance

For Loan

Losses

Allocated

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

 

Average

Recorded

Investment

  

 

Interest

Income

Recognized

 
  

(in thousands)

 

 

With No Related Allowance Recorded:

                            

Commercial

 $210  $103  $  $131  $  $104  $ 

Commercial real estate:

                            

Construction

                     

Farmland

  411   295      297   3   296   13 

Nonfarm nonresidential

  986   426      453   10   465   18 

Residential real estate:

                            

Multi-family

                     

1-4 Family

  1,819   866      856   51   819   54 

Consumer

  224   14      78      85   1 

Agriculture

  297               14    

Other

                     

Subtotal

  3,947   1,704      1,815   64   1,783   86 

With An Allowance Recorded:

                            

Commercial

                 8    

Commercial real estate:

                            

Construction

                     

Farmland

  143   143   19   143   2   189   4 

Nonfarm nonresidential

  161   150   5   75      50    

Residential real estate:

                            

Multi-family

                     

1-4 Family

  74   74   1   74   1   98   3 

Consumer

                     

Agriculture

                     

Other

                     

Subtotal

  378   367   25   292   3   345   7 

Total

 $4,325  $2,071  $25  $2,107  $67  $2,128  $93 

 

15

 
  

As of December 31, 2019

  

Three Months Ended

June 30, 2019

  

Six Months Ended

June 30, 2019

 
  

Unpaid

Principal

Balance

  

Recorded

Investment

  

Allowance

For Loan

Losses

Allocated

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

 

Average

Recorded

Investment

  

 

Interest

Income

Recognized

 
  (in thousands) 

With No Related Allowance Recorded:

                            

Commercial

 $138  $50  $  $66  $  $62  $ 

Commercial real estate:

                            

Construction

                     

Farmland

  380   293      156   3   134   8 

Nonfarm nonresidential

  1,057   489      246   4   251   7 

Residential real estate:

                            

Multi-family

                     

1-4 Family

  1,679   745      1,448   28   1,508   50 

Consumer

  309   98      14   2   9   2 

Agriculture

  304   42      65      43    

Other

                     

Subtotal

  3,867   1,717      1,995   37   2,007   67 

With An Allowance Recorded:

                            

Commercial

  24   24   3   13   1   9   1 

Commercial real estate:

                            

Construction

                     

Farmland

  282   282   37   225      203    

Nonfarm nonresidential

                     

Residential real estate:

                            

Multi-family

                     

1-4 Family

  183   147   2   715   10   717   21 

Consumer

                     

Agriculture

                     

Other

                     

Subtotal

  489   453   42   953   11   929   22 

Total

 $4,356  $2,170  $42  $2,948  $48  $2,936  $89 

 

Cash basis income recognized for the three and six months ended June 30, 2020 was $54,000 and $68,000, respectively, compared to $30,000 and $60,000 for the three and six months ended June 30, 2019, respectively.

 

Troubled Debt Restructuring

 

A troubled debt restructuring (TDR) occurs when the Bank has agreed to an other than short-term loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The Bank’s TDRs may involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower.

 

The following table presents the types of TDR loan modifications by portfolio segment outstanding as of June 30, 2020 and December 31, 2019:

 

  

TDRs

Performing to

Modified Terms

  

TDRs Not

Performing to

Modified Terms

  

Total

TDRs

 
  

(in thousands)

 

June 30, 2020

            

Commercial Real Estate:

            

Nonfarm nonresidential

 $388  $  $388 

Residential Real Estate:

            

1-4 Family

  74      74 

Total TDRs

 $462  $  $462 

 

16

 
  

TDRs

Performing to

Modified Terms

  

TDRs Not

Performing to

Modified Terms

  

Total

TDRs

 
  

(in thousands)

 

December 31, 2019

            

Commercial Real Estate:

            

Nonfarm nonresidential

 $400  $  $400 

Residential Real Estate:

            

1-4 Family

  75      75 

Total TDRs

 $475  $  $475 

 

At June 30, 2020 and December 31, 2019, 100% of the Company’s TDRs were performing according to their modified terms. The Company allocated $1,000 in reserves to borrowers whose loan terms have been modified in TDRs as of June 30, 2020 and December 31, 2019. The Company has committed to lend no additional amounts as of June 30, 2020 and December 31, 2019 to borrowers with outstanding loans classified as TDRs.

 

Management periodically reviews renewals and modifications of previously identified TDRs, for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was not commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.

 

No TDR loan modifications occurred during the three and six months ended June 30, 2020 or June 30, 2019. During the three and six months ended June 30, 2020 and June 30, 2019, no TDRs defaulted on their restructured loan within the 12-month period following the loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.

 

Non-TDR Loan Modifications due to COVID-19

 

The Company has elected to account for eligible loan modifications under Section 4013 of the CARES Act. To be an eligible loan under Section 4013 of the CARES Act, a loan modification must be (1) related to the COVID 19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020 and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”) or (B) December 31, 2020. Eligible loan modifications are not required to be classified as TDRs and will not be reported as past due provided that they are performing in accordance with the modified terms. Interest income will continue to be recognized in accordance with GAAP unless the loan is placed on nonaccrual status.

 

Non-performing Loans

 

Non-performing loans include impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. The following table presents the recorded investment in nonaccrual and loans past due 90 days and still on accrual by class of loan as of June 30, 2020, and December 31, 2019:

 

  

Nonaccrual

  

Loans Past Due 90 Days

And Over Still Accruing

 
  

June 30,

2020

  

December 31,

2019

  

June 30,

2020

  

December 31,

2019

 
  

(in thousands)

 
                 

Commercial

 $104  $50  $  $ 

Commercial Real Estate:

                

Construction

            

Farmland

  295   431       

Nonfarm nonresidential

  188   90       

Residential Real Estate:

                

Multi-family

            

1-4 Family

  809   817       

Consumer

  14   98       

Agriculture

     42       

Other

            

Total

 $1,410  $1,528  $  $ 

 

17

 

The following table presents the aging of the recorded investment in past due loans as of June 30, 2020 and December 31, 2019:

 

  

30 – 59

Days

Past Due

  

60 – 89

Days

Past Due

  

90 Days

And Over

Past Due

  

 

 

Nonaccrual

  

Total

Past Due

And

Nonaccrual

 
  

(in thousands)

 

June 30, 2020

                    

Commercial

 $  $  $  $104  $104 

Commercial Real Estate:

                    

Construction

               

Farmland

  55         295   350 

Nonfarm nonresidential

     40      188   228 

Residential Real Estate:

                    

Multi-family

               

1-4 Family

  331   88      809   1,228 

Consumer

  67   69      14   150 

Agriculture

  5            5 

Other

               

Total

 $458  $197  $  $1,410  $2,065 

 

 

  

30 – 59

Days

Past Due

  

60 – 89

Days

Past Due

  

90 Days

And Over

Past Due

  

 

 

Nonaccrual

  

Total

Past Due

And

Nonaccrual

 
                     
  

(in thousands)

 

December 31, 2019

                    

Commercial

 $14  $3  $  $50  $67 

Commercial Real Estate:

                    

Construction

               

Farmland

  274         431   705 

Nonfarm nonresidential

  206         90   296 

Residential Real Estate:

                    

Multi-family

               

1-4 Family

  1,162   503      817   2,482 

Consumer

  91   164      98   353 

Agriculture

           42   42 

Other

               

Total

 $1,747  $670  $  $1,528  $3,945 

 

Credit Quality Indicators 

 

Management categorizes all loans into risk categories at origination based upon original underwriting. Thereafter, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends. Loans are analyzed through internal and external loan review processes and are routinely analyzed through credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings:

 

Watch – Loans classified as watch are those loans which have or may experience a potentially adverse development which necessitates increased monitoring.

 

Special Mention – Loans classified as special mention do not have all of the characteristics of substandard or doubtful loans. They have one or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices, may remedy.

 

Substandard – Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize the repayment of the debt as contractually agreed. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.

 

18

 

As of June 30, 2020, and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

  

Pass

  

Watch

  

Special

Mention

  

Substandard

  

Doubtful

  

Total

 
  

(in thousands)

 

June 30, 2020

                        

Commercial

 $203,360  $16,048  $  $1,884  $  $221,292 

Commercial Real Estate:

                        

Construction

  73,195               73,195 

Farmland

  72,750   6,008      797      79,555 

Nonfarm nonresidential

  246,118   6,726      1,772      254,616 

Residential Real Estate:

                        

Multi-family

  54,665   10,448            65,113 

1-4 Family

  198,014   3,617      2,652      204,283 

Consumer

  38,780   3      45      38,828 

Agriculture

  38,085   164      37      38,286 

Other

  591               591 

Total

 $925,558  $43,014  $  $7,187  $  $975,759 

 

 

  

Pass

  

Watch

  

Special

Mention

  

Substandard

  

Doubtful

  

Total

 
                         
  

(in thousands)

 

December 31, 2019

                        

Commercial

 $130,312  $11,280  $  $3,959  $  $145,551 

Commercial Real Estate:

                        

Construction

  64,911               64,911 

Farmland

  71,503   6,663      952      79,118 

Nonfarm nonresidential

  245,995   6,986      2,478      255,459 

Residential Real Estate:

                        

Multi-family

  70,950               70,950 

1-4 Family

  221,727   2,420      2,482      226,629 

Consumer

  47,657   5      128      47,790 

Agriculture

  34,853   168      43      35,064 

Other

  799               799 

Total

 $888,707  $27,522  $  $10,042  $  $926,271 

 

 

Note 4 – Leases

 

As of June 30, 2020, the Company leases real estate for six branch offices or offsite ATM machines under various operating lease agreements. The lease agreements have maturity dates ranging from 2021 to 2055, including all expected extension periods. The weighted average remaining life of the lease term for these leases was 22 years as of June 30, 2020.

 

In determining the present value of lease payments, the Bank uses the implicit lease rate when readily determinable. As most of the Bank’s leases do not provide an implicit rate, the incremental borrowing rate based on the information available at commencement date is used. The incremental borrowing rate is the rate of interest that the Bank estimates it would pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The weighted average discount rate for the leases was 5.47% as of June 30, 2020.

 

Total rental expense was $136,000 and $256,000, respectively, for the three and six months ended June 30, 2020, compared to $65,000 and $130,000, respectively, for the three and six months ended June 30, 2019. The right-of-use asset, included in premises and equipment, and lease liability, included in other liabilities, was $2.7 million as of June 30, 2020 and $384,000 as of June 30, 2019.

 

19

 

Total estimated rental commitments for the operating leases were as follows as of June 30, 2020 (in thousands):

 

  

June 30,

2020

 
     

July – December 2020

 $255 

2021

  241 

2022

  223 

2023

  226 

2024

  225 

Thereafter

  3,720 

Total minimum lease payments

  4,890 

Discount effect of cash flows

  (2,195

)

Present value of lease liabilities

 $2,695 

 

 

Note 5 – Other Real Estate Owned

 

Other real estate owned (OREO) is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. It is classified as real estate owned until such time as it is sold. When property is acquired as a result of foreclosure or by deed in lieu of foreclosure, it is recorded at its fair market value less estimated cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses.

 

The following table presents the major categories of OREO at the period-ends indicated: 

 

   

June 30,

2020

   

December 31,

2019

 
   

(in thousands)

 

Commercial Real Estate:

               

Construction, land development, and other land

  $ 1,625     $ 3,225  
    $ 1,625     $ 3,225  

 

Residential loans secured by 1-4 family residential properties in the process of foreclosure totaled $154,000 and $172,000 at June 30, 2020 and December 31, 2019, respectively.

 

Activity relating to OREO during the six months ended June 30, 2020 and 2019 is as follows:

 

   

For the Six

Months Ended

June 30,

 
   

2020

   

2019

 
   

(in thousands)

 

OREO Activity

               

OREO as of January 1

  $ 3,225     $ 3,485  

Real estate acquired

           

Valuation adjustment write-downs

          (260

)

Net gain on sales

           

Proceeds from sales of properties

    (1,600

)

     

OREO as of June 30

  $ 1,625     $ 3,225  

 

Expenses related to other real estate owned include:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
    (in thousands)     (in thousands)  

Net gain on sales

  $     $     $     $  

Valuation adjustment write-downs

          110             260  

Operating expense

    22       32       38       48  

Total

  $ 22     $ 142     $ 38     $ 308  

 

20

 
 

Note 6 – Goodwill and Intangible Assets

 

The following table summarizes the Company’s acquired goodwill and intangible assets as of June 30, 2020 and December 31, 2019 (in thousands):

 

   

June 30, 2020

   

December 31, 2019

 
   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Gross

Carrying

Amount

   

Accumulated

Amortization

 

Goodwill

  $ 6,252     $     $ 6,252     $  

Core deposit intangibles

    2,500       128       2,500        

Outstanding, ending

  $ 8,752     $ 128     $ 8,752     $  

 

The Company has $6.3 million of goodwill related to a 2019 branch acquisition transaction. Goodwill represents the excess of the total purchase price paid over the fair value of the identifiable assets acquired, net of the fair value of the liabilities assumed. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment exists when a reporting unit’s carrying amount exceeds its fair value. Based upon current economic conditions as a result of COVID-19, management assessed goodwill for impairment as of June 30, 2020 and concluded there was no impairment. Goodwill is the Company’s sole intangible asset with an indefinite life.

 

The Company also has a core deposit intangible asset, which is amortized over the weighted average estimated life of the related deposits and is not estimated to have a significant residual value. During the three and six months ended June 30, 2020, the Company recorded intangible amortization expense totaling $64,000 and $128,000, respectively.

 

Amortization expense related to the core deposit intangible for the remainder of 2020 and beyond is estimated as follows (in thousands):

 

   

June 30,

2020

 

July 2020 – December 2020

  $ 128  

2021

    256  

2022

    256  

2023

    256  

2024

    256  

Thereafter

    1,220  
    $ 2,372  

 

 

Note 7 – Deposits

 

The following table details deposits by category:

 

   

June 30,

2020

   

December 31,

2019

 
   

(in thousands)

 

Non-interest bearing

  $ 224,901     $ 187,551  

Interest checking

    167,814       146,038  

Money market

    166,376       160,837  

Savings

    119,327       56,015  

Certificates of deposit

    446,370       476,534  

Total

  $ 1,124,788     $ 1,026,975  

 

Time deposits of $250,000 or more were $66.6 million and $51.2 million at June 30, 2020 and December 31, 2019, respectively.

 

21

 

Scheduled maturities of total time deposits at June 30, 2020 for each of the next five years and thereafter are as follows (in thousands):

 

Year 1

  $ 362,819  

Year 2

    42,047  

Year 3

    17,112  

Year 4

    12,242  

Year 5

    11,801  

Thereafter

    349  
    $ 446,370  

 

 

Note 8 – Advances from the Federal Home Loan Bank

 

Advances from the Federal Home Loan Bank were as follows:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 
         

Short term advances

 $  $60,000 

Long term advances (fixed rates 0.00% to 0.77%) maturing April 2021 to February 2030

  20,644   1,389 

Total advances from the Federal Home Loan Bank

 $20,644  $61,389 

 

FHLB advances had a weighted-average rate of 0.75% at June 30, 2020 and 1.70% at December 31, 2019. Each advance is payable per terms on agreement, with a prepayment penalty. No prepayment penalties were incurred during 2020 or 2019. The advances were collateralized by approximately $147.2 million and $166.0 million of first mortgage loans, under a blanket lien arrangement at June 30, 2020 and December 31, 2019, respectively, and $41.9 million of loans originated under the SBA Payment Protection Plan at June 30, 2020. At June 30, 2020, our additional borrowing capacity with the FHLB was $124.9 million.

 

Scheduled principal payments on the above during the next five years and thereafter (in thousands):

 

  

Advances

 

Year 1

 $644 

Year 2

   

Year 3

   

Year 4

   

Year 5

   

Thereafter

  20,000 
  $20,644 

 

 

Note 9Borrowings

 

Junior Subordinated Debentures – The junior subordinated debentures are redeemable at par prior to maturity at the option of the Company as defined within the trust indenture. The Company has the option to defer interest payments on the junior subordinated debentures from time to time for a period not to exceed 20 consecutive quarters. A deferral period may begin at the Company’s discretion so long as interest payments are current. The Company is prohibited from paying dividends on preferred and common shares when interest payments are in deferral. At June 30, 2020, the Company is current on all interest payments.

 

Subordinated Capital Notes – The Company’s $17.0 million subordinated notes mature on July 31, 2029. The notes carry interest at a fixed rate of 5.75% until July 30, 2024 and then convert to variable at three-month LIBOR plus 395 basis points until maturity. The subordinated capital notes qualify as Tier 2 regulatory capital. Subsequent to quarter end on July 31, 2020, the Company completed the issuance of an additional $8.0 million in subordinated notes under the July 23, 2019 indenture with the same terms as the current outstanding subordinated notes with the additional commitment by the Company to extend the optional prepayment date to July 31, 2025 so long as the additional notes qualify as Tier 2 regulatory capital. The Company used the net proceeds from the issuance of the additional notes to retire its senior debt and retained the remaining balance for general corporate purposes. The subordinated capital notes qualify as Tier 2 regulatory capital.

 

Senior Debt - The Company’s $5.0 million senior secured loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty. Subsequent to quarter end, the Company retired this loan.

 

22

 

The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i) the Company must maintain minimum cash on hand of not less than $2,500,000, (ii) the Company must maintain a total risk based capital ratio at least equal to 10% of risk-weighted assets, (iii) the Bank must maintain a total risk based capital ratio at least equal to 11% of risk-weighted assets, and (iv) non-performing assets of the Bank may not exceed 2.5% of the Bank’s total assets. Both the Company and Bank were in compliance with the covenants as of June 30, 2020.

 

 

Note 10 – Fair Values Measurement

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Various valuation techniques are used to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

 

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, the fair value hierarchy is classified on the lowest level of input that is significant to the fair value measurement. The following methods and significant assumptions are used to estimate fair value.

 

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

 

Impaired Loans: An impaired loan is evaluated at the time the loan is identified as impaired and is recorded at fair value less costs to sell. Fair value is measured based on the value of the collateral securing the loan and is classified as Level 3 in the fair value hierarchy. Fair value is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

 

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 

Management routinely applies internal discounts to the value of appraisals used in the fair value evaluation of our impaired loans. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from 10% for routine real estate collateral to 25% for real estate that is determined to have a thin trading market or to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

 

Management also applies discounts to the expected fair value of collateral for impaired loans where the likely resolution involves litigation or foreclosure. Resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment. Discounts ranging from 10% to 33% have been utilized in our impairment evaluations when applicable.

 

23

 

Impaired loans are evaluated quarterly for additional impairment. Management obtains updated appraisals on properties securing our loans when circumstances are warranted such as at the time of renewal or when market conditions have significantly changed. This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and the assessment of deterioration of real estate values in the market in which the property is located.

 

Other Real Estate Owned (OREO): OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or internal evaluation less estimated cost to sell. Quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family homes, management consults with staff from the Bank’s special assets group as well as external realtors and appraisers. Based on these consultations, management determines asking prices for OREO properties being marketed for sale. If the internally evaluated fair value or asking price is below the recorded investment in the property, appropriate write-downs are taken.

 

For larger dollar commercial real estate properties, management obtains a new appraisal of the subject property or has staff in the special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Management generally obtains updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. When an asking price is lowered below the most recent appraised value, appropriate write-downs are taken.

 

Financial assets measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 are summarized below:

 

           

Fair Value Measurements at June 30, 2020 Using

 
           

(in thousands)

 
           

Quoted Prices In

           

Significant

 
           

Active Markets for

   

Significant Other

   

Unobservable

 
   

Carrying

   

Identical Assets

   

Observable Inputs

   

Inputs

 

Description

 

Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

Available for sale securities

                               

U.S. Government and federal agency

  $ 21,074     $     $ 21,074     $  

Agency mortgage-backed: residential

    88,179             88,179        

Collateralized loan obligations

    41,688             41,688        

State and municipal

    29,568             29,568        

Corporate bonds

    22,087             22,087        

Total

  $ 202,596     $     $ 202,596     $  

 

 

           

Fair Value Measurements at December 31, 2019 Using

 
           

(in thousands)

 

Description

 

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Available for sale securities

                               

U.S. Government and federal agency

  $ 22,330     $     $ 22,330     $  

Agency mortgage-backed: residential

    92,200             92,200        

Collateralized loan obligations

    49,419             49,419        

State and municipal

    28,366             28,366        

Corporate bonds

    16,685             16,685        

Total

  $ 209,000     $     $ 209,000     $  

 

There were no transfers between Level 1 and Level 2 during 2020 or 2019.

 

24

 

Financial assets measured at fair value on a non-recurring basis are summarized below: 

 

           

Fair Value Measurements at June 30, 2020 Using

 
           

(in thousands)

 
Description  

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

 

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Impaired loans:

                               

Commercial real estate:

                               

Farmland

  $ 124     $     $     $ 124  

Nonfarm nonresidential

    145                   145  

Residential real estate:

                               

1-4 Family

    73                   73  

 

 

           

Fair Value Measurements at December 31, 2019 Using

 
           

(in thousands)

 

Description

 

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

 

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Impaired loans:

                               

Commercial

  $ 21     $     $     $ 21  

Commercial real estate:

                               

Farmland

    245                   245  

Residential real estate:

                               

1-4 Family

    145                   145  

 

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $367,000 at June 30, 2020 with a valuation allowance of $25,000, resulting in $5,000 and no additional provision for loan losses for the three and six months ended June 30, 2020, respectively. Impaired loans had a carrying amount of $1.0 million with a valuation allowance of $195,000, resulting in $2,000 and no additional provision for loan losses for the three and six months ended June 30, 2019, respectively. At December 31, 2019, impaired loans had a carrying amount of $453,000, with a valuation allowance of $42,000.

 

Carrying amount and estimated fair values of financial instruments were as follows for the periods indicated:

 

           

Fair Value Measurements at June 30, 2020 Using

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(in thousands)

 

Financial assets

                                       

Cash and cash equivalents

  $ 49,017     $ 49,017     $     $     $ 49,017  

Securities available for sale

    202,596             202,596             202,596  

Federal Home Loan Bank stock

    6,142       N/A       N/A       N/A       N/A  

Loans, net

    965,531                   940,327       940,327  

Accrued interest receivable

    5,231             982       4,249       5,231  

Financial liabilities

                                       

Deposits

  $ 1,124,788     $ 224,901     $ 902,166     $     $ 1,127,067  

Federal Home Loan Bank advances

    20,644             20,701             20,701  

Junior subordinated debentures

    21,000                   14,436       14,436  

Subordinated capital notes

    17,000                   16,358       16,358  

Senior Debt

    5,000                   4,919       4,919  

Accrued interest payable

    761             324       437       761  

 

25

 
           

Fair Value Measurements at December 31, 2019 Using

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(in thousands)

 

Financial assets

                                       

Cash and cash equivalents

  $ 30,203     $ 30,203     $     $     $ 30,203  

Securities available for sale

    209,000             209,000             209,000  

Federal Home Loan Bank stock

    6,237       N/A       N/A       N/A       N/A  

Loans, net

    917,895                   925,388       925,388  

Accrued interest receivable

    4,257             1,118       3,139       4,257  

Financial liabilities

                                       

Deposits

  $ 1,026,975     $ 187,551     $ 839,882     $     $ 1,027,433  

Federal Home Loan Bank advances

    61,389             61,395             61,395  

Junior subordinated debentures

    21,000                   17,466       17,466  

Subordinated capital notes

    17,000                   17,003       17,003  

Senior Debt

    5,000                   5,022       5,022  

Accrued interest payable

    1,129             647       482       1,129  

 

In accordance with ASU 2016-01, the methods utilized to measure the fair value of financial instruments represent an approximation of exit price; however, an actual exit price may differ.

 

 

Note 11 – Income Taxes

 

Deferred tax assets and liabilities were due to the following as of:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 

Deferred tax assets:

        

Net operating loss carry-forward

 $23,662  $22,915 

Allowance for loan losses

  2,552   2,090 

OREO write-down

  769   2,665 

Alternative minimum tax credit carry-forward

     173 

Net assets from acquisitions

  149   228 

New market tax credit carry-forward

  208   208 

Nonaccrual loan interest

  307   303 

Accrued expenses

  104   102 

Lease liability

  672   766 

Other

  265   309 
   28,688   29,759 
         

Deferred tax liabilities:

        

FHLB stock dividends

  500   563 

Fixed assets

  55   57 

Deferred loan costs

  186   170 

Net unrealized gain on securities

  115   331 

Lease right-of-use assets

  672   766 

Other

  106   107 
   1,634   1,994 

Net deferred tax asset

 $27,054  $27,765 

 

At June 30, 2020, the Company had net federal operating loss carryforwards of $106.4 million, which will begin to expire in 2031, and state net operating loss carryforwards of $33.6 million, which begin to expire in 2025. As of June 30, 2020, a total of $173,000 in alternative minimum tax credit carryforward was reclassified to other assets as it is currently refundable for the 2019 tax year due to the enactment of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).

 

The Company does not have any beginning and ending unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. There were no interest and penalties recorded in the income statement or accrued for the three or six months ended June 30, 2020 or June 30, 2019 related to unrecognized tax benefits.

 

26

 

Under Section 382 of the Internal Revenue Code, as amended (“Section 382”), the Company’s net operating loss carryforwards and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section 382. This would occur if shareholders owning (or deemed to own under the tax rules) 5% or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than 50 percentage points over a defined period of time.

 

In 2015, the Company took two measures to preserve the value of its NOLs. First, the Company adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Upon adoption of this plan, the Company declared a dividend of one preferred stock purchase right for each common share outstanding as of the close of business on July 10, 2015. Any shareholder or group that acquires beneficial ownership of 5% or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does not approve such acquisition. Existing shareholders holding 5% or more of the Company will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board not to jeopardize the Company's deferred tax assets. The rights plan was extended in May 2018 to expire upon the earlier of (i) June 30, 2021, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefits may be carried forward, (iii) the repeal or amendment of Section 382 or any successor statute, if the Board of Directors determines that the plan is no longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.

 

On September 23, 2015, the Company’s shareholders approved an amendment to its articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section 382. The transfer restrictions were extended in May 2018 by shareholder vote and will expire on the earlier of (i) May 23, 2021, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefit may be carried forward, (iii) the repeal of Section 382 or any successor statute if our Board determines that the transfer restrictions are no longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are no longer necessary.

 

The Company and its subsidiaries are subject to U.S. federal income tax and the Company is subject to income tax in the Commonwealth of Kentucky. The Company is no longer subject to examination by taxing authorities for years before 2016.

 

 

Note 12 – Stock Plans and Stock Based Compensation

 

Shares available for issuance under the 2018 Omnibus Equity Compensation Plan (“2018 Plan”) total 275,367. Shares issued to employees under the plan vest annually on the anniversary date of the grant over three years. Shares issued annually to non-employee directors have a fair market value of $25,000 and vest on December 31 in the year of grant.

 

The fair value of the 2020 unvested shares issued was $349,000, or $17.03 per weighted-average share. The Company recorded $104,000 and $210,000 of stock-based compensation to salaries for the three and six months ended June 30, 2020, respectively, and $93,000 and $175,000 for the three and six months ended June 30, 2019, respectively. Management expects substantially all of the unvested shares outstanding at the end of the period to vest according to the vesting schedule. A deferred tax benefit of $22,000 and $44,000 was recognized related to this expense during the three and six months ended June 30, 2020, respectively, and $19,000 and $37,000 for the three and six months ended June 30, 2019, respectively.

 

The following table summarizes unvested share activity as of and for the periods indicated for the Stock Compensation Plan:

 

   

Six Months Ended

   

Twelve Months Ended

 
   

June 30, 2020

   

December 31, 2019

 
           

Weighted

           

Weighted

 
           

Average

           

Average

 
           

Grant

           

Grant

 
   

Shares

   

Price

   

Shares

   

Price

 

Outstanding, beginning

    57,774     $ 13.35       116,909     $ 8.69  

Granted

    20,507       17.03       34,501       14.81  

Vested

    (27,625

)

    12.35       (89,388

)

    7.83  

Forfeited

                (4,248

)

    13.07  

Outstanding, ending

    50,656     $ 15.39       57,774     $ 13.35  

 

27

 

Unrecognized stock based compensation expense related to unvested shares for the remainder of 2020 and beyond is estimated as follows (in thousands):

 

July 2020 – December 2020

  $ 201  

2021

    311  

2022

    136  

2023

    14  

 

 

Note 13 – Earnings per Share

 

The factors used in the basic and diluted earnings per share computations follow:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands, except share and per share data)

 
                 

Net income

 $1,982  $3,633  $3,822  $6,472 

Less:

                

Earnings allocated to unvested shares

  15   32   30   71 

Net income available to common shareholders, basic and diluted

 $1,967  $3,601  $3,792  $6,401 
                 

Basic

                

Weighted average common shares including unvested common shares outstanding

  7,488,173   7,459,631   7,485,028   7,464,743 

Less:

                

Weighted average unvested common shares

  57,804   64,974   57,794   82,285 

Weighted average common shares outstanding

  7,430,369   7,394,657   7,427,234   7,382,458 

Basic income per common share

 $0.26  $0.49  $0.51  $0.87 
                 

Diluted

                

Add: Dilutive effects of assumed exercises of common stock warrants

            

Weighted average common shares and potential common shares

  7,430,369   7,394,657   7,427,234   7,382,458 

Diluted income per common share

 $0.26  $0.49  $0.51  $0.87 

 

The Company had no outstanding stock options or warrants at June 30, 2020 or 2019.

 

 

Note 14Regulatory Capital Matters

 

Banks and bank holding companies are subject to regulatory capital requirements in accordance with Basel III, as administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action.

 

The Basel III rules established a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. The minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. An institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions without prior regulatory approval.

 

As of June 30, 2020, Management believes the Company and Bank met all capital adequacy requirements to which they are subject. As of June 30, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the institution’s category.

 

28

 

The following tables show the ratios (excluding capital conservation buffer) and amounts of common equity Tier 1, Tier 1 capital, and total capital to risk-adjusted assets and the leverage ratios for the Bank at the dates indicated (dollars in thousands):

 

   

Actual

   

Minimum Requirement

for Capital Adequacy

Purposes

   

Minimum Requirement

to be Well Capitalized

Under Prompt Corrective

Action Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

As of June 30, 2020:

                                               

Total risk-based capital (to risk- weighted assets)

  $ 131,788       12.78     $ 82,499       8.00     $ 103,124       10.00

%

Total common equity Tier 1 risk- based capital (to risk-weighted assets)

    121,560       11.79       46,406       4.50       67,030       6.50  

Tier 1 capital (to risk-weighted assets)

    121,560       11.79       61,874       6.00       82,499       8.00  

Tier 1 capital (to average assets)

    121,560       9.54       50,992       4.00       63,739       5.00  

 

 

   

Actual

   

Minimum Requirement

for Capital Adequacy

Purposes

   

Minimum Requirement

to be Well Capitalized

Under Prompt Corrective

Action Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

As of December 31, 2019:

                                               

Total risk-based capital (to risk- weighted assets)

  $ 121,335       12.08

%

  $ 80,341       8.00

%

  $ 100,426       10.00

%

Total common equity Tier 1 risk- based capital (to risk-weighted assets)

    112,959       11.25       45,192       4.50       65,277       6.50  

Tier 1 capital (to risk-weighted assets)

    112,959       11.25       60,256       6.00       80,341       8.00  

Tier 1 capital (to average assets)

    112,959       9.99       45,208       4.00       56,510       5.00  

 

Kentucky banking laws limit the amount of dividends that may be paid to a holding company by its subsidiary banks without prior approval. These laws limit the amount of dividends that may be paid in any calendar year to current year’s net income, as defined in the laws, combined with the retained net income of the preceding two years, less any dividends declared during those periods. In addition, a bank must have positive retained earnings.

 

 

Note 15Off Balance Sheet Risks, Commitments, and Contingent Liabilities

 

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. The financial instruments include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

 

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding. Commitments to make loans are generally made for periods of one year or less.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material. No liability is currently established for standby letters of credit.

 

29

 

The following table presents the contractual amounts of financial instruments with off-balance sheet risk for each period ended:

 

  

June 30, 2020

  

December 31, 2019

 
  

Fixed

Rate

  

Variable

Rate

  

Fixed

Rate

  

Variable

Rate

 
  

(in thousands)

 

Commitments to make loans

 $13,118  $21,199  $11,577  $20,415 

Unused lines of credit

  6,697   118,606   7,916   111,230 

Standby letters of credit

  531   1,336   531   3,164 

 

Commitments to make loans are generally made for periods of one year or less.

 

In connection with the purchase of loan participations, the Bank entered into risk participation agreements, which had notional amounts totaling $26.6 million at June 30, 2020 and December 31, 2019. The risk participation agreements are not designated against specific assets or liabilities under ASC 815, Derivatives and Hedging, and, therefore, do not qualify for hedge accounting. The derivatives are recorded in other liabilities on the balance sheet at fair value and changes in fair value of both the borrower and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.

 

In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.

 

The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s revenues or income for such period. The Company will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated. The Company is not currently involved in any material litigation.

 

 

Note 16 – Revenue from Contracts with Customers

 

All of the Company’s revenue from customers within the scope of ASC 606 is recognized as non-interest income. A description of the Company’s revenue streams accounted for under ASC 606 follows:

 

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges are withdrawn from the customer’s account balance.

 

Bank Card Interchange Income: The Company earns interchange fees from bank cardholder transactions conducted through a third-party payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Prior to adopting ASC 606, the Company reported bank card interchange fees net of expenses. Under ASC 606, bank card interchange fees are reported gross.

 

Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. Gains and losses on sales of OREO are netted with OREO expense and reported in non-interest expense.

 

Other Non-interest Income: Other non-interest income includes revenue from several sources that are within the scope of ASC 606, including title insurance commissions, income from secondary market loan sales, and other transaction-based revenue that is individually immaterial. Other non-interest income included approximately $129,000 and $285,000 of revenue for the three and six months ended June 30, 2020, respectively, within the scope of ASC 606. Other non-interest income included approximately $119,000 and $255,000 of revenue for the three and six months ended June 30, 2019, respectively, within the scope of ASC 606. The remaining other non-interest income for the three and six months is excluded from the scope of ASC 606.

 

30

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This item analyzes the Company’s financial condition, change in financial condition and results of operations. It should be read in conjunction with the unaudited consolidated financial statements and accompanying notes presented in Part I, Item 1 of this report.

 

Preliminary Note Concerning Forward-Looking Statements

 

This report contains statements about the future expectations, activities and events that constitute forward-looking statements. Forward-looking statements express our beliefs, assumptions and expectations of our future financial and operating performance and growth plans, taking into account information currently available to us. These statements are not statements of historical fact. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” “strive” or similar words, or the negatives of these words, identify forward-looking statements.

 

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include the assumptions or bases underlying the forward-looking statement. Management has made assumptions and bases in good faith and believe they are reasonable. However, that estimates based on such assumptions or bases frequently differ from actual results, and the differences can be material. The forward-looking statements included in this report speak only as of the date of the report. Management does not intend to update these statements unless required by applicable laws.

 

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we expressed or implied in any forward-looking statements. These risks and uncertainties can be difficult to predict and may be out of management’s control. Factors that could contribute to differences in results include, but are not limited to the following:

 

 

Ability of borrowers to resume contractual payments upon expiration of COVID-19 short-term loan concessions;

 

Changes in fiscal, monetary, regulatory and tax policies;

 

Changes in political and economic conditions;

 

The magnitude and frequency of changes to the Federal Funds Target Rate implemented by the Federal Open Market Committee of the Federal Reserve Bank;

 

Long-term and short-term interest rate fluctuations as well as the overall steepness of the yield curve;

 

Competitive product and pricing pressures;

 

Equity and fixed income market fluctuations;

 

Client bankruptcies and loan defaults;

 

Inflation;

 

Recession;

 

Epidemics and pandemics

 

Natural disasters impacting Company operations;

 

Future acquisitions;

 

Integrations and performance of acquired businesses;

 

Changes in technology and regulations or the interpretation and enforcement thereof;

 

Changes in accounting standards;

 

Changes to the Company’s overall internal control environment;

 

Success in gaining regulatory approvals when required;

 

Information security breaches or cyber security attacks involving either the Company or one of the Company’s third-party service providers; and

 

Other risks and uncertainties reported from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”), including Part II Item 1A “Risk Factors” of this report, as well as Part I Item 1A “Risk Factors” of the Company’s December 31, 2019 Annual Report on Form 10-K for the year ended December 31, 2019.

 

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include the assumptions or bases underlying the forward-looking statement. Management has made assumptions and bases in good faith and believe they are reasonable. However, estimates based on such assumptions or bases frequently differ from actual results, and the differences can be material. The forward-looking statements included in this report speak only as of the date of the report. Management does not intend to update these statements unless required by applicable laws.

 

Overview

 

The Company is a bank holding company headquartered in Louisville, Kentucky. The Company’s common stock is traded on Nasdaq’s Capital Market under the symbol LMST. The Company operates Limestone Bank (the Bank), its wholly owned subsidiary and the seventh largest bank domiciled in the Commonwealth of Kentucky based on total assets. The Bank operates banking offices in 14 counties in Kentucky. The Bank’s markets include metropolitan Louisville in Jefferson County and the surrounding counties of Bullitt and Henry. 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. The Bank is a traditional community bank with a wide range of personal and business banking products and services. As of June 30, 2020, the Company had total assets of $1.30 billion, total loans of $975.8 million, total deposits of $1.12 billion and stockholders’ equity of $109.1 million.

 

31

 

The federal and state public health response to the coronavirus pandemic (“COVID-19”) continues to impact the nation and the economy. Since early March, the Company and Bank have been impacted alongside consumers and businesses in our markets. In response to the global pandemic and the resultant declarations of emergency at the state and national levels, the Bank has implemented and continues to utilize several temporary operational changes to serve customers during the COVID-19 health crisis. Lobby services were initially amended to appointment only and drive thru, mobile, and online banking were the Bank’s primary channels of serving customers. The Bank began a phased re-opening of lobby services in June and also began offering curbside service in the second quarter. Management remains committed to ensuring the Bank’s workforce remains healthy and available to serve customers.

 

The Company reported net income of $2.0 million and $3.8 million for the three and six months ended June 30, 2020, compared with net income of $3.6 million and $6.5 million for the same periods of 2019. Income tax expense was $393,000 and $754,000 for the second quarter of 2020 and for the first six months of 2020, respectively, compared to income tax benefit of $611,000 and $488,000 for the second quarter of 2019 and for the first six months of 2019, respectively. Income tax expense for the second quarter of 2019 and six months ended June 30, 2019 benefitted $1.2 million, or $0.16 per basic and diluted common share, and $1.5 million, or $0.21 per basic and diluted common share, respectively, from the establishment of a net deferred tax asset related to a change in Kentucky tax law enacted during the first quarter of 2019. The new law eliminated the Kentucky bank franchise tax, which is assessed at a rate of 1.1% of average capital, and implemented 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.

 

Highlights for the six months ended June 30, 2020 are as follows:

 

 

Loan growth outpaced paydowns during the period. Average loans receivable increased approximately $183.7 million or 23.5% to $963.8 million for the six months ended June 30, 2020, compared with $780.1 million for the first six months of 2019. This resulted in an increase in interest revenue volume of approximately $4.5 million for the six months ended June 30, 2020 compared with the six months of 2019. Average loans were positively impacted from the branch purchase acquisition, which included approximately $126.8 million in loans at the time of the purchase, as well as loan growth during 2019 and the first and second quarters of 2020. Average loans for the second quarter of 2020 were also positively impacted by $42.0 million in loan originations under the SBA’s Paycheck Protection Program.

 

 

Net interest margin decreased 19 basis points to 3.32% in the first six months of 2020 compared with 3.51% in the first six months of 2019. The yield on earning assets decreased to 4.35% for the first six months of 2020, compared to 4.86% for the first six months of 2019. The decline in yield on earning assets was driven by the impact of falling interest rates on the Bank’s fed funds, certain floating rate investment securities, and loans with variable rate pricing features as the Federal Reserve lowered the federal funds target rate by 75 basis points in the latter half of 2019, 50 basis points on March 6, 2020, and 100 basis points on March 15, 2020. The cost of interest-bearing liabilities decreased from 1.62% in the first six months of 2019 to 1.28% in the first six months of 2020 as a result of decreases in short-term interest rates during 2019 and 2020.

 

 

While the Company has experienced historically strong trends in asset quality over the last several quarters and management’s assessment of risk within the portfolio has been low, the Company recorded provision for loan losses expense of $1.1 million and $2.2 million in the second quarter and the first six months of 2020, respectively, compared to no provision for loan losses expense in the first six months of 2019. The first and second quarter 2020 loan loss provisions were attributable to the level of net loan charge-offs for the periods, trends within the loan portfolio over the period, and primarily to changes in the economic and business environment attributable to COVID-19, the state and national emergencies that have been declared and the resultant risk it poses for business disruptions for the Bank’s borrowers which may lead to credit quality deterioration. Net loan charge-offs were $298,000 for the first six months of 2020, compared to net loan charge-offs of $48,000 for the first six months of 2019.

 

 

Loans past due 30-59 days decreased from $1.7 million at December 31, 2019 to $458,000 at June 30, 2020, and loans past due 60-89 days decreased from $670,000 at December 31, 2019 to $197,000 at June 30, 2020. Total loans past due and nonaccrual loans decreased to $2.1 million at June 30, 2020, from $3.9 million at December 31, 2019.

 

 

In response to requests from borrowers who have been impacted by COVID-19 through business and cash flow interruption, the Bank made short-term loan modifications involving principal deferrals (interest only) and, in other cases, principal and interest deferrals. See the table under “COVID-19 Short-term Loan Concessions” section for detailed discussion.

 

 

Foreclosed properties decreased from $3.2 million at December 31, 2019 and June 30, 2019 to $1.6 million at June 30, 2020. Operating expenses totaled $38,000 for the first six months of 2020 compared to operating expenses and fair value write downs of $308,000 for the first six months of 2019.

 

32

 

 

The ratio of non-performing assets to total assets decreased to 0.27% at June 30, 2020, compared with 0.42% at December 31, 2019, and 0.55% at June 30, 2019.

 

 

Deposits were $1.12 billion at June 30, 2020, compared with $1.03 billion at December 31, 2019. Certificate of deposit balances decreased $30.2 million during the first six months of 2020 to $446.4 million at June 30, 2020, from $476.5 million at December 31, 2019. Interest checking accounts increased $21.8 million, non-interest bearing accounts increased $37.4 million, money market increased $5.5 million, and savings accounts increased $63.3 during the first six months of 2020 compared with December 31, 2019.

 

 

As discussed in Part II, Item 5 of this Report, subsequent to quarter end on July 31, 2020, the Company completed the issuance of an additional $8.0 million in subordinated notes pursuant to the July 23, 2019 indenture under which the Company’s $17.0 million of subordinated notes are currently outstanding. The Company used the net proceeds from the offering to retire its senior debt and retained the remaining balance for general corporate purposes. The subordinated capital notes qualify as Tier 2 regulatory capital.

 

Application of Critical Accounting Policies

 

Management continually reviews accounting policies and financial information disclosures. The Company’s more significant accounting policies that require the use of estimates and judgments in preparing the financial statements are summarized in “Application of Critical Accounting Policies” in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the calendar year ended December 31, 2019. Management has discussed the development, selection, and application of our critical accounting policies with our Audit Committee. During the first six months of 2020, there were no material changes in the critical accounting policies and assumptions.

 

Results of Operations

 

The following table summarizes components of income and expense and the change in those components for the three months ended June 30, 2020, compared with the same period of 2019:

 

   

For the Three Months

   

Change from

 
   

Ended June 30,

   

Prior Period

 
   

2020

   

2019

   

Amount

   

Percent

 
   

(dollars in thousands)

 
                                 

Gross interest income

  $ 12,786     $ 12,376     $ 410       3.3

%

Gross interest expense

    2,676       3,576       (900

)

    (25.2

)

Net interest income

    10,110       8,800       1,310       14.9  

Provision for loan losses

    1,100             1,100       100.0  

Non-interest income

    1,601       1,446       155       10.7  

Non-interest expense

    8,236       7,224       1,012       14.0  

Net income before taxes

    2,375       3,022       (647

)

    (21.4

)

Income tax expense (benefit)

    393       (611

)

    1,004       (164.3

)

Net income

    1,982       3,633       (1,651

)

    (45.4

)

 

Net income for the three months ended June 30, 2020 totaled $2.0 million, compared with $3.6 million for the comparable period of 2019. Net interest income increased $1.3 million from the 2019 second quarter as a result of an increase in earning assets from the branch transaction as well as loan growth. Provision expense of $1.1 million was recorded in the second quarter of 2020 as compared to no provision expense the second quarter of 2019 primarily in response to the level of net loan charge-offs for the quarter, trends within the portfolio over the quarter, and to changes in the economic and business environment attributable to COVID-19. Non-interest income increased $155,000 from $1.4 million in the second quarter of 2019 to $1.6 million for the second quarter of 2020 primarily related to bank card interchange fees primarily as a result of the deposit accounts acquired in the branch acquisition transaction on November 15, 2019. Non-interest expense increased $1.0 million from $7.2 million in the second quarter of 2019 to $8.2 million in the second quarter of 2020 primarily due to an increase in salaries and employee benefits of $718,000, as the Bank added sales talent and customer facing associates during the latter half of 2019 and branch staff in connection with the branch purchase transaction. In response to COVID-19 and the change in customer branch usage patterns, the Bank realized a reduction in FTEs from 248 as of March 31, 2020 to 228 as of June 30, 2020 through attrition and workforce reduction. Salaries and employee benefits for the second quarter of 2020 included approximately $111,000 in severance expense. Quarterly savings of approximately $150,000 are expected as a result of these position eliminations.

 

Net income before taxes and income tax expense was $2.4 million and $393,000, respectively for the second quarter of 2020, compared with $3.0 million and income tax benefit of $611,000, respectively for the second quarter of 2019. Income tax expense for the second quarter of 2019 benefitted $1.2 million from the establishment of a net deferred tax asset related to a change in Kentucky tax law enacted during the first quarter of 2019. 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.

 

33

 

The following table summarizes components of income and expense and the change in those components for the six months ended June 30, 2020, compared with the same period of 2019:

 

   

For the Six Months

   

Change from

 
   

Ended June 30,

   

Prior Period

 
   

2020

   

2019

   

Amount

   

Percent

 
   

(dollars in thousands)

 
                                 

Gross interest income

  $ 26,053     $ 24,562     $ 1,491       6.1

%

Gross interest expense

    6,181       6,803       (622

)

    (9.1

)

Net interest income

    19,872       17,759       2,113       11.9  

Provision (negative provision) for loan losses

    2,150             2,150       100.0  

Non-interest income

    3,325       2,730       595       21.8  

Non-interest expense

    16,471       14,505       1,966       13.6  

Net income before taxes

    4,576       5,984       (1,408

)

    (23.5

)

Income tax expense (benefit)

    754       (488

)

    1,242       (254.5

)

Net income

    3,822       6,472       (2,650

)

    (40.9

)

 

Net income for the six months ended June 30, 2020 totaled $3.8 million, compared with net income of $6.5 million for the comparable period of 2019. Net interest income increased $2.1 million from the first six months of 2019 as a result of an increase in earning assets from the branch transaction as well as loan growth. Provision expense of $2.2 million was recorded in the first six months of 2020 as compared to no provision expense the first six months of 2019 primarily in response to the level of net loan charge-offs for the period, trends within the portfolio over the period, and to changes in the economic and business environment attributable to COVID-19. Non-interest income increased by $595,000 to $3.3 million from $2.7 million in the first six months of 2019 primarily due to an increase in bank card interchange fees of $509,000. Non-interest expense increased from $14.5 million in the first six months of 2019 to $16.5 million in the first six months of 2020 primarily due to increases of $1.3 million in salaries and employee benefits and $320,000 in deposit account related expense partially offset by a decrease of $270,000 in OREO expense.

 

Net income before taxes and income tax expense was $4.6 million and $754,000, respectively, for the six months ended June 30, 2020, compared with $6.0 million and income tax benefit of $488,000, respectively, for the six months ended June 30, 2019. Income tax expense for the first six months of 2019 benefitted $1.5 million from the establishment of a state net deferred tax asset related to the 2019 tax law enactments discussed previously.

 

Net Interest Income – Net interest income was $10.1 million for the three months ended June 30, 2020, an increase of $1.3 million, or 14.9%, compared with $8.8 million for the same period in 2019. Net interest spread and margin were 3.10% and 3.33%, respectively, for the second quarter of 2020, compared with 3.13% and 3.42%, respectively, for the second quarter of 2019.

 

The interest rate environment has been challenging during the first six months of 2020 as the Federal Reserve, after lowering rates 75 basis points in the latter half of 2019, lowered the federal funds target rate by 50 basis points on March 6, 2020 and 100 basis points on March 15, 2020. In particular, the Federal Reserve’s actions served to lower rates on the short end of the yield curve impacting yields on fed funds, certain floating rate investment securities, and loans with variable rate pricing features.

 

The yield on earning assets decreased to 4.21% for the second quarter of 2020, as compared to 4.81% in the second quarter of 2019. The yield on earning assets for the first and second quarters of 2020 were negatively impacted by falling interest rates on the Bank’s fed funds, certain floating rate investment securities, and loans with variable rate repricing features. Average interest-earning assets were $1.22 billion for the second quarter of 2020, compared with $1.03 billion for the second quarter of 2019, a 18.3% increase, primarily attributable to higher average loans. Average loans increased approximately $184.9 million for the second quarter of 2020 compared with the second quarter of 2019. Average loans were positively impacted from the branch purchase transaction on November 15, 2019, which included approximately $126.8 million of loans at the time of purchase, as well as loan growth during 2019 and the first six months of 2020. Average loans for the second quarter of 2020 were also positively impacted by $42.0 million in loan originations under the SBA Paycheck Protection Program. The increase in average loans resulted in an increase in interest revenue volume of approximately $2.2 million for the quarter ended June 30, 2020, which was offset by a decrease in interest revenue due to declining rates of $1.4 million, as compared with the second quarter of 2019. Loan fee income can meaningfully impact net interest income, loan yields, and net interest income. The amount of loan fee income included in total interest income represents 17 basis points and six basis points of yield on earning assets and net interest margin for the second quarter ended June 30, 2020 and 2019, respectively. Total interest income increased 3.3%, or $410,000, for the second quarter of 2020 compared to the second quarter of 2019.

 

The cost of interest-bearing liabilities decreased to 1.11% for the second quarter of 2020, as compared to 1.68% for the second quarter of 2019. The cost of interest-bearing liabilities continued to decline based on the downward repricing of time deposits. Time deposits declined $21.2 million during the second quarter of 2020 as approximately $160.4 million of time deposits with an average rate of 1.78% matured or repriced at lower interest rates. During the second quarter of 2020, newly originated or renewed time deposits had an average rate of 0.47% and an average term of approximately 12 months. Average interest-bearing liabilities increased by 13.6% to $971.8 million for the second quarter of 2020, as compared to $855.1 million for the second quarter of 2019 due to deposit growth and the completion of the branch acquisition on November 15, 2019, which included approximately $131.8 million in deposits at the time of purchase. Total interest expense decreased by 25.2% to $2.7 million for the second quarter of 2020 as compared to the second quarter of 2019. The cost of interest-bearing liabilities for the second quarter of 2020 was also impacted by the subordinated debt issuance from July 2019. As of June 30, 2020, time deposits comprise $446.4 million of the Company’s liabilities with $199.5 million, or 45%, set to mature in 2020 of which, $127.3 million with a current average rate of 1.41% reprice or mature in the third quarter of 2020.

 

34

 

Net interest income was $19.9 million for the six months ended June 30, 2020, an increase of $2.1 million, or 11.9%, compared with $17.8 million for the same period in 2019. Net interest spread and margin were 3.07% and 3.32%, respectively, for the first six months of 2020, compared with 3.24% and 3.51%, respectively, for the first six months of 2019.

 

The yield on earning assets decreased to 4.35% for the first six months of 2020, as compared to 4.86% in the first six months of 2019. Average interest-earning assets increased approximately $183.7 for the six months ended June 30, 2020 compared with the first six months of 2019. Average loans increased approximately $183.7 million for the first six months ended June 30, 2020 compared with the first six months of 2019. Average loans were positively impacted from the branch purchase transaction on November 15, 2019, along with loan growth during 2019 and the first six months of 2020, as well as loan originations under the Paycheck Protection Program. The increase in average loans resulted in an increase in interest revenue volume of approximately $4.5 million for the six months ended June 30, 2020, which was offset by a decrease in interest revenue to due declining rates of $2.3 million, as compared with the second quarter of 2019. Loan fee income can meaningfully impact net interest income, loan yields, and net interest income. The amount of loan fee income included in total interest income represents 12 basis points and 14 basis points of yield on earning assets and net interest margin for the first six months ended June 30, 2020 and 2019, respectively. Total interest income increased 6.1%, or $1.5 million, for the first six months of 2020 compared to the first six months of 2019.

 

The cost of interest-bearing liabilities decreased to 1.28% for the first six months of 2020, as compared to 1.62% for the first six months of 2019. Average interest-bearing liabilities increased by $126.7 for the six months ended June 30, 2020 compared with the first six months of 2019 due to deposit growth and the completion of the branch acquisition. Total interest expense decreased by 9.1% to $6.2 million for the six months ended June 30, 2020 as compared to the first six months of 2019. The cost of interest-bearing liabilities for the first six months of 2020 was also impacted by the subordinated debt issuance in July 2019.

 

35

 

Average Balance Sheets

 

The following table presents the average balance sheets for the three-month periods ended June 30, 2020 and 2019, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   

Three Months Ended June 30,

 
   

2020

   

2019

 
   

Average

Balance

   

Interest

Earned/Paid

   

Average

Yield/Cost

   

Average

Balance

   

Interest

Earned/Paid

   

Average

Yield/Cost

 
   

(dollars in thousands)

 

ASSETS

                                               

Interest-earning assets:

                                               

Loan receivables (1)(2)

  $ 978,316     $ 11,356       4.67

%

  $ 793,460     $ 10,465       5.29

%

Securities

                                               

Taxable

    190,148       1,307       2.76       195,379       1,608       3.30  

Tax-exempt (3)

    10,971       77       3.57       12,710       88       3.52  

FHLB stock

    6,575       39       2.39       6,778       96       5.68  

Federal funds sold and other

    36,750       7       0.08       25,254       119       1.89  

Total interest-earning assets

    1,222,760       12,786       4.21

%

    1,033,581       12,376       4.81

%

Less: Allowance for loan losses

    (9,213

)

                    (8,730

)

               

Non-interest earning assets

    92,376                       75,608                  

Total assets

  $ 1,305,923                     $ 1,100,459                  
                                                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                               

Interest-bearing liabilities:

                                               

Certificates of deposit and other time deposits

  $ 457,637     $ 1,621       1.42

%

  $ 487,651     $ 2,416       1.99

%

NOW and money market deposits

    330,942       357       0.43       261,579       536       0.82  

Savings accounts

    107,932       149       0.56       33,881       13       0.15  

FHLB advances

    32,259       73       0.91       40,989       255       2.50  

Junior subordinated debentures

    21,000       172       3.29       21,000       258       4.93  

Subordinated capital notes

    17,000       253       5.99                    

Senior debt

    5,000       51       4.10       10,000       98       3.93  

Total interest-bearing liabilities

    971,770       2,676       1.11

%

    855,100       3,576       1.68

%

                                                 

Non-interest-bearing liabilities:

                                               

Non-interest-bearing deposits

    219,909                       143,619                  

Other liabilities

    6,896                       4,010                  

Total liabilities

    1,198,575                       1,002,729                  

Stockholders’ equity

    107,348                       97,730                  

Total liabilities and stockholders’ equity

  $ 1,305,923                     $ 1,100,459                  
                                                 

Net interest income

          $ 10,110                     $ 8,800          
                                                 

Net interest spread

                    3.10

%

                    3.13

%

                                                 

Net interest margin

                    3.33

%

                    3.42

%

 

 

 


(1)

Includes loan fees in both interest income and the calculation of yield on loans.

(2)

Calculations include non-accruing loans averaging $1.4 million and $2.1 million, respectively, in average loan amounts outstanding.

(3)

Taxable equivalent yields are calculated assuming a federal income tax rate of 21%.

 

36

 

The following table presents the average balance sheets for the six-month periods ended June 30, 2020 and 2019, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   

Six Months Ended June 30,

 
   

2020

   

2019

 
   

Average

Balance

   

Interest

Earned/Paid

   

Average

Yield/Cost

   

Average

Balance

   

Interest

Earned/Paid

   

Average

Yield/Cost

 
   

(dollars in thousands)

 

ASSETS

                                               

Interest-earning assets:

                                               

Loan receivables (1)(2)

  $ 963,760     $ 22,967       4.79

%

  $ 780,057     $ 20,719       5.36

%

Securities

                                               

Taxable

    191,704       2,774       2.91       193,528       3,181       3.31  

Tax-exempt (3)

    10,480       147       3.57       13,109       181       3.52  

FHLB stock

    6,429       79       2.47       6,922       205       5.97  

Federal funds sold and other

    33,164       86       0.52       28,214       276       1.97  

Total interest-earning assets

    1,205,537       26,053       4.35

%

    1,021,830       24,562       4.86

%

Less: Allowance for loan losses

    (8,750

)

                    (8,792

)

               

Non-interest earning assets

    92,758                       75,037                  

Total assets

  $ 1,289,545                     $ 1,088,075                  
                                                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                               

Interest-bearing liabilities:

                                               

Certificates of deposit and other timedeposits

  $ 469,717     $ 3,854       1.65

%

  $ 473,757     $ 4,464       1.90

%

NOW and money market deposits

    320,494       785       0.49       263,204       1,061       0.81  

Savings accounts

    91,118       260       0.57       33,720       27       0.16  

FHLB advances

    47,333       293       1.24       43,244       536       2.50  

Junior subordinated debentures

    21,000       387       3.71       21,000       521       5.00  

Subordinated capital notes

    17,000       495       5.86                    

Senior debt

    5,000       107       4.30       10,000       194       3.91  

Total interest-bearing liabilities

    971,662       6,181       1.28

%

    844,925       6,803       1.62

%

                                                 

Non-interest-bearing liabilities:

                                               

Non-interest-bearing deposits

    203,353                       143,170                  

Other liabilities

    7,040                       4,358                  

Total liabilities

    1,182,055                       992,453                  

Stockholders’ equity

    107,490                       95,622                  

Total liabilities and stockholders’ equity

  $ 1,289,545                     $ 1,088,075                  
                                                 

Net interest income

          $ 19,872                     $ 17,759          
                                                 

Net interest spread

                    3.07

%

                    3.24

%

                                                 

Net interest margin

                    3.32

%

                    3.51

%

 


(1)

Includes loan fees in both interest income and the calculation of yield on loans.

(2)

Calculations include non-accruing loans averaging $1.5 million and $2.1 million, respectively, in average loan amounts outstanding.

(3)

Taxable equivalent yields are calculated assuming a federal income tax rate of 21%.

 

37

 

Rate/Volume Analysis

 

The table below sets forth certain information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (changes in rate multiplied by old volume); (2) changes in volume (changes in volume multiplied by old rate); and (3) changes in rate-volume (change in rate multiplied by change in volume). Changes in rate-volume are proportionately allocated between rate and volume variance.

 

   

Three Months Ended June 30,

2020 vs. 2019

   

Six Months Ended June 30,

2020 vs. 2019

 
   

Increase (decrease)

due to change in

   

Increase (decrease)

due to change in

 
   

Rate

   

Volume

   

Net

Change

   

Rate

   

Volume

   

Net

Change

 
   

(in thousands)

 

Interest-earning assets:

                                               

Loan receivables

  $ (1,354

)

  $ 2,245     $ 891     $ (2,282

)

  $ 4,530     $ 2,248  

Securities

    (257

)

    (55

)

    (312

)

    (370

)

    (71

)

    (441

)

FHLB stock

    (54

)

    (3

)

    (57

)

    (112

)

    (14

)

    (126

)

Federal funds sold and other

    (149

)

    37       (112

)

    (231

)

    41       (190

)

Total increase (decrease) in interest income

    (1,814

)

    2,224       410       (2,995

)

    4,486       1,491  
                                                 

Interest-bearing liabilities:

                                               

Certificates of deposit and other time deposits

    (654

)

    (141

)

    (795

)

    (572

)

    (38

)

    (610

)

NOW and money market accounts

    (297

)

    118       (179

)

    (475

)

    199       (276

)

Savings accounts

    75       61       136       140       93       233  

FHLB advances

    (136

)

    (46

)

    (182

)

    (290

)

    47       (243

)

Junior subordinated debentures

    (86

)

          (86

)

    (134

)

          (134

)

Subordinated capital notes

          253       253             495       495  

Senior debt

    4       (51

)

    (47

)

    18       (105

)

    (87

)

Total increase (decrease) in interest expense

    (1,094

)

    194       (900

)

    (1,313

)

    691       (622

)

Increase (decrease) in net interest income

  $ (720

)

  $ 2,030     $ 1,310     $ (1,682

)

  $ 3,795     $ 2,113  

 

Non-Interest Income – The following table presents the major categories of non-interest income for the three and six months ended June 30, 2020 and 2019:

 

   

For the Three Months

   

For the Six Months

 
   

Ended June 30,

   

Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

(dollars in thousands)

 
                                 

Service charges on deposit accounts

  $ 441     $ 571     $ 1,109     $ 1,067  

Bank card interchange fees

    863       596       1,613       1,104  

Income from bank owned life insurance

    116       118       212       217  

Net gain (loss) on sales and calls of securities

    (5

)

    (5

)

    (5

)

    (5

)

Other

    186       166       396       347  

Total non-interest income

  $ 1,601     $ 1,446     $ 3,325     $ 2,730  

 

Non-interest income for the second quarter of 2020 increased by $155,000, or 10.7%, compared with the second quarter of 2019. The increase in non-interest income for the second quarter of 2020 compared to the second quarter of 2019 was primarily driven by an increase in bank card interchange fees of $267,000 primarily as a result of the deposit accounts acquired in the branch acquisition transaction on November 15, 2019. For the six months ended June 30, 2020, non-interest income increased by $595,000, or 21.8% to $3.3 million compared with $2.7 million for the same period of 2019. The increase in non-interest income between the six-month comparative periods was primarily due to an increase in bank card interchange fees of $509,000.

 

38

 

Non-interest ExpenseThe following table presents the major categories of non-interest expense for the three and six months ended June 30, 2020 and 2019:

 

   

For the Three Months

   

For the Six Months

 
   

Ended June 30,

   

Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

(dollars in thousands)

 
                                 

Salary and employee benefits

  $ 4,633     $ 3,915     $ 9,171     $ 7,830  

Occupancy and equipment

    983       854       1,982       1,752  

Professional fees

    235       179       443       344  

Marketing expense

    104       212       318       439  

FDIC insurance

    67       103       67       211  

Data processing expense

    380       315       739       628  

State franchise and deposit tax

    360       315       720       630  

Deposit account related expenses

    460       310       911       591  

Other real estate owned expense

    22       142       38       308  

Litigation and loan collection expense

    59       34       124       80  

Communications expense

    247       189       465       379  

Insurance expense

    111       112       214       226  

Postage and delivery

    152       134       320       275  

Other

    423       410       959       812  

Total non-interest expense

  $ 8,236     $ 7,224     $ 16,471     $ 14,505  

 

Non-interest expense for the second quarter ended June 30, 2020 increased $1.0 million, or 14.0%, compared with the second quarter of 2019. This increase was primarily due to an increase in salaries and employee benefits of $718,000, as the Bank added sales talent and customer facing associates during the latter half of 2019 and branch staff in connection with the branch purchase transaction. In response to COVID-19 and the change in customer branch usage patterns, the Bank realized a reduction in FTEs from 248 as of March 31, 2020 to 228 as of June 30, 2020 through attrition and workforce reduction. Salaries and employee benefits for the second quarter of 2020 included approximately $111,000 in severance expense. Quarterly savings of approximately $150,000 are expected as a result of these position eliminations. For the six months ended June 30, 2020, non-interest expense increased $2.0 million, or 13.6% to $16.5 million compared with $14.5 million for the first six months of 2019. The increase in non-interest expense for the six months ended June 30, 2020 was primarily attributable to increases of $1.3 million in salaries and employee benefits and $320,000 in deposit account related expense partially offset by a decrease of $270,000 in OREO expense.

 

Income Tax Expense Effective tax rates differ from the federal statutory rate of 21% applied to income before income taxes due to the following:

 

   

For the Three Months

   

For the Six Months

 
   

Ended June 30,

   

Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

(dollars in thousands)

 
                                 

Federal statutory rate times financial statement income

  $ 499     $ 634     $ 961     $ 1,256  

Effect of:

                               

Tax-exempt income

    (15

)

    (18

)

    (29

)

    (37

)

Establish state deferred tax asset

    (79

)

    (1,209

)

    (151

)

    (1,550

)

Non-taxable life insurance income

    (24

)

    (25

)

    (44

)

    (46

)

Restricted stock vesting

    5       (2

)

    4       (128

)

Other, net

    7       9       13       17  

Total

  $ 393     $ (611

)

  $ 754     $ (488

)

 

Net income before taxes and income tax expense was $2.4 million and $393,000, respectively for the three months ended June 30, 2020, compared with $3.0 million and income tax benefit of $611,000, respectively, for the three months ended June 30, 2019. Income tax expense for the second quarter of 2019 benefitted $1.2 million from the establishment of a net deferred tax asset related to a change in Kentucky tax law enacted during the first quarter of 2019. 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.

 

Net income before taxes and income tax expense was $4.6 million and $754,000, respectively for the six months ended June 30, 2020, compared with $6.0 million and income tax benefit of $488,000, respectively, for the six months ended June 30, 2019. Income tax expense for the first six months of 2019 benefitted $1.5 million from the establishment of a state net deferred tax asset related to the 2019 tax law enactments discussed above.

 

39

 

Analysis of Financial Condition

 

Total assets increased $58.7 million, or 4.7%, to $1.30 billion at June 30, 2020, from $1.25 billion at December 31, 2019. This increase was primarily attributable to an increase in net loans of $47.6 million, as well as an increase in cash and cash equivalents of $18.8 million.

 

Loans ReceivableLoans receivable increased $49.5 million, or 5.3%, during the six months ended June 30, 2020 to $975.8 million as loan growth outpaced paydowns. Loan originations included $42.0 million under the SBA Paycheck Protection Program which are classified as commercial loans. Our commercial and commercial real estate portfolios increased by an aggregate of $83.6 million, or 15.3% during the first six months of 2020 and comprised 64.4% of the loan portfolio at June 30, 2020. Residential real estate and consumer portfolios decreased by an aggregate of $37.2 million, or 10.8% during the first six months of 2020 and comprised 31.6% of the loan portfolio at June 30, 2020.

 

Loan Portfolio CompositionThe following table presents a summary of the loan portfolio at the dates indicated, net of deferred loan fees, by type. There are no foreign loans in our portfolio and other than the categories noted, there is no concentration of loans in any industry exceeding 10% of total loans.

 

   

As of June 30,

   

As of December 31,

 
   

2020

   

2019

 
   

Amount

   

Percent

   

Amount

   

Percent

 
           

(dollars in thousands)

         
                                 

Commercial

  $ 221,292       22.68

%

  $ 145,551       15.71

%

Commercial Real Estate

                               

Construction

    73,195       7.50       64,911       7.01  

Farmland

    79,555       8.15       79,118       8.54  

Nonfarm nonresidential

    254,616       26.09       255,459       27.58  

Residential Real Estate

                               

Multi-family

    65,113       6.67       70,950       7.66  

1-4 Family

    204,283       20.94       226,629       24.47  

Consumer

    38,828       3.98       47,790       5.16  

Agriculture

    38,286       3.92       35,064       3.79  

Other

    591       0.07       799       0.08  

Total loans

  $ 975,759       100.00

%

  $ 926,271       100.00

%

 

Loan Portfolio by Risk Category – The following table presents a summary of the loan portfolio at the dates indicated, by risk category.

 

    June 30, 2020     December 31, 2019  
   

Loans

   

% to

Total

   

Loans

   

% to

Total

 
   

(dollars in thousands)

 
                                 

Pass

  $ 925,558       94.9

%

  $ 888,707       95.9

%

Watch

    43,014       4.4       27,522       3.0  

Special Mention

                       

Substandard

    7,187       0.7       10,042       1.1  

Doubtful

                       

Total

  $ 975,759       100.0

%

  $ 926,271       100.00

%

 

Loans receivable increased $49.5 million, or 5.3%, during the six months ended June 30, 2020 primarily as a result of originations under the SBA Paycheck Protection Program. Since December 31, 2019, the pass category increased approximately $36.9 million, the watch category increased approximately $15.5 million, and the substandard category decreased approximately $2.9 million. The increase in watch category primarily related to $11.6 million in residential real estate loans migrating during the first six months of 2020. The $2.9 million decrease in loans classified as substandard was primarily driven by $3.4 million in payments, $471,000 in charge-offs, and $52,000 in loans upgraded from substandard offset by $1.1 million in loans moved to substandard during the first six months of 2020.

 

40

 

Loan Delinquency – The following table presents a summary of loan delinquencies at the dates indicated.

 

   

June 30,

2020

   

December 31,

2019

 
   

(in thousands)

 

Past Due Loans:

               

30-59 Days

  $ 458     $ 1,747  

60-89 Days

    197       670  

90 Days and Over

           

Total Loans Past Due 30-90+ Days

    655       2,417  
                 

Nonaccrual Loans

    1,410       1,528  

Total Past Due and Nonaccrual Loans

  $ 2,065     $ 3,945  

 

During the six months ended June 30, 2020, nonaccrual loans decreased by $118,000 to $1.4 million and loans past due 30-59 days decreased from $1.7 million at December 31, 2019 to $458,000 at June 30, 2020. Loans past due 60-89 days decreased from $670,000 at December 31, 2019 to $197,000 at June 30, 2020. This represents a $1.8 million decrease from December 31, 2019 to June 30, 2020 in loans past due 30-89 days. This trend in delinquency levels is considered during the evaluation of qualitative trends in the portfolio when establishing the general component of the allowance for loan losses.

 

Troubled Debt Restructuring - A troubled debt restructuring (TDR) occurs when the Bank has agreed to an other than short-term loan modification in the form of a concession to a borrower who is experiencing financial difficulty. The Bank’s TDRs typically involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired, and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower. If the loan is considered collateral dependent, it is reported net of allocated reserves, at the fair value of the collateral less cost to sell.

 

The Bank does not have a formal loan modification program. If a borrower is unable to make contractual payments, management reviews the particular circumstances of that borrower’s situation and determine whether or not to negotiate a revised payment stream. The goal when restructuring a credit is to afford the borrower a reasonable period of time to remedy the issue causing cash flow constraints so that the credit may return to performing status over time. If a borrower fails to perform under the modified terms, the loan(s) are placed on nonaccrual status and collection actions are initiated.

 

Management periodically reviews renewals and modifications of previously identified TDRs for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan after the date of the renewal/modification. Additionally, the TDR classification may be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past performance.

 

If the borrower fails to perform, management places the loan on nonaccrual status and seeks to liquidate the underlying collateral. The nonaccrual policy for restructured loans is identical to the nonaccrual policy for all loans. The policy calls for a loan to be reported as nonaccrual if it is maintained on a cash basis because of deterioration in the financial condition of the borrower, payment in full of principal and interest is not expected, or principal or interest is past due 90 days or more unless the assets are both well secured and in the process of collection. Changes in value for impairment, including the amount attributed to the passage of time, are recorded entirely within the provision for loan losses. Upon determination that a loan is collateral dependent, the loan is charged down to the fair value of collateral less estimated costs to sell.

 

At June 30, 2020 and December 31, 2019, the Bank had three restructured loans totaling $462,000 and $475,000, respectively, with borrowers who experienced deterioration in financial condition. In general, these loans were granted interest rate reductions to provide cash flow relief to borrowers experiencing cash flow difficulties. The Bank had no restructured loans that had been granted principal payment deferrals until maturity at June 30, 2020 or December 31, 2019. There were no concessions made to forgive principal relative to these loans, although partial charge-offs have been recorded for certain restructured loans. In general, these loans are secured by first liens on 1-4 residential properties or commercial real estate properties. At June 30, 2020 and December 31, 2019, all TDRs were performing according to their modified terms.

 

There were no modifications granted during 2020 and two modifications granted during 2019 that resulted in loans being identified as TDRs. See “Note 3 – Loans,” to the financial statements for additional disclosure related to troubled debt restructuring.

 

41

 

COVID-19 Short-term Loan Concessions - In response to requests from borrowers who have been impacted by COVID-19 through business and cash flow interruption, the Bank made short-term loan modifications as defined under section 4013 of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) involving principal deferrals (interest only) and, in other cases, principal and interest deferrals. Those short-term modifications are not TDRs. The following table details those modifications by loan category and type as of June 30, 2020:

 

   

June 30, 2020

 
   

Amount

   

Number

 
   

(dollars in thousands)

 
                 

Commercial:

               

Interest only

  $ 321       7  

Principal and interest deferral

    3,269       24  

Commercial Real Estate

               

Construction:

               

Interest only

           

Principal and interest deferral

    14,887       5  

Farmland:

               

Interest only

    9       1  

Principal and interest deferral

    2,357       15  

Nonfarm nonresidential:

               

Interest only

    18,981       33  

Principal and interest deferral

    90,674       61  

Residential Real Estate

               

Multi-family:

               

Interest only

    1,730       2  

Principal and interest deferral

    11,067       3  

1-4 Family:

               

Interest only

    4,569       21  

Principal and interest deferral

    13,030       77  

Consumer:

               

Interest only

    75       9  

Principal and interest deferral

    50       8  

Agriculture:

               

Interest only

    485       1  

Principal and interest deferral

           

Other:

               

Interest only

           

Principal and interest deferral

           

Total modified loans

  $ 161,504       267  

 

Retail purpose commercial real estate operators, as well as hotel and restaurant operators, have been disproportionately impacted by COVID-19. As of June 30, 2020, the Bank had loans totaling $62.8 million secured by retail purpose commercial real estate, $50.5 million secured by hotel and lodging real estate, and $29.8 million secured by limited and full-service restaurant real estate, or 6.4%, 5.2%, and 3.1% of total loans, respectively. As of June 30, 2020, loans with outstanding principal balances of $25.3 million for retail purpose commercial real estate, $49.3 million for hotel and lodging real estate, and $20.3 million for limited and full-service restaurant real estate were granted principal and interest deferrals. As of June 30, 2020, interest accrued but uncollected totaled $1.6 million for loans subject to short-term modifications.

 

42

 

Non-Performing AssetsNon-performing assets consist of certain restructured loans for which interest rate or other terms have been renegotiated, loans past due 90 days or more still on accrual, loans on which interest is no longer accrued, real estate acquired through foreclosure and repossessed assets. The following table sets forth information with respect to non-performing assets as of June 30, 2020 and December 31, 2019.

 

   

June 30,

2020

   

December 31,

2019

 
   

(dollars in thousands)

 
                 

Loans on nonaccrual status

  $ 1,410     $ 1,528  

Troubled debt restructurings on accrual

    462       475  

Past due 90 days or more still on accrual

           

Total non-performing loans

    1,872       2,003  

Real estate acquired through foreclosure

    1,625       3,225  

Other repossessed assets

           

Total non-performing assets

  $ 3,497     $ 5,228  
                 

Non-performing loans to total loans

    0.19

%

    0.22

%

Non-performing assets to total assets

    0.27

%

    0.42

%

Allowance for non-performing loans

  $ 31     $ 48  

Allowance for non-performing loans to non-performing loans

    1.66

%

    2.40

%

 

Nonperforming loans at June 30, 2020, were $1.9 million, or 0.19% of total loans, compared with $2.0 million, or 0.22% of total loans at December 31, 2019, and $2.9 million, or 0.37% of total loans at June 30, 2019.

 

Provision and Allowance for Loan LossesThe Bank maintains an allowance for loan losses believed to be sufficient to absorb probable incurred losses existing in the loan portfolio. Management evaluates the adequacy of the allowance using, among other things, historical loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral and current economic conditions and trends. The allowance may be allocated for specific loans or loan categories, but the entire allowance is available for any loan. The allowance consists of specific and general components. The specific component relates to loans that are individually evaluated and measured for impairment. The general component is based on historical loss experience adjusted for qualitative environmental factors. Management develops allowance estimates based on actual loss experience adjusted for current economic conditions and trends. Allowance estimates are a prudent measurement of the risk in the loan portfolio applied to individual loans based on loan type. If the mix and amount of future charge-off percentages differ significantly from the assumptions used by management in making its determination, management may be required to materially increase its allowance for loan losses and provision for loan losses, which could adversely affect results.

 

While the Company has experienced historically strong trends in asset quality over the last several quarters and management’s assessment of risk in the loan portfolio has been low, a provision of $1.1 million and $2.2 million was recorded in the second quarter and first six months of 2020, respectively, compared to no provision for loan losses in the first six months of 2019. The 2020 loan loss provisions were attributable to the net loan charge-offs during the period, trends within the portfolio over the period, and primarily to changes in the economic and business environment attributable to COVID-19, the state and national emergencies that have been declared and the resultant risk the pandemic poses for business disruptions for the Bank’s borrowers which may lead to credit quality deterioration.

 

While the Company expects the U.S. Government’s economic response to the COVID-19 pandemic through monetary policy and fiscal stimulus will provide meaningful support to the economy, management deemed it prudent to increase the allowance for loan losses through its qualitative environmental factors to account for the pandemic risk.

 

43

 

The following table sets forth an analysis of loan loss experience as of and for the periods indicated:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

   

December 31,

 
   

2020

   

2019

   

2020

   

2019

    2019  
   

(in thousands)

 

Balance at beginning of period

  $ 9,150     $ 8,686     $ 8,376     $ 8,880     $ 8,880  
                                         

Loans charged-off:

                                       

Real estate

    35       35       139       132       322  

Commercial

    3             32             37  

Consumer

    152       34       313       214       663  

Agriculture

    3       3       44       4       266  

Other

                             

Total charge-offs

    193       72       528       350       1,288  
                                         

Recoveries

                                       

Real estate

    155       84       196       147       597  

Commercial

    6       90       11       95       106  

Consumer

    6       44       10       60       75  

Agriculture

    1             9             3  

Other

    3             4             3  

Total recoveries

    171       218       230       302       784  

Net charge-offs (recoveries)

    22       (146

)

    298       48       504  

Provision for loan losses

    1,100             2,150              

Balance at end of period

  $ 10,228     $ 8,832     $ 10,228     $ 8,832     $ 8,376  
                                         

Allowance for loan losses to period-end loans

    1.05

%

    1.10

%

    1.05

%

    1.10

%

    0.90

%

Net charge-offs (recoveries) to average loans

    0.01

%

    (0.07

)%

    0.06

%

    0.01

%

    0.06

%

Allowance for loan losses to non-performing loans

    546.37

%

    301.13

%

    546.37

%

    301.13

%

    418.17

%

 

The allowance for loan losses to total loans was 1.05% at June 30, 2020, compared to 0.90% at December 31, 2019, and 1.10% at June 30, 2019. Loans acquired in the November 2019 branch transaction totaled $109.8 million at June 30, 2020 and $124.7 million at December 31, 2019. These loans were recorded at fair value as determined by an independent third party. The remaining discount associated with the fair value purchase accounting adjustments on the acquired loans was $347,000 at June 30, 2020, compared to $480,000 at December 31, 2019. Any subsequent deterioration of these acquired loans may require an adjustment through the allowance for loan loss. Net loan charge-offs in the first six months of 2020 totaled $298,000, compared to net loan charge-offs of $48,000 in the first six months of 2019. The allowance for loan losses to non-performing loans was 546.37% at June 30, 2020, compared with 418.17% at December 31, 2019, and 301.13% at June 30, 2019.

 

The majority of nonperforming loans are secured by real estate collateral, and the underlying collateral coverage for nonperforming loans supports the likelihood of collection of principal. Management has assessed these loans for collectability and considered, among other things, the borrower’s ability to repay, the value of the underlying collateral, and other market conditions to ensure the allowance for loan losses is adequate to absorb probable incurred losses. Based on prior charge-offs, the current recorded investment in loans individually evaluated for impairment in the commercial real estate and residential real estate segments of the portfolio are significantly below the unpaid principal balance for those loans. The recorded investment net of the allocated allowance was 58.20% and 49.60% of the unpaid principal balance in the commercial real estate and residential real estate segments of the portfolio, respectively, at June 30, 2020.

 

44

 

Investment SecuritiesThe securities portfolio serves as a source of liquidity and earnings and contributes to the management of interest rate risk. Investments are made in various types of liquid assets, including U.S. Treasury obligations and securities of various federal agencies, obligations of states and political subdivisions, corporate bonds, and collateralized loan obligations. The investment portfolio increased by $3.9 million, or 2.0%, to $202.6 million at June 30, 2020, compared with $209.0 million at December 31, 2019.

 

The following table sets forth the carrying value of our securities portfolio at the dates indicated:

 

   

June 30, 2020

   

December 31, 2019

 
   

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair

Value

   

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair

Value

 
   

(dollars in thousands)

 

Securities available for sale

                                                               

U.S. Government and federal agencies

  $ 20,302     $ 772     $     $ 21,074     $ 22,281     $ 196     $ (147

)

  $ 22,330  

Agency mortgage-backed residential

    85,048       3,152       (21

)

    88,179       91,269       1,186       (255

)

    92,200  

Collateralized loan obligations

    44,730             (3,042

)

    41,688       49,831             (412

)

    49,419  

State and municipal

    28,708       917       (57

)

    29,568       27,819       550       (3

)

    28,366  

Corporate bonds

    23,347       313       (1,573

)

    22,087       16,472       213             16,685  

Total available for sale

  $ 202,135     $ 5,154     $ (4,693

)

  $ 202,596     $ 207,672     $ 2,145     $ (817

)

  $ 209,000  

 

The Bank owns Collateralized Loan Obligations (CLOs), which are debt securities secured by professionally managed portfolios of senior-secured loans to corporations. CLOs are typically managed by large non-bank financial institutions or banks and are typically $300 million to $1 billion in size, contain one hundred or more loans and have five to six credit tranches ranging from AAA, AA, A, BBB, BB, B and equity tranche. Interest and principal are paid first to the AAA tranche then to the next lower rated tranche. Losses are borne first by the equity tranche then by the subsequently higher rated tranche. CLOs may be less liquid than government securities from time to time and volatility in the CLO market may cause the value of these investments to decline.

 

The market value of CLOs may be affected by, among other things, changes in composition of the underlying loans, changes in the cash flows from the underlying loans, defaults and recoveries on the underlying loans, capital gains and losses on the underlying loans, prepayments on the underlying loans, and other conditions or economic factors. The fair value of the Bank’s CLOs declined by approximately $3.6 million, or 8% of amortized cost, during the first quarter of 2020 as market liquidity within the CLO sector was disrupted by COVID-19. During the second quarter of 2020, the fair value of the Bank’s CLOs improved by approximately $936,000, or 2% of amortized cost, as the market stabilized.

 

Although the Bank attempts to mitigate the credit and liquidity risks associated with CLOs by purchasing CLOs with credit ratings of A or higher, completing pre-purchase due diligence, and through ongoing monitoring, no assurance can be given that these risk mitigation efforts will be successful. At June 30, 2020, $26.4 million and $15.3 million of our CLOs were AA and A rated, respectively. There were no CLOs rated below A and none of the CLOs were subject to ratings downgrade in 2019 or in the first half of 2020. Stress testing was completed on each security in the CLO portfolio as of quarter-end. Each security in the portfolio passed, without dollar loss, a stress scenario characterized as severe, which assumed a ten percent per annum constant prepayment rate, a twelve percent per annum constant default rate for four years followed by a four percent rate thereafter, and a forty-five percent recovery rate on a one-year lag. During the first quarter, one of the CLOs in the investment portfolio rated AA with a book value of $5.0 million was called and redeemed at par value or $5.0 million by the issuer. The Bank’s CLOs are all floating rate with rates set on a quarterly basis at three-month LIBOR plus a spread.

 

The fair value of the Bank’s corporate bond portfolio was also impacted by market disruption and declining rates, resulting in a fair value decline of approximately $1.5 million, or 7% of amortized cost, during the first quarter. During the second quarter of 2020, the fair value of the Bank’s corporate bond portfolio was stable and improved by approximately $27,000. The corporate bond portfolio consists of eleven subordinated debt securities of U.S. banks and bank holding companies with maturities ranging from 2024 to 2037. The securities are either fixed for the initial five-year period converting to floating at an index over LIBOR or floating at an index over LIBOR from inception. Management regularly monitors the financial condition of these corporate issuers by reviewing their regulatory and public filings.

 

The Bank has the intent and ability to hold its CLO and corporate debt securities to maturity and, at this juncture, has determined the value decline is temporary in nature.

 

Foreclosed Properties – Foreclosed properties declined from $3.2 million at June 30, 2019 and December 31, 2019 to $1.6 million at June 30, 2020. See Note 5 – “Other Real Estate Owned,” to the financial statements. Management values foreclosed properties at fair value less estimated costs to sell when acquired and expects to liquidate these properties to recover the investment in the due course of business.

 

45

 

OREO is recorded at fair market value less estimated cost to sell at time of acquisition. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses. When foreclosed properties are acquired, management obtains a new appraisal or has staff from the Bank’s special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Management typically obtains updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. Subsequent reductions in fair value are recorded as non-interest expense when a new appraisal indicates a decline in value or in cases where a listing price is lowered below the appraisal amount.

 

OREO sales totaled $1.6 million for the second quarter and first six months of 2020, compared to no sales during the second quarter or six months ended June 30, 2019. Operating expenses for OREO totaled $22,000 and $38,000 for the second quarter and six months ended June 30, 2020, respectively, compared to write-downs and operating expenses of $142,000 and $308,000 for the second quarter and six months ending June 30, 2019, respectively. There were no fair value write-downs recorded during the second quarter or six months ended June 30, 2020, compared with write-downs of $110,000 and $260,000 for the second quarter and six months ended June 30, 2019, respectively.

 

LiabilitiesTotal liabilities at June 30, 2020 were $1.20 billion compared with $1.14 billion at December 31, 2019, an increase of $55.4 million, or 4.9%. This increase was primarily attributable to an increase in deposits of $97.8 million offset by a decrease of $40.1 million in FHLB advances.

 

Deposits are the Bank’s primary source of funds. The following table sets forth the average daily balances and weighted average rates paid for our deposits for the periods indicated:

 

   

For the Six Months

   

For the Year

 
   

Ended June 30,

   

Ended December 31,

 
   

2020

   

2019

 
   

Average

   

Average

   

Average

   

Average

 
   

Balance

   

Rate

   

Balance

   

Rate

 
   

(dollars in thousands)

 

Demand

  $ 203,353             $ 151,299          

Interest checking

    160,613       0.34

%

    104,077       0.30

%

Money market

    159,881       0.65       161,610       1.06  

Savings

    91,118       0.57       36,035       0.19  

Certificates of deposit

    469,717       1.65       483,222       1.98  

Total deposits

  $ 1,084,682       0.91

%

  $ 936,243       1.25

%

 

The following table shows at June 30, 2020 the amount of our time deposits of $250,000 or more by time remaining until maturity (in thousands):

  

Maturity Period

 
         

Three months or less

  $ 23,354  

Three months through six months

    9,978  

Six months through twelve months

    22,530  

Over twelve months

    10,714  

Total

  $ 66,576  

 

Liquidity

 

Liquidity risk arises from the possibility the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternative funding sources. The objective of liquidity risk management is to ensure that the Company meets the cash flow requirements of depositors and borrowers, as well as operating cash needs, taking into account all on- and off-balance sheet funding demands. Liquidity risk management also involves ensuring that cash flow needs are met at a reasonable cost. Management maintains an investment and funds management policy, which identifies the primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and establishes minimum liquidity requirements in compliance with regulatory guidance. The Asset Liability Committee regularly monitors and reviews our liquidity position.

 

Funds are available to the Bank from a number of sources, including the sale of securities in the available for sale investment portfolio, principal pay-downs on loans and mortgage-backed securities, customer deposit inflows, and other wholesale funding.

 

The Bank also borrows from the FHLB to supplement funding requirements. At June 30, 2020, the Bank had an unused borrowing capacity with the FHLB of $124.9 million. Advances are collateralized by first mortgage residential loans as well as loans originated under the SBA Payment Protection Plan loans and borrowing capacity is based on the underlying book value of eligible pledged loans.

 

46

 

The Bank also has available on an unsecured basis federal funds borrowing lines from a correspondent bank totaling $5.0 million. Management believes the sources of liquidity are adequate to meet expected cash needs for the foreseeable future. Historically, the Bank has also utilized brokered and wholesale deposits to supplement its funding strategy. At June 30, 2020, the Bank had no brokered deposits.

 

The Company uses cash on hand to service senior debt, the subordinated capital notes, junior subordinated debentures, and to provide for operating cash flow needs. The Company also may issue common equity, preferred equity and debt to support cash flow needs and liquidity requirements. The senior debt loan agreement requires the Company to maintain a minimum of $2.5 million in cash on hand. At June 30, 2020, cash on hand totaled $3.4 million.

 

Capital

 

Stockholders’ equity increased $3.3 million to $109.1 million at June 30, 2020, compared with $105.8 million at December 31, 2019 primarily due to current year net income of $3.8 million, offset by other comprehensive loss for the first six months of 2020 of $651,000.

 

The following table shows the ratios of Tier 1 capital, common equity Tier 1 capital, and total capital to risk-adjusted assets and the leverage ratios (excluding the capital conservation buffer) for the Bank at the dates indicated:

 

   

Regulatory

Minimums

   

Well-Capitalized

Minimums

   

June 30,

2020

   

December 31,

2019

 
                                 

Tier 1 Capital

    6.0 %     8.0 %     11.79 %     11.25 %

Common equity Tier 1 capital

    4.5       6.5       11.79       11.25  

Total risk-based capital

    8.0       10.0       12.78       12.08  

Tier 1 leverage ratio

    4.0       5.0       9.54       9.99  

 

Failure to meet minimum capital requirements could result in discretionary actions by regulators that, if taken, could have a materially adverse effect on our financial condition.

 

The Basel III rules established a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. The minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

 

47

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Given an instantaneous 100 basis point increase in interest rates, the base net interest income would increase by an estimated 0.2% at June 30, 2020, compared with a decrease of 2.3% at December 31, 2019. Given a 200 basis point increase in interest rates, base net interest income would increase by an estimated 1.2% at June 30, 2020, compared with a decrease of 5.1% at December 31, 2019.

 

The following table indicates the estimated impact on net interest income under various interest rate scenarios for the twelve months following June 30, 2020, as calculated using the static shock model approach:

 

   

Change in Future

Net Interest Income

 
   

Dollar Change

   

Percentage

Change

 
   

(dollars in thousands)

 

+ 200 basis points

  $ 480

 

    1.18

%

+ 100 basis points

    80

 

    0.20

 

- 100 basis points

    120

 

    0.29

 

- 200 basis points

    (990

)

    (2.43

)

 

 

Item 4. Controls and Procedures

 

As of the end of the quarterly period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms as of such date.

 

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

48

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Item 1. Legal Proceedings

 

In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amount of damages. Litigation is subject to inherent uncertainties and unfavorable outcomes could occur.

 

The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s revenues or income for such period. The Company will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated.

 

The Company is not currently involved in any material litigation.

 

Item 1A. Risk Factors

 

The following risk factor supplements the “Risk Factors” section in our 2019 Annual Report and Part I Item 1A of our 2019 Form 10-K.

 

The COVID-19 Pandemic Creates Significant Risks and Uncertainties for the Company’s Business.

 

In March 2020, the World Health Organization declared novel coronavirus disease 2019 (“COVID-19”) as a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in markets in which the Company is located or does business.

 

As a result, the demand for the Company’s products and services has been, and will continue to be, significantly impacted. Furthermore, the pandemic could influence the recognition of credit losses in the Company’s loan portfolio and increase its allowance for loan losses as both businesses and consumers are negatively impacted by the economic downturn. In addition, governmental actions are meaningfully influencing the interest-rate environment, which could adversely affect the Company’s results of operations and financial condition. The business operations of the Bank may also be disrupted if significant portions of its workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, travel restrictions, technology limitations and/or disruptions. Furthermore, the business operations of the Company and Bank have been, and may again in the future be, disrupted due to vendors and third-party service providers being unable to work or provide services effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.

 

In response to the pandemic, the Bank has made certain accommodations to customers, which may negatively impact revenue and other results of operations of the Company in the near term and, if not effective in mitigating the effect of COVID-19 on the Company’s customers, may adversely affect the Company’s business and results of operations more substantially over a longer period of time.

 

The extent to which the COVID-19 pandemic impacts the Company’s business, liquidity, asset valuations such as goodwill, loan collections, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks described in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K.

 

49

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The following chart depicts information regarding the shares of restricted stock that were withheld to satisfy required tax withholdings upon vesting of restricted stock awarded under the Company’s equity compensation plan.

 

Period

 

Total Shares Purchased

(Withheld)

   

Average Price Paid

(Credited) Per Share

 

June 2020

  3,433     $11.17  

 

The Company does not have a publicly announced share plan or program.

 

Item 3. Default Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

At June 30, 2020, the Company had outstanding $17.0 million of 5.75% Fixed-to-Floating Rate Subordinated Notes due 2029 that it had issued in 2019 under the Indenture, dated July 23, 2019, between the Company and Wilmington Trust, National Association, as trustee.  Subsequent to quarter end, the Company reopened and increased, from $17 million to $25 million, the aggregate principal amount of the subordinated notes issuable under the Indenture and, on July 31, 2020, the Company completed the issuance of the additional $8.0 million subordinated notes authorized.  The additional notes were privately offered and sold, at a price equal to 99% of the principal amount thereof, to certain qualified institutional buyers and institutional accredited investors pursuant to Subordinated Note Purchase Agreements, dated July 21, 2020, between the Company and the purchasers of the additional notes. The Company used the net proceeds from the issuance of the additional notes to retire the Company’s $5.0 million senior debt. The remaining net proceeds will be used for general corporate purposes. The fees of the placement agent and other costs of issuance were paid directly by the Company from cash on hand.

 

The additional notes have the same terms as the $17.0 million of subordinated notes issued under the Indenture in 2019 with the additional commitment by the Company to extend the optional prepayment date to July 31, 2025 so long as the additional notes qualify as Tier 2 regulatory capital. The additional notes have a July 31, 2029 stated maturity date and will bear interest from and including the date of issuance to but excluding July 31, 2024, at a fixed annual rate of 5.75%, payable semi-annually in arrears. From and including July 31, 2024 to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to the then-current three-month LIBOR (provided, however, that in the event three-month LIBOR is less than zero, three-month LIBOR shall be deemed to be zero) plus 395 basis points, payable quarterly in arrears. The additional notes will not be redeemed prior to July 31, 2025 so long as they constitute Tier 2 capital, and may be redeemed at any time upon the occurrence of certain events. The Subordinated Note Purchase Agreements contain certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.

 

The additional notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The additional notes are not subject to redemption at the option of the holder. The additional notes are unsecured, subordinated obligations of the Company only and are not obligations of, and are not guaranteed by, any subsidiary of the Company. The additional notes will rank junior in right to payment to the Company’s current and future senior indebtedness. The additional notes qualify as Tier 2 capital for regulatory capital purposes for the Company.

 

Item 6. Exhibits

 

 

(a)

Exhibits

 

The following exhibits are filed or furnished as part of this report:

 

Exhibit Number

Description of Exhibit

 

3.1

Articles of Incorporation of the Company, restated to reflect amendments. Filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed August 2, 2019 and incorporated by reference.

 

 

3.3

Amended and Restated Bylaws of Limestone Bancorp, Inc. dated June 18, 2018. Exhibit 3.2 to Form 8-K filed June 6, 2018 is hereby incorporated by reference.

 

 

4.1

Tax Benefits Preservation Plan, dated as of June 25, 2015, between the Company and American Stock Transfer Company, as Rights Agent. Exhibit 3.1 to Form 8-K filed June 29, 2015 is incorporated by reference.

 

 

4.2

Amendment No. 1 to the Tax Benefits Preservation Plan, dated August 4, 2015. Exhibit 4.2 to the Quarterly Report on Form 10-Q filed August 5, 2015 is incorporated by reference.

 

 

4.3

Amendment No. 2 to the Tax Benefits Preservation Plan dated May 23, 2018. Exhibit 4 to the Form 8-K filed May 23, 2018 is incorporated by reference.

   

4.4

Amendment No. 3 to the Limestone Bancorp, Inc. Tax Benefits Preservation Plan, dated November 25, 2019. Exhibit 4.4 to the Form 8-K filed November 27, 2019 is incorporated herein by reference.

   
4.5 Indenture dated as of July 23, 2019 by and among Limestone Bancorp, Inc. and Wilmington Trust, National Association is incorporated by reference to the Company's Current Report on Form 8-K dated July 25, 2019.
   
4.6 Company Order of Limestone Bancorp, Inc. dated July 21, 2020. Exhibit 4.2 to Form 8-K filed July 24, 2020 is incorporated by reference.
   
4.7 Form of 5.75% Fixed-to-Floating Subordinated Notes due 2029 of Limestone Bancorp, Inc. issued July 31, 2020.
   
10.1 Form of Subordinated Note Purchase Agreement dated July 21, 2020 by and among Limestone Bancorp, Inc. and the Purchasers. Exhibit 10.1 to Form8-K filed July 24, 2020 is incorporated by reference.
   

31.1

Certification of Principal Executive Officer, pursuant to Rule 13a - 14(a).

  

31.2

Certification of Principal Financial Officer, pursuant to Rule 13a - 14(a).

  

32.1

Certification of Principal Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  

32.2

Certification of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101

The following financial statements from the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statement of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.

   
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

50

 

The Company has other long-term debt agreements that meet the exclusion set forth in Section 601 (b)(4)(iii)(A) of Regulation S-K. The Company hereby agrees to furnish a copy of such agreements to the Securities and Exchange Commission upon request.

 

51

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  

LIMESTONE BANCORP, INC.

  

(Registrant)

  

July 31, 2020

By:

/s/ John T. Taylor

  

  

John T. Taylor

  

  

Chief Executive Officer 

  

July 31, 2020

By:

/s/ Phillip W. Barnhouse

 

 

Phillip W. Barnhouse 

  

  

Chief Financial Officer

 

52
ex_196196.htm

Exhibit 4.7

 

SUBORDINATED NOTE CERTIFICATE

LIMESTONE BANCORP, INC.

5.75% FIXED-TO-FLOATING RATE Subordinated Note
due JuLY 31, 2029

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO, AND IN ACCORDANCE WITH, A REGISTRATION STATEMENT THAT IS EFFECTIVE UNDER THE SECURITIES ACT AT THE TIME OF SUCH TRANSFER; (B) TO A PERSON THAT YOU REASONABLY BELIEVE TO BE A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OR TO A PERSON THAT YOU REASONABLY BELIEVE TO BE AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT; OR (C) UNDER ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (INCLUDING, IF AVAILABLE, THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT).

 

THIS SUBORDINATED NOTE IS A GLOBAL SUBORDINATED NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF CEDE & CO AS NOMINEE OF THE DEPOSITORY TRUST COMPANY (“DTC”) OR A NOMINEE OF DTC. THIS SUBORDINATED NOTE IS EXCHANGEABLE FOR SUBORDINATED NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SUBORDINATED NOTE (OTHER THAN A TRANSFER OF THIS SUBORDINATED NOTE AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES SPECIFIED IN THE INDENTURE.

 

UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY SUBORDINATED NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO, OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

TRANSFERS OF THIS SUBORDINATED NOTE WILL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SUBORDINATED NOTE WILL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH RESTRICTIONS SET FORTH IN THE INDENTURE IDENTIFIED HEREIN.

 

THE SECURITY AND THE OBLIGATIONS OF THE COMPANY AS EVIDENCED BY THIS SUBORDINATED NOTE (1) ARE NOT A DEPOSIT AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY OR FUND AND (2) ARE SUBORDINATE IN THE RIGHT OF PAYMENT TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN THE INDENTURE IDENTIFIED HEREIN).

 

CERTAIN ERISA CONSIDERATIONS:

 

THE HOLDER OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE AND HOLDING. ANY PURCHASER OR HOLDER OF THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER: (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER PLAN TO WHICH TITLE I OF ERISA OR SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLANS, OR ANY OTHER PERSON OR ENTITY USING THE “PLAN ASSETS” OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE OR (ii) SUCH PURCHASE OR HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH FULL EXEMPTIVE RELIEF IS NOT AVAILABLE UNDER APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

 

ANY FIDUCIARY OF ANY PLAN WHO IS CONSIDERING THE ACQUISITION OF THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN SHOULD CONSULT WITH HIS OR HER LEGAL COUNSEL PRIOR TO ACQUIRING THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN.

 

 

 

 

 

No. 2029-3                          

 

                QIB CUSIP: 53262LAA3

                QIB ISIN: US53262LAA35

LIMESTONE BANCORP, INC.

5.75% FIXED-TO-FLOATING RATE SUBORDINATED NOTE DUE 2029

THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY OR FUND.

 

1.             Indenture; Holders.  This Subordinated Note is one of a duly authorized issue of notes of Limestone Bancorp, Inc., a Kentucky corporation (the “Company”), designated as the “5.75% Fixed-to-Floating Rate Subordinated Notes due 2029” (the “Subordinated Notes”), in an initial aggregate principal amount of $17,000,000  originally issued on July 23, 2019 and as increased by an aggregate principal amount of $8,000,000 originally issued on July 31, 2020. The Company has issued this Subordinated Note under that certain Indenture dated as of July 23, 2019, as the same may be amended or supplemented from time to time (“Indenture”), between the Company and Wilmington Trust, National Association, as Trustee. All capitalized terms not otherwise defined in this Subordinated Note will have the meanings assigned to them in the Indenture. The terms of this Subordinated Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). This Subordinated Note is subject to all such terms, and the Holder (as defined below) is referred to the Indenture and the Trust Indenture Act for a statement of such terms. To the extent any provision of this Subordinated Note irreconcilably conflicts with the express provisions of the Indenture, the provisions of the Indenture will govern and be controlling.

 

Payment.  The Company, for value received, promises to pay to Cede & Co., or its registered assigns (the “Holder”), as nominee of The Depository Trust Company, the principal sum of Eight Million Dollars (U.S.) ($8,000,000, plus accrued but unpaid interest on July 31, 2029 (“Stated Maturity”) and to pay interest thereon (i) from and including the original issue date of the Subordinated Notes to but excluding July 31, 2024, at the rate of 5.75% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months and payable semi-annually in arrears on January 31 and July 31 of each year (each, a “Fixed Interest Payment Date”), beginning January 31, 2021 and ending on July 31, 2024, and (ii) from and including July 31, 2024 to but excluding the Stated Maturity or the early redemption date contemplated by Section 4 of this Subordinated Note, at the rate per annum, reset quarterly, equal to Three-Month LIBOR determined on the LIBOR Determination Date (as defined below) of the applicable Interest Period plus 395 basis points, computed on the basis of a 360-day year and the actual number of days elapsed and payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year (each, a “Floating Interest Payment Date”). An “Interest Payment Date” is either a Fixed Interest Payment Date or a Floating Interest Payment Date, as applicable. “Three-Month LIBOR” means, for any Interest Period, the offered rate for deposits in U.S. dollars having a maturity of three months that appears on the Designated LIBOR Page as of 11:00 a.m., London time, on the LIBOR Determination Date related to such Interest Period. If such rate does not appear on such page at such time, then the Calculation Agent will request the principal London office of each of four major reference banks in the London interbank market, selected by the Company for this purpose and whose names and contact information will be provided by the Company to the Calculation Agent, to provide such bank’s offered quotation to prime banks in the London interbank market for deposits in U.S. dollars with a term of three months as of 11:00 a.m., London time, on such Determination Date and in a principal amount equal to an amount for a single transaction in U.S. dollars in the relevant market at the relevant time as determined by the Company and provided to the Calculation Agent (a “Representative Amount”). If at least two such quotations are so provided, Three-Month LIBOR for the Interest Period related to such LIBOR Determination Date will be the arithmetic mean of such quotations. If fewer than two such quotations are provided, the Calculation Agent will request each of three major banks in the City of New York selected by the Company for this purpose and whose names and contact information will be provided by the Company to the Calculation Agent, to provide such bank’s rate for loans in U.S. dollars to leading European banks with a term of three months as of approximately 11:00 a.m., New York City time, on such LIBOR Determination Date and in a Representative Amount. If at least two such rates are so provided, Three-Month LIBOR for the Interest Period related to such LIBOR Determination Date will be the arithmetic mean of such quotations. If fewer than two such rates are so provided, then Three-Month LIBOR for the Interest Period related to such LIBOR Determination Date will be set to equal the Three-Month LIBOR for the immediately preceding Interest Period. All percentages used in or resulting from any calculation of Three-Month LIBOR will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with 0.000005% rounded up to 0.00001%. Notwithstanding the foregoing, in the event that Three-Month LIBOR as determined in accordance with this definition is less than zero, Three-Month LIBOR for such Interest Period shall be deemed to be zero.

 

In addition, if the Calculation Agent determines that Three-Month LIBOR is not published on the Designated LIBOR Page, then the Company may determine and provide to the Calculation Agent in writing whether to calculate the relevant interest rate using a substitute or successor base rate that the Company has determined in its sole discretion is most comparable to Three-Month LIBOR or is an industry-accepted substitute or successor base rate, and the Calculation Agent will use that substitute or successor base rate as directed by the Company in writing. If a substitute or successor base rate has been determined in accordance with the foregoing, the Company in its sole discretion may determine what business day convention to use, the definition of business day, the Determination Date to be used and any other relevant methodology for calculating such substitute or successor base rate, including any adjustment factor needed to make such substitute or successor base rate comparable to Three-Month LIBOR, in a manner that is consistent with industry-accepted practices for such substitute or successor base rate.

 

For purposes hereof:

 

Designated LIBOR Page” means the display on Bloomberg Page BBAM1 (or any successor or substitute page of such service, or any successor to such service selected by the Company), for the purpose of displaying the London interbank rates for U.S. dollar deposits of major banks.

 

LIBOR Administrator” means, collectively, the ICE Benchmark Administration Limited (“ICE”) or its successor, or such other entity assuming the responsibility of ICE or its successor in calculating London inter-bank offered rates in the event ICE or its successor no longer does so.

 

LIBOR Determination Date” means the second London Banking Day (as defined below) immediately preceding the first day of the relevant Interest Period.

 

London Banking Day” means any day on which commercial banks are open for business (including dealings in deposits in US dollars) in London, England.

 

Any payment of principal of or interest on this Subordinated Note that would otherwise become due and payable on a day which is not a Business Day will become due and payable on the next succeeding Business Day, with the same force and effect as if made on the date for payment of such principal or interest, and no interest will accrue in respect of such payment for the period after such day.

 

The Company will pay interest on this Subordinated Note to the Person who is the registered Holder at the close of business on the fifteenth calendar day prior to the applicable Interest Payment Date, except as provided in Section 2.10 of the Indenture with respect to Defaulted Interest. This Subordinated Note will be payable as to principal and interest at the office or agency of the Paying Agent, or, at the option of the Company, payment of interest may be made by check delivered to the Holder at its address set forth in the Subordinated Note Register or by wire transfer to an account appropriately designated by the Person entitled to payment; provided, that the Paying Agent will have received written notice of such account designation at least five Business Days prior to the date of such payment (subject to surrender of this Subordinated Note in the case of a payment of interest at Maturity).

 

 

2.

Paying Agent and Registrar.  Wilmington Trust, National Association, a national banking association, the Trustee (“Trustee”) under the Indenture, will act as the initial Paying Agent and Registrar through its offices presently located at 1100 North Market Street, Wilmington, DE 19890. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity.

 

 

3.

Subordination. The indebtedness of the Company evidenced by this Subordinated Note, including the principal thereof and interest thereon, is, to the extent and in the manner set forth in the Indenture, subordinate and junior in right of payment and upon the Company’s liquidation to obligations of the Company constituting the Senior Indebtedness (as defined in the Indenture) on the terms and subject to the terms and conditions as provided and set forth in Article XI of the Indenture and will rank pari passu in right of payment and upon the Company’s liquidation with the Company’s existing and all future indebtedness the terms of which provide that such indebtedness ranks equally with promissory notes, bonds, debentures and other evidences of indebtedness of types that include the Subordinated Notes. Holder, by the acceptance of this Subordinated Note, agrees to and will be bound by such provisions of the Indenture and authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided.

 

 

4.

Redemption.

 

a.

The Company may, at its option, on any Interest Payment Date on or after July 31, 2024, redeem this Subordinated Note, in whole or in part, without premium or penalty, but in all cases in a principal amount in minimum denominations of $2,000 and any integral multiples of $1,000 in excess thereof. In addition, the Company may redeem all, but not a portion of the Subordinated Notes, at any time upon the occurrence of a Tier 2 Capital Event, Tax Event or an Investment Company Event. Any redemption of this Subordinated Note shall be subject to the prior approval of the Board of Governors of the Federal Reserve System (or its designee) or any successor agency, and any other banking regulatory agency, to the extent such approval shall then be required by law, regulation or policy. This Subordinated Note is not subject to redemption at the option of the Holder. The Redemption Price with respect to any redemption permitted under this Indenture will be equal to 100% of the principal amount of this Subordinated Note, or portion thereof, to be redeemed, plus accrued but unpaid interest thereon to, but excluding, the Redemption Date.

 

 

b.

If less than the then outstanding principal amount of this Subordinated Note is redeemed, (i) a new note shall be issued representing the unredeemed portion without charge to the Holder thereof and (ii) such redemption shall be effected on a pro rata basis as to the Holders. For purposes of clarity, upon a partial redemption, a like percentage of the principal amount of every Subordinated Note held by every Holder shall be redeemed.

 

 

c.

Effectiveness of Redemption.  If notice of redemption has been duly given and notwithstanding that any Subordinated Notes so called for redemption have not been surrendered for cancellation, on and after the Redemption Date interest shall cease to accrue on all Subordinated Notes so called for redemption, all Subordinated Notes so called for redemption shall no longer be deemed outstanding and all rights with respect to such Subordinated Notes shall forthwith on such Redemption Date cease and terminate (unless the Company shall default in the payment of the redemption price), except only the right of the Holder thereof to receive the amount payable on such redemption, without interest.

 

 

5.

Events of Default; Acceleration.  An “Event of Default” means any one of the events described in Section 4.01 of the Indenture. If an Event of Default described in Section 4.01(1) or Section 4.01(2) of the Indenture occurs, then the principal amount of all of the Outstanding Subordinated Notes, and accrued and unpaid interest, if any, on all Outstanding Subordinated Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or the Holder, and the Company waives demand, presentment for payment, notice of nonpayment, notice of protest, and all other notices. Notwithstanding the foregoing, because the Company will treat the Subordinated Notes as Tier 2 Capital, upon the occurrence of an Event of Default other than an Event of Default described in Section 4.01(1) or Section 4.01(2) of the Indenture, neither the Trustee nor the Holder may accelerate the Maturity of the Subordinated Notes and make the principal of, and any accrued and unpaid interest on, the Subordinated Notes, immediately due and payable. If any Event of Default occurs and is continuing, the Trustee may also pursue any other available remedy to collect the payment of principal of, and interest on, the Subordinated Notes then due and payable or to enforce the performance of any provision of the Subordinated Notes or the Indenture.

 

 

6.

Failure to Make Payments.  If the Company fails to make any payment of interest on this Subordinated Note when such interest becomes due and payable and such default continues for a period of 30 days, or if the Company fails to make any payment of the principal of this Subordinated Note when such principal becomes due and payable, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holder, the whole amount then due and payable with respect to this Subordinated Note, with interest upon the overdue principal, any premium and, to the extent permitted by applicable law, upon any overdue installments of interest at the rate or respective rates, as the case may be, provided for or with respect to this Subordinated Note or, if no such rate or rates are so provided, at the rate or respective rates, as the case may be, of interest borne by this Subordinated Note.

 

Upon an Event of Default, the Company may not declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock, make any payment of principal or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank equal with or junior to this Subordinated Note, or make any payments under any guarantee that ranks equal with or junior to this Subordinated Note, other than: (i) any dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of Company’s common stock; (ii) any declaration of a dividend in connection with the implementation of a shareholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (iii) as a result of a reclassification of Company’s capital stock or the exchange or conversion of one class or series of Company’s capital stock for another class or series of Company’s capital stock; (iv) the purchase of fractional interests in shares of Company’s capital stock in accordance with the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or (v) purchases of any class of Company’s common stock related to the issuance of common stock or rights under any benefit plans for Company’s directors, officers or employees or any of Company’s dividend reinvestment plans.

 

 

7.

Denominations, Transfer, Exchange.  The Subordinated Notes are issuable only in registered form without interest coupons in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. The transfer of this Subordinated Note may be registered and this Subordinated Note may be exchanged as provided in the Indenture. The Registrar may require the Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require the Holder to pay any taxes and fees required by law or permitted by the Indenture.

 

 

8.

Charges and Transfer Taxes. No service charge will be made for any registration of transfer or exchange of this Subordinated Note, or any redemption or repayment of this Subordinated Note, or any conversion or exchange of this Subordinated Note for other types of securities or property, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer or exchange of this Subordinated Note from the Holder requesting such transfer or exchange.

 

 

9.

Persons Deemed Owners.  The Company and the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Subordinated Note is registered as the owner hereof for all purposes, whether or not this Subordinated Note is overdue, and neither the Company, the Trustee nor any such agent will be affected by notice to the contrary.

 

 

10.

Amendments; Waivers.  The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Subordinated Notes at any time by the Company and the Trustee with the consent of the holders of a majority in principal amount of the then Outstanding Subordinated Notes. The Indenture also contains provisions permitting the holders of specified percentages in principal amount of the then Outstanding Subordinated Notes, on behalf of the holders of all Subordinated Notes, to waive certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Subordinated Note will be conclusive and binding upon such Holder and upon all future holders of this Subordinated Note and of any Subordinated Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Subordinated Note.

 

 

11.

No Impairment.  No reference herein to the Indenture and no provision of this Subordinated Note or of the Indenture will alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest (if any) on this Subordinated Note at the times, place and rate as herein prescribed.

 

 

12.

Sinking Fund; Convertibility.  This Subordinated Note is not entitled to the benefit of any sinking fund. This Subordinated Note is not convertible into or exchangeable for any of the equity securities, other securities or assets of the Company or any Subsidiary.

 

 

13.

No Recourse Against Others.  No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Subordinated Note, or for any claim based thereon or otherwise in respect thereof, will be had against any past, present or future shareholder, employee, officer, or director, as such, of the Company or of any predecessor or successor, either directly or through the Company or any predecessor or successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Subordinated Note by the Holder and as part of the consideration for the issuance of this Subordinated Note.

 

 

14.

Authentication.  This Subordinated Note will not be valid until authenticated by the manual signature of the Trustee or an Authenticating Agent.

 

 

15.

Abbreviations.  Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts to Minors Act). Additional abbreviations may also be used though not in the above list.

 

 

16.

Available Information. The Company will furnish to the Holder upon written request and without charge a copy of the Indenture. Requests by Holder to the Company may be made to: Limestone Bancorp, Inc., 2500 Eastpoint Parkway, Louisville, Kentucky 40223 Attention: Chief Financial Officer.

 

 

17.

Governing Law.  THIS SUBORDINATED NOTE WILL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY LAWS OR PRINCIPLES OF CONFLICT OF LAWS THAT WOULD APPLY THE LAWS OF A DIFFERENT JURISDICTION.

 

[Signature Page Follows]

 

 

 

IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note to be duly executed.

 

 

 

Dated: July 31, 2020

 

 

LIMESTONE BANCORP, INC.

 

       
 

By:

 
 

Name:

John T. Taylor

 

Title:

President and Chief Executive Officer

         
 

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

 

 

This is one of the Subordinated Notes of Limestone Bancorp, Inc., referred to in the within-mentioned Indenture:

 

 

 

WILMINGTON TRUST, NATIONAL ASSOCIATION,

as Trustee

 

 

By:                                                                          

 

Name:

 

Title:

 

Date:

 

 

 

 

ASSIGNMENT FORM

 

To assign this Subordinated Note, fill in the form below: (I) or (we) assign and transfer this Subordinated Note to:

 

 

 

 

 

 

  (Print or type assignee’s name, address and zip code)

 

 

 

(Insert assignee’s social security or tax I.D. No.)

 

and irrevocably appoint _______________________ agent to transfer this Subordinated Note on the books of the Company. The agent may substitute another to act for him.

 

 

 

 

   Date:

 

 

Your signature:                                                                              

 

 

 

(Sign exactly as your name appears on the face of this Subordinated Note)

 

 

 

 

 

 

 

Tax Identification No:                                                                               

 

 

 

   Signature Guarantee:                                                                                         

(Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Exchange Act Rule 17Ad-15).

 

 

The undersigned certifies that it [is / is not] an Affiliate of the Company and that, to its knowledge, the proposed transferee [is / is not] an Affiliate of the Company.

 

 

 

In connection with any transfer or exchange of this Subordinated Note occurring prior to the date that is one year after the later of the date of original issuance of this Subordinated Note and the last date, if any, on which this Subordinated Note was owned by the Company or any Affiliate of the Company, the undersigned confirms that this Subordinated Note is being:

 

 

 

CHECK ONE BOX BELOW:

 

☐             (1)       acquired for the undersigned’s own account, without transfer;

 

☐             (2)       transferred to the Company;

 

☐             (3)       transferred in accordance and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”);

 

☐             (4)       transferred under an effective registration statement under the Securities Act;

 

☐             (5)       transferred in accordance with and in compliance with Regulation S under the Securities Act;

 

☐             (6)       transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) or an “accredited investor” (as defined in Rule 501(a)(4) under the Securities Act), that has furnished a signed letter containing certain representation’s and agreements; or

 

☐             (7)       transferred in accordance with another available exemption from the registration requirements of the Securities Act of 1933, as amended.

 

 

 

Unless one of the boxes is checked, the Paying Agent will refuse to register this Subordinated Note in the name of any person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Paying Agent may require, prior to registering any such transfer of this Subordinated Note, in its sole discretion, such legal opinions, certifications and other information as the Paying Agent may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act such as the exemption provided by Rule 144 under such Act.

 

 

 

  

 

Signature:                                                                  

 

 

 

 

Signature Guarantee:                                                                     

 

(Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Exchange Act Rule 17Ad-15).

 

 

 

TO BE COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.

 

 

 

The undersigned represents and warrants that it is purchasing this Subordinated Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

 

 

  

Date:

 

 

Signature:

 

 

 

 

 

 

 

 

100315824

 

 

 

Exhibit 31.1

 

Limestone Bancorp, Inc.

 

Rule 13a-14(a) Certification

 

of Chief Executive Officer

 

I, John T. Taylor, Chief Executive Officer of Limestone Bancorp, Inc. (the “Company”), certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of the Company;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Dated:  July 31, 2020

 

/s/ John T. Taylor

 

 

 

John T. Taylor

 

 

Chief Executive Officer

 

 

 

Exhibit 31.2

 

Limestone Bancorp, Inc.

 

Rule 13a-14(a) Certification

 

of Chief Financial Officer

 

I, Phillip W. Barnhouse, Chief Financial Officer of Limestone Bancorp, Inc. (the “Company”), certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of the Company;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Dated:  July 31, 2020

 

/s/ Phillip W. Barnhouse

 

 

 

 Phillip W. Barnhouse

 

 

 Chief Financial Officer

 

 

 

Exhibit 32.1

 

SECTION 906 CERTIFICATION

 

 

In connection with the Quarterly Report on Form 10-Q of Limestone Bancorp, Inc. (the “Company”) for the quarterly period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John T. Taylor, Chief Executive Officer of the Company, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

LIMESTONE BANCORP, INC.

 

 

 

Dated:  July 31, 2020

By:

/s/ John T. Taylor

 

 

 

 John T. Taylor

 

 

 Chief Executive Officer

 

 
 

 

Exhibit 32.2

 

SECTION 906 CERTIFICATION

 

 

In connection with the Quarterly Report on Form 10-Q of Limestone Bancorp, Inc. (the “Company”) for the quarterly period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip W. Barnhouse, Chief Financial Officer of the Company, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

LIMESTONE BANCORP, INC.

 

 

 

Dated:  July 31, 2020

By:

/s/ Phillip W. Barnhouse

 

 

 

 Phillip W. Barnhouse

 

 

 Chief Financial Officer

 

 
v3.20.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Document Information [Line Items]    
Entity Central Index Key 0001358356  
Entity Registrant Name LIMESTONE BANCORP, INC.  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2020  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2020  
Document Transition Report false  
Entity File Number 001-33033  
Entity Incorporation, State or Country Code KY  
Entity Tax Identification Number 61-1142247  
Entity Address, Address Line One 2500 Eastpoint Parkway  
Entity Address, City or Town Louisville  
Entity Address, State or Province KY  
Entity Address, Postal Zip Code 40223  
City Area Code 502  
Local Phone Number 499-4800  
Title of 12(b) Security Common shares  
Trading Symbol LMST  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Nonvoting Common Stock [Member]    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   1,000,000
Voting Common Stock [Member]    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   6,499,249
v3.20.2
Unaudited Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Assets    
Cash and due from banks $ 9,990 $ 8,241
Interest bearing deposits in banks 39,027 21,962
Cash and cash equivalents 49,017 30,203
Securities available for sale 202,596 209,000
Loans, net of allowance of $10,228 and $8,376, respectively 965,531 917,895
Premises and equipment, net 19,000 19,658
Premises held for sale 1,149 900
Other real estate owned 1,625 3,225
Federal Home Loan Bank stock 6,142 6,237
Bank owned life insurance 16,238 16,037
Deferred taxes, net 27,054 27,765
Goodwill 6,252 6,252
Other intangible assets, net 2,372 2,500
Accrued interest receivable and other assets 7,532 6,107
Total assets 1,304,508 1,245,779
Deposits    
Non-interest bearing 224,901 187,551
Interest bearing 899,887 839,424
Total deposits 1,124,788 1,026,975
Federal Home Loan Bank advances 20,644 61,389
Accrued interest payable and other liabilities 7,020 8,665
Junior subordinated debentures 21,000 21,000
Subordinated capital notes 17,000 17,000
Senior debt 5,000 5,000
Total liabilities 1,195,452 1,140,029
Commitments and contingent liabilities (Note 15) 0 0
Stockholders’ equity    
Common stock, no par, 39,000,000 shares authorized, 6,265,872 and 6,251,975 voting, and 1,220,000 and 1,220,000 non-voting issued and outstanding, respectively 140,639 140,639
Additional paid-in capital 24,643 24,508
Retained deficit (51,861) (55,683)
Accumulated other comprehensive loss (4,365) (3,714)
Total stockholders' equity 109,056 105,750
Total liabilities and stockholders’ equity $ 1,304,508 $ 1,245,779
v3.20.2
Unaudited Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)
$ / shares in Thousands, $ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Loans, allowance $ 10,228 $ 8,376
Common stock, no par (in dollars per share) $ 0 $ 0
Common stock, shares authorized (in shares) 39,000,000 39,000,000
Voting Common Stock [Member]    
Common stock, shares issued (in shares) 6,265,872 6,251,975
Common stock, shares outstanding (in shares) 6,265,872 6,251,975
Nonvoting Common Stock [Member]    
Common stock, shares issued (in shares) 1,220,000 1,220,000
Common stock, shares outstanding (in shares) 1,220,000 1,220,000
v3.20.2
Unaudited Consolidated Statements of Income - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Interest income        
Loans, including fees $ 11,356,000 $ 10,465,000 $ 22,967,000 $ 20,719,000
Taxable securities 1,307,000 1,608,000 2,774,000 3,181,000
Tax exempt securities 77,000 88,000 147,000 181,000
Federal funds sold and other 46,000 215,000 165,000 481,000
Interest and Dividend Income, Operating, Total 12,786,000 12,376,000 26,053,000 24,562,000
Interest expense        
Deposits 2,127,000 2,965,000 4,899,000 5,552,000
Federal Home Loan Bank advances 73,000 255,000 293,000 536,000
Senior debt 51,000 98,000 107,000 194,000
Junior subordinated debentures 172,000 258,000 387,000 521,000
Subordinated capital notes 253,000 0 495,000 0
Interest Expense, Total 2,676,000 3,576,000 6,181,000 6,803,000
Net interest income 10,110,000 8,800,000 19,872,000 17,759,000
Provision for loan losses 1,100,000 0 2,150,000 0
Net interest income after provision for loan losses 9,010,000 8,800,000 17,722,000 17,759,000
Non-interest income        
Non-interest income revenue 129,000 119,000 285,000 255,000
Income from bank owned life insurance 116,000 118,000 212,000 217,000
Net loss on sales and calls of investment securities (5,000) (5,000) (5,000) (5,000)
Other 186,000 166,000 396,000 347,000
Noninterest Income, Total 1,601,000 1,446,000 3,325,000 2,730,000
Non-interest expense        
Salaries and employee benefits 4,633,000 3,915,000 9,171,000 7,830,000
Occupancy and equipment 983,000 854,000 1,982,000 1,752,000
Professional fees 235,000 179,000 443,000 344,000
Marketing expense 104,000 212,000 318,000 439,000
FDIC Insurance 67,000 103,000 67,000 211,000
Data processing expense 380,000 315,000 739,000 628,000
State franchise and deposit tax 360,000 315,000 720,000 630,000
Deposit account related expense 460,000 310,000 911,000 591,000
Other real estate owned expense 22,000 142,000 38,000 308,000
Litigation and loan collection expense 59,000 34,000 124,000 80,000
Communications expense 247,000 189,000 465,000 379,000
Insurance expense 111,000 112,000 214,000 226,000
Postage and delivery 152,000 134,000 320,000 275,000
Other 423,000 410,000 959,000 812,000
Noninterest Expense, Total 8,236,000 7,224,000 16,471,000 14,505,000
Income before income taxes 2,375,000 3,022,000 4,576,000 5,984,000
Income tax expense (benefit) 393,000 (611,000) 754,000 (488,000)
Net income $ 1,982,000 $ 3,633,000 $ 3,822,000 $ 6,472,000
Basic and diluted income per common share (in dollars per share) $ 0.26 $ 0.49 $ 0.51 $ 0.87
Deposit Account [Member]        
Non-interest income        
Non-interest income revenue $ 441,000 $ 571,000 $ 1,109,000 $ 1,067,000
Debit Card [Member]        
Non-interest income        
Non-interest income revenue $ 863,000 $ 596,000 $ 1,613,000 $ 1,104,000
v3.20.2
Unaudited Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Net income $ 1,982 $ 3,633 $ 3,822 $ 6,472
Other comprehensive income (loss):        
Unrealized gain (loss) arising during the period 3,254 1,882 (872) 3,877
Less reclassification adjustment for gains (losses) included in net income (5) (5) (5) (5)
Net unrealized gain (loss) recognized in comprehensive income (loss) 3,259 1,887 (867) 3,882
Tax effect (762) (471) 216 (889)
Other comprehensive income (loss) 2,497 1,416 (651) 2,993
Comprehensive income $ 4,479 $ 5,049 $ 3,171 $ 9,465
v3.20.2
Unaudited Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Thousands
Common Stock [Member]
Voting Common Stock [Member]
Common Stock [Member]
Nonvoting Common Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Total
Balances (in shares) at Dec. 31, 2018 6,242,720 1,220,000 7,462,720        
Balances at Dec. 31, 2018     $ 140,639 $ 24,287 $ (66,201) $ (6,628) $ 92,097
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award (in shares) 1,642 0 1,642        
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award     $ 0 (276) 0 0 (276)
Forfeited unvested stock (in shares) (3,748) 0 (3,748)        
Forfeited unvested stock     $ 0 0 0 0 0
Stock-based compensation expense     0 82 0 0 82
Net income     0 0 2,839 0 2,839
Net change in accumulated other comprehensive loss, net of taxes     $ 0 0 0 1,577 1,577
Balances (in shares) at Mar. 31, 2019 6,240,614 1,220,000 7,460,614        
Balances at Mar. 31, 2019     $ 140,639 24,093 (63,362) (5,051) 96,319
Balances (in shares) at Dec. 31, 2018 6,242,720 1,220,000 7,462,720        
Balances at Dec. 31, 2018     $ 140,639 24,287 (66,201) (6,628) 92,097
Net income             6,472
Net change in accumulated other comprehensive loss, net of taxes             2,993
Balances (in shares) at Jun. 30, 2019 6,237,832 1,220,000 7,457,832        
Balances at Jun. 30, 2019     $ 140,639 24,147 (59,729) (3,635) 101,422
Balances (in shares) at Mar. 31, 2019 6,240,614 1,220,000 7,460,614        
Balances at Mar. 31, 2019     $ 140,639 24,093 (63,362) (5,051) 96,319
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award (in shares) (2,532) 0 (2,532)        
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award     $ 0 (39) 0 0 (39)
Forfeited unvested stock (in shares) (250) 0 (250)        
Forfeited unvested stock     $ 0 0 0 0 0
Stock-based compensation expense     0 93 0 0 93
Net income     0 0 3,633 0 3,633
Net change in accumulated other comprehensive loss, net of taxes     $ 0 0 0 1,416 1,416
Balances (in shares) at Jun. 30, 2019 6,237,832 1,220,000 7,457,832        
Balances at Jun. 30, 2019     $ 140,639 24,147 (59,729) (3,635) 101,422
Balances (in shares) at Dec. 31, 2019 6,251,975 1,220,000 7,471,975        
Balances at Dec. 31, 2019     $ 140,639 24,508 (55,683) (3,714) 105,750
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award (in shares) 17,330 0 17,330        
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award     $ 0 (37) 0 0 (37)
Forfeited unvested stock (in shares) 0 0 0        
Forfeited unvested stock     $ 0 0 0 0 0
Stock-based compensation expense     0 106 0 0 106
Net income     0 0 1,840 0 1,840
Net change in accumulated other comprehensive loss, net of taxes     $ 0 0 0 (3,148) (3,148)
Balances (in shares) at Mar. 31, 2020 6,269,305 1,220,000 7,489,305        
Balances at Mar. 31, 2020     $ 140,639 24,577 (53,843) (6,862) 104,511
Balances (in shares) at Dec. 31, 2019 6,251,975 1,220,000 7,471,975        
Balances at Dec. 31, 2019     $ 140,639 24,508 (55,683) (3,714) 105,750
Net income             3,822
Net change in accumulated other comprehensive loss, net of taxes             (651)
Balances (in shares) at Jun. 30, 2020 6,265,872 1,220,000 7,485,872        
Balances at Jun. 30, 2020     $ 140,639 24,643 (51,861) (4,365) 109,056
Balances (in shares) at Mar. 31, 2020 6,269,305 1,220,000 7,489,305        
Balances at Mar. 31, 2020     $ 140,639 24,577 (53,843) (6,862) 104,511
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award (in shares) (3,433) 0 (3,433)        
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award     $ 0 (38) 0 0 (38)
Forfeited unvested stock (in shares) 0 0 0        
Forfeited unvested stock     $ 0 0 0 0 0
Stock-based compensation expense     0 104 0 0 104
Net income     0 0 1,982 0 1,982
Net change in accumulated other comprehensive loss, net of taxes     $ 0 0 0 2,497 2,497
Balances (in shares) at Jun. 30, 2020 6,265,872 1,220,000 7,485,872        
Balances at Jun. 30, 2020     $ 140,639 $ 24,643 $ (51,861) $ (4,365) $ 109,056
v3.20.2
Unaudited Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities    
Net income $ 3,822 $ 6,472
Adjustments to reconcile net income to net cash from operating activities    
Depreciation and amortization 1,080 979
Provision for loan losses 2,150 0
Net amortization on securities 321 363
Stock-based compensation expense 210 175
Deferred taxes, net 927 (317)
Net write-down of other real estate owned 0 260
Net realized loss on sales and calls of investment securities 5 5
Net write-down on premises held for sale 61 55
Increase in cash surrender value of life insurance, net of premium expense (201) (207)
Amortization of operating lease right-of-use assets 375 123
Net change in accrued interest receivable and other assets (1,425) (552)
Net change in accrued interest payable and other liabilities (1,645) (1,903)
Net cash from operating activities 5,680 5,453
Cash flows from investing activities    
Purchases of available for sale securities (18,309) (13,894)
Proceeds from sales and calls of available for sale securities 8,530 2,452
Proceeds from maturities and prepayments of available for sale securities 14,990 7,534
Purchases of Federal Home Loan Bank stock (600) 0
Proceeds from mandatory redemptions of Federal Home Loan Bank stock 695 540
Proceeds from sale of other real estate owned 1,600 0
Net change in loans (50,212) (38,476)
Purchases of premises and equipment (553) (208)
Proceeds from sale of premises and equipment 0 1
Net cash from investing activities (43,859) (42,051)
Cash flows from financing activities    
Net change in deposits 97,813 44,246
Repayment of Federal Home Loan Bank advances (135,745) (65,079)
Advances from Federal Home Loan Bank 95,000 70,000
Common shares withheld for taxes (75) (315)
Net cash from financing activities 56,993 48,852
Net change in cash and cash equivalents 18,814 12,254
Beginning cash and cash equivalents 30,203 35,361
Ending cash and cash equivalents 49,017 47,615
Supplemental cash flow information:    
Interest paid 6,549 6,771
Supplemental non-cash disclosure:    
Transfer from loans to other real estate 0 0
Transfer from premises and equipment to premises held for sale 310 0
Financed sales of other real estate owned 1,360 0
Initial recognition of right-of-use lease assets $ 0 $ 507
v3.20.2
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Basis of Presentation and Significant Accounting Policies [Text Block]

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation – The consolidated financial statements include Limestone Bancorp, Inc. (Company) and its subsidiary, Limestone Bank, Inc. (Bank). The Company owns a 100% interest in the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the entire year. A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

 

Use of Estimates – To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

 

In March 2020, the World Health Organization declared novel coronavirus disease 2019 (“COVID-19”) as a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in markets in which the Company is located or does business.

 

The extent to which the COVID-19 pandemic impacts the Company’s business, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may have a material adverse effect on all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, or deferred tax assets.

 

Reclassifications – Some items in the prior year financial statements were reclassified to conform to the current presentation. The reclassifications did not impact net income or stockholders’ equity.

 

New Accounting Standards – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under the CECL model, certain financial assets that are carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined. The impact of CECL model implementation is being evaluated, but it is expected that a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance. In December 2018, the OCC, The Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to the credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from adoption of the new accounting standard. In October 2019, the FASB voted to delay implementation for smaller reporting companies, private companies, and not-for-profit entities. The Company currently qualifies as a smaller reporting company. Companies qualifying for the delay will be required to implement CECL for fiscal year and interim periods beginning after December 15, 2022.

v3.20.2
Note 2 - Securities
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 2 – Securities

 

Securities are classified as available for sale (AFS). AFS securities may be sold if needed for liquidity, asset liability management, or other reasons. AFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.

 

The amortized cost and fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

 

  

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

 
  

(in thousands)

 

June 30, 2020

                

Available for sale

                

U.S. Government and federal agency

 $20,302  $772  $  $21,074 

Agency mortgage-backed: residential

  85,048   3,152   (21

)

  88,179 

Collateralized loan obligations

  44,730      (3,042

)

  41,688 

State and municipal

  28,708   917   (57

)

  29,568 

Corporate bonds

  23,347   313   (1,573

)

  22,087 

Total available for sale

 $202,135  $5,154  $(4,693

)

 $202,596 

 

 

 

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

 
December 31, 2019                

Available for sale

                

U.S. Government and federal agency

 $22,281  $196  $(147

)

 $22,330 

Agency mortgage-backed: residential

  91,269   1,186   (255

)

  92,200 

Collateralized loan obligations

  49,831      (412

)

  49,419 

State and municipal

  27,819   550   (3

)

  28,366 

Corporate bonds

  16,472   213      16,685 

Total available for sale

 $207,672  $2,145  $(817

)

 $209,000 

 

Sales and calls of securities were as follows:

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  (in thousands)  (in thousands) 

Proceeds

 $2,530  $1,452  $8,530  $2,452 

Gross gains

     1      1 

Gross losses

  5   6   5   6 

 

The amortized cost and fair value of our debt securities are shown by contractual maturity. Expected maturities may differ from actual maturities when borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities not due at a single maturity date are shown separately.

 

  

June 30, 2020

 
  

Amortized

Cost

  

Fair

Value

 
  

(in thousands)

 

Maturity

        

Available for sale

        

Within one year

 $15,142  $14,048 

One to five years

  41,133   42,486 

Five to ten years

  37,615   36,545 

Beyond ten years

  23,197   21,338 

Agency mortgage-backed: residential

  85,048   88,179 

Total

 $202,135  $202,596 

                                                                                  

Securities pledged at June 30, 2020 and December 31, 2019 had carrying values of approximately $85.1 million and $75.8 million, respectively, and were pledged to secure public deposits.

 

At June 30, 2020 and December 31, 2019, the Bank held securities issued by the Commonwealth of Kentucky or Kentucky municipalities having a book value of $15.4 million and $14.5 million, respectively. At June 30, 2020 and December 31, 2019, there were no other holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

 

The Bank owns Collateralized Loan Obligations (CLOs), which are debt securities secured by professionally managed portfolios of senior-secured loans to corporations. CLOs are typically managed by large non-bank financial institutions or banks and are typically $300 million to $1 billion in size, contain one hundred or more loans, have five to six credit tranches ranging from AAA, AA, A, BBB, BB, B and equity tranche. Interest and principal are paid first to the AAA tranche then to the next lower rated tranche. Losses are borne first by the equity tranche then by the subsequently higher rated tranche. CLOs may be less liquid than government securities from time to time and volatility in the CLO market may cause the value of these investments to decline.

 

The market value of CLOs may be affected by, among other things, changes in composition of the underlying loans, changes in the cash flows from the underlying loans, defaults and recoveries on the underlying loans, capital gains and losses on the underlying loans, prepayments on the underlying loans, and other conditions or economic factors.

 

At June 30, 2020, $26.4 million and $15.3 million of our CLOs were AA and A rated, respectively. There were no CLOs rated below A and none of the CLOs were subject to ratings downgrade in the six months ended June 30, 2020. All of our CLOs are floating rate, with rates set on a quarterly basis at three-month LIBOR plus a spread. Stress testing was completed on each security in the CLO portfolio as of June 30, 2020. Each security in the portfolio passed, without dollar loss, a stress scenario characterized as severe, which assumed a ten percent per annum constant prepayment rate, a twelve percent per annum constant default rate for four years followed by a four percent rate thereafter, and a forty-five percent recovery rate on a one-year lag.

 

The fair value of the Bank’s corporate bond portfolio was also impacted by market disruption and declining rates. The corporate bond portfolio consists of eleven subordinated debt securities of U.S. banks and bank holding companies with maturities ranging from 2024 to 2037. The securities are either fixed for five years converting to floating at an index over LIBOR or floating at an index over LIBOR from inception. Management regularly monitors the financial condition of these corporate issuers by reviewing their regulatory and public filings.

 

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, underlying credit quality of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuer’s financial condition. As of June 30, 2020, management does not believe any securities in the portfolio with unrealized losses should be classified as other than temporarily impaired.

 

Securities with unrealized losses at June 30, 2020 and December 31, 2019, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

 

  

Less than 12 Months

  

12 Months or More

  

Total

 

Description of Securities

 

Fair

Value

  

Unrealized

Loss

  

Fair

Value

  

Unrealized

Loss

  

Fair

Value

  

Unrealized

Loss

 
  

(in thousands)

 

June 30, 2020

                        

Available for sale

                        

U.S. Government and federal agency

 $  $  $  $  $  $ 

Agency mortgage-backed: residential

  6,100   (21

)

        6,100   (21

)

Collateralized loan obligations

  10,813   (732

)

  30,875   (2,310

)

  41,688   (3,042

)

State and municipal

  3,258   (57

)

        3,258   (57

)

Corporate bonds

  14,760   (1,573

)

        14,760   (1,573

)

Total temporarily impaired

 $34,931  $(2,383

)

 $30,875  $(2,310

)

 $65,806  $(4,693

)

December 31, 2019

                        

Available for sale

                        

U.S. Government and federal agency

 $12,567  $(147

)

 $  $  $12,567  $(147

)

Agency mortgage-backed: residential

  18,457   (97

)

  10,665   (158

)

  29,122   (255

)

Collateralized loan obligations

  9,539   (46

)

  35,336   (366

)

  44,875   (412

)

State and municipal

  911   (3

)

        911   (3

)

Corporate bonds

                  

Total temporarily impaired

 $41,474  $(293

)

 $46,001  $(524

)

 $87,475  $(817

)

 

v3.20.2
Note 3 - Loans
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 3 – Loans

 

Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 

Commercial (1)

 $221,292  $145,551 

Commercial Real Estate:

        

Construction

  73,195   64,911 

Farmland

  79,555   79,118 

Nonfarm nonresidential

  254,616   255,459 

Residential Real Estate:

        

Multi-family

  65,113   70,950 

1-4 Family

  204,283   226,629 

Consumer

  38,828   47,790 

Agriculture

  38,286   35,064 

Other

  591   799 

Subtotal

  975,759   926,271 

Less: Allowance for loan losses

  (10,228

)

  (8,376

)

Loans, net

 $965,531  $917,895 

_______________________________________________________________________________________________  

(1)   Includes PPP loans of $41.9 million at June 30, 2020.

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2020 and 2019:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

June 30, 2020:

                            

Beginning balance

 $2,025  $4,212  $1,909  $593  $409  $2  $9,150 

Provision (negative provision)

  504   210   189   134   65   (2

)

  1,100 

Loans charged off

  (3

)

  (28

)

  (7

)

  (152

)

  (3

)

     (193

)

Recoveries

  6   100   55   6   1   3   171 

Ending balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             
                             

June 30, 2019:

                            

Beginning balance

 $1,447  $4,498  $2,227  $159  $353  $2  $8,686 

Provision (negative provision)

  (45

)

  (46

)

  52   (16

)

  55       

Loans charged off

        (35

)

  (34

)

  (3

)

     (72

)

Recoveries

  90   1   83   44         218 

Ending balance

 $1,492  $4,453  $2,327  $153  $405  $2  $8,832 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2020 and 2019:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

June 30, 2020:

                            

Beginning balance

 $1,710  $4,080  $1,743  $485  $355  $3  $8,376 

Provision (negative provision)

  843   351   409   399   152   (4

)

  2,150 

Loans charged off

  (32

)

  (57

)

  (82

)

  (313

)

  (44

)

     (528

)

Recoveries

  11   120   76   10   9   4   230 

Ending balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             
                             

June 30, 2019:

                            

Beginning balance

 $1,299  $4,676  $2,452  $130  $321  $2  $8,880 

Provision (negative provision)

  98   (211

)

  (152

)

  177   88       

Loans charged off

     (15

)

  (117

)

  (214

)

  (4

)

     (350

)

Recoveries

  95   3   144   60         302 

Ending balance

 $1,492  $4,453  $2,327  $153  $405  $2  $8,832 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of June 30, 2020:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

Allowance for loan losses:

                            

Ending allowance balance attributable to loans:

                            

Individually evaluated for impairment

 $  $24  $1  $  $  $  $25 

Collectively evaluated for impairment

  2,532   4,470   2,145   581   472   3   10,203 

Total ending allowance balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             

Loans:

                            

Loans individually evaluated for impairment

 $103  $1,014  $940  $14  $  $  $2,071 

Loans collectively evaluated for impairment

  221,189   406,352   268,456   38,814   38,286   591   973,688 

Total ending loans balance

 $221,292  $407,366  $269,396  $38,828  $38,286  $591  $975,759 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, 2019:

 

  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

Allowance for loan losses:

                            

Ending allowance balance attributable to loans:

                            

Individually evaluated for impairment

 $3  $37  $2  $  $  $  $42 

Collectively evaluated for impairment

  1,707   4,043   1,741   485   355   3   8,334 

Total ending allowance balance

 $1,710  $4,080  $1,743  $485  $355  $3  $8,376 
                             
                             

 

Loans:

                            

Loans individually evaluated for impairment

 $74  $1,064  $892  $98  $42  $  $2,170 

Loans collectively evaluated for impairment

  145,477   398,424   296,687   47,692   35,022   799   924,101 

Total ending loans balance

 $145,551  $399,488  $297,579  $47,790  $35,064  $799  $926,271 

 

Impaired Loans

 

Impaired loans include restructured loans and loans on nonaccrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss has been provided.

 

The following tables present information related to loans individually evaluated for impairment by class of loans as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019:

 

  

As of June 30, 2020

  

Three Months Ended

June 30, 2020

  

Six Months Ended

June 30, 2020

 
  

Unpaid

Principal

Balance

  

Recorded

Investment

  

Allowance

For Loan

Losses

Allocated

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

 

Average

Recorded

Investment

  

 

Interest

Income

Recognized

 
  

(in thousands)

 

 

With No Related Allowance Recorded:

                            

Commercial

 $210  $103  $  $131  $  $104  $ 

Commercial real estate:

                            

Construction

                     

Farmland

  411   295      297   3   296   13 

Nonfarm nonresidential

  986   426      453   10   465   18 

Residential real estate:

                            

Multi-family

                     

1-4 Family

  1,819   866      856   51   819   54 

Consumer

  224   14      78      85   1 

Agriculture

  297               14    

Other

                     

Subtotal

  3,947   1,704      1,815   64   1,783   86 

With An Allowance Recorded:

                            

Commercial

                 8    

Commercial real estate:

                            

Construction

                     

Farmland

  143   143   19   143   2   189   4 

Nonfarm nonresidential

  161   150   5   75      50    

Residential real estate:

                            

Multi-family

                     

1-4 Family

  74   74   1   74   1   98   3 

Consumer

                     

Agriculture

                     

Other

                     

Subtotal

  378   367   25   292   3   345   7 

Total

 $4,325  $2,071  $25  $2,107  $67  $2,128  $93 

 

  

As of December 31, 2019

  

Three Months Ended

June 30, 2019

  

Six Months Ended

June 30, 2019

 
  

Unpaid

Principal

Balance

  

Recorded

Investment

  

Allowance

For Loan

Losses

Allocated

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

 

Average

Recorded

Investment

  

 

Interest

Income

Recognized

 
  (in thousands) 

With No Related Allowance Recorded:

                            

Commercial

 $138  $50  $  $66  $  $62  $ 

Commercial real estate:

                            

Construction

                     

Farmland

  380   293      156   3   134   8 

Nonfarm nonresidential

  1,057   489      246   4   251   7 

Residential real estate:

                            

Multi-family

                     

1-4 Family

  1,679   745      1,448   28   1,508   50 

Consumer

  309   98      14   2   9   2 

Agriculture

  304   42      65      43    

Other

                     

Subtotal

  3,867   1,717      1,995   37   2,007   67 

With An Allowance Recorded:

                            

Commercial

  24   24   3   13   1   9   1 

Commercial real estate:

                            

Construction

                     

Farmland

  282   282   37   225      203    

Nonfarm nonresidential

                     

Residential real estate:

                            

Multi-family

                     

1-4 Family

  183   147   2   715   10   717   21 

Consumer

                     

Agriculture

                     

Other

                     

Subtotal

  489   453   42   953   11   929   22 

Total

 $4,356  $2,170  $42  $2,948  $48  $2,936  $89 

 

Cash basis income recognized for the three and six months ended June 30, 2020 was $54,000 and $68,000, respectively, compared to $30,000 and $60,000 for the three and six months ended June 30, 2019, respectively.

 

Troubled Debt Restructuring

 

A troubled debt restructuring (TDR) occurs when the Bank has agreed to an other than short-term loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The Bank’s TDRs may involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower.

 

The following table presents the types of TDR loan modifications by portfolio segment outstanding as of June 30, 2020 and December 31, 2019:

 

  

TDRs

Performing to

Modified Terms

  

TDRs Not

Performing to

Modified Terms

  

Total

TDRs

 
  

(in thousands)

 

June 30, 2020

            

Commercial Real Estate:

            

Nonfarm nonresidential

 $388  $  $388 

Residential Real Estate:

            

1-4 Family

  74      74 

Total TDRs

 $462  $  $462 

 

  

TDRs

Performing to

Modified Terms

  

TDRs Not

Performing to

Modified Terms

  

Total

TDRs

 
  

(in thousands)

 

December 31, 2019

            

Commercial Real Estate:

            

Nonfarm nonresidential

 $400  $  $400 

Residential Real Estate:

            

1-4 Family

  75      75 

Total TDRs

 $475  $  $475 

 

At June 30, 2020 and December 31, 2019, 100% of the Company’s TDRs were performing according to their modified terms. The Company allocated $1,000 in reserves to borrowers whose loan terms have been modified in TDRs as of June 30, 2020 and December 31, 2019. The Company has committed to lend no additional amounts as of June 30, 2020 and December 31, 2019 to borrowers with outstanding loans classified as TDRs.

 

Management periodically reviews renewals and modifications of previously identified TDRs, for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was not commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.

 

No TDR loan modifications occurred during the three and six months ended June 30, 2020 or June 30, 2019. During the three and six months ended June 30, 2020 and June 30, 2019, no TDRs defaulted on their restructured loan within the 12-month period following the loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.

 

Non-TDR Loan Modifications due to COVID-19

 

The Company has elected to account for eligible loan modifications under Section 4013 of the CARES Act. To be an eligible loan under Section 4013 of the CARES Act, a loan modification must be (1) related to the COVID 19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020 and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”) or (B) December 31, 2020. Eligible loan modifications are not required to be classified as TDRs and will not be reported as past due provided that they are performing in accordance with the modified terms. Interest income will continue to be recognized in accordance with GAAP unless the loan is placed on nonaccrual status.

 

Non-performing Loans

 

Non-performing loans include impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. The following table presents the recorded investment in nonaccrual and loans past due 90 days and still on accrual by class of loan as of June 30, 2020, and December 31, 2019:

 

  

Nonaccrual

  

Loans Past Due 90 Days

And Over Still Accruing

 
  

June 30,

2020

  

December 31,

2019

  

June 30,

2020

  

December 31,

2019

 
  

(in thousands)

 
                 

Commercial

 $104  $50  $  $ 

Commercial Real Estate:

                

Construction

            

Farmland

  295   431       

Nonfarm nonresidential

  188   90       

Residential Real Estate:

                

Multi-family

            

1-4 Family

  809   817       

Consumer

  14   98       

Agriculture

     42       

Other

            

Total

 $1,410  $1,528  $  $ 

 

The following table presents the aging of the recorded investment in past due loans as of June 30, 2020 and December 31, 2019:

 

  

30 – 59

Days

Past Due

  

60 – 89

Days

Past Due

  

90 Days

And Over

Past Due

  

 

 

Nonaccrual

  

Total

Past Due

And

Nonaccrual

 
  

(in thousands)

 

June 30, 2020

                    

Commercial

 $  $  $  $104  $104 

Commercial Real Estate:

                    

Construction

               

Farmland

  55         295   350 

Nonfarm nonresidential

     40      188   228 

Residential Real Estate:

                    

Multi-family

               

1-4 Family

  331   88      809   1,228 

Consumer

  67   69      14   150 

Agriculture

  5            5 

Other

               

Total

 $458  $197  $  $1,410  $2,065 

 

 

  

30 – 59

Days

Past Due

  

60 – 89

Days

Past Due

  

90 Days

And Over

Past Due

  

 

 

Nonaccrual

  

Total

Past Due

And

Nonaccrual

 
                     
  

(in thousands)

 

December 31, 2019

                    

Commercial

 $14  $3  $  $50  $67 

Commercial Real Estate:

                    

Construction

               

Farmland

  274         431   705 

Nonfarm nonresidential

  206         90   296 

Residential Real Estate:

                    

Multi-family

               

1-4 Family

  1,162   503      817   2,482 

Consumer

  91   164      98   353 

Agriculture

           42   42 

Other

               

Total

 $1,747  $670  $  $1,528  $3,945 

 

Credit Quality Indicators 

 

Management categorizes all loans into risk categories at origination based upon original underwriting. Thereafter, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends. Loans are analyzed through internal and external loan review processes and are routinely analyzed through credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings:

 

Watch – Loans classified as watch are those loans which have or may experience a potentially adverse development which necessitates increased monitoring.

 

Special Mention – Loans classified as special mention do not have all of the characteristics of substandard or doubtful loans. They have one or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices, may remedy.

 

Substandard – Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize the repayment of the debt as contractually agreed. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.

 

As of June 30, 2020, and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

  

Pass

  

Watch

  

Special

Mention

  

Substandard

  

Doubtful

  

Total

 
  

(in thousands)

 

June 30, 2020

                        

Commercial

 $203,360  $16,048  $  $1,884  $  $221,292 

Commercial Real Estate:

                        

Construction

  73,195               73,195 

Farmland

  72,750   6,008      797      79,555 

Nonfarm nonresidential

  246,118   6,726      1,772      254,616 

Residential Real Estate:

                        

Multi-family

  54,665   10,448            65,113 

1-4 Family

  198,014   3,617      2,652      204,283 

Consumer

  38,780   3      45      38,828 

Agriculture

  38,085   164      37      38,286 

Other

  591               591 

Total

 $925,558  $43,014  $  $7,187  $  $975,759 

 

 

  

Pass

  

Watch

  

Special

Mention

  

Substandard

  

Doubtful

  

Total

 
                         
  

(in thousands)

 

December 31, 2019

                        

Commercial

 $130,312  $11,280  $  $3,959  $  $145,551 

Commercial Real Estate:

                        

Construction

  64,911               64,911 

Farmland

  71,503   6,663      952      79,118 

Nonfarm nonresidential

  245,995   6,986      2,478      255,459 

Residential Real Estate:

                        

Multi-family

  70,950               70,950 

1-4 Family

  221,727   2,420      2,482      226,629 

Consumer

  47,657   5      128      47,790 

Agriculture

  34,853   168      43      35,064 

Other

  799               799 

Total

 $888,707  $27,522  $  $10,042  $  $926,271 

 

v3.20.2
Note 4 - Leases
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]

Note 4 – Leases

 

As of June 30, 2020, the Company leases real estate for six branch offices or offsite ATM machines under various operating lease agreements. The lease agreements have maturity dates ranging from 2021 to 2055, including all expected extension periods. The weighted average remaining life of the lease term for these leases was 22 years as of June 30, 2020.

 

In determining the present value of lease payments, the Bank uses the implicit lease rate when readily determinable. As most of the Bank’s leases do not provide an implicit rate, the incremental borrowing rate based on the information available at commencement date is used. The incremental borrowing rate is the rate of interest that the Bank estimates it would pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The weighted average discount rate for the leases was 5.47% as of June 30, 2020.

 

Total rental expense was $136,000 and $256,000, respectively, for the three and six months ended June 30, 2020, compared to $65,000 and $130,000, respectively, for the three and six months ended June 30, 2019. The right-of-use asset, included in premises and equipment, and lease liability, included in other liabilities, was $2.7 million as of June 30, 2020 and $384,000 as of June 30, 2019.

 

Total estimated rental commitments for the operating leases were as follows as of June 30, 2020 (in thousands):

 

  

June 30,

2020

 
     

July – December 2020

 $255 

2021

  241 

2022

  223 

2023

  226 

2024

  225 

Thereafter

  3,720 

Total minimum lease payments

  4,890 

Discount effect of cash flows

  (2,195

)

Present value of lease liabilities

 $2,695 

 

v3.20.2
Note 5 - Other Real Estate Owned
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Real Estate Owned [Text Block]

Note 5 – Other Real Estate Owned

 

Other real estate owned (OREO) is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. It is classified as real estate owned until such time as it is sold. When property is acquired as a result of foreclosure or by deed in lieu of foreclosure, it is recorded at its fair market value less estimated cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses.

 

The following table presents the major categories of OREO at the period-ends indicated: 

 

   

June 30,

2020

   

December 31,

2019

 
   

(in thousands)

 

Commercial Real Estate:

               

Construction, land development, and other land

  $ 1,625     $ 3,225  
    $ 1,625     $ 3,225  

 

Residential loans secured by 1-4 family residential properties in the process of foreclosure totaled $154,000 and $172,000 at June 30, 2020 and December 31, 2019, respectively.

 

Activity relating to OREO during the six months ended June 30, 2020 and 2019 is as follows:

 

   

For the Six

Months Ended

June 30,

 
   

2020

   

2019

 
   

(in thousands)

 

OREO Activity

               

OREO as of January 1

  $ 3,225     $ 3,485  

Real estate acquired

           

Valuation adjustment write-downs

          (260

)

Net gain on sales

           

Proceeds from sales of properties

    (1,600

)

     

OREO as of June 30

  $ 1,625     $ 3,225  

 

Expenses related to other real estate owned include:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
    (in thousands)     (in thousands)  

Net gain on sales

  $     $     $     $  

Valuation adjustment write-downs

          110             260  

Operating expense

    22       32       38       48  

Total

  $ 22     $ 142     $ 38     $ 308  

 

v3.20.2
Note 6 - Goodwill and Intangible Assets
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Goodwill and Intangible Assets Disclosure [Text Block]

Note 6 – Goodwill and Intangible Assets

 

The following table summarizes the Company’s acquired goodwill and intangible assets as of June 30, 2020 and December 31, 2019 (in thousands):

 

   

June 30, 2020

   

December 31, 2019

 
   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Gross

Carrying

Amount

   

Accumulated

Amortization

 

Goodwill

  $ 6,252     $     $ 6,252     $  

Core deposit intangibles

    2,500       128       2,500        

Outstanding, ending

  $ 8,752     $ 128     $ 8,752     $  

 

The Company has $6.3 million of goodwill related to a 2019 branch acquisition transaction. Goodwill represents the excess of the total purchase price paid over the fair value of the identifiable assets acquired, net of the fair value of the liabilities assumed. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment exists when a reporting unit’s carrying amount exceeds its fair value. Based upon current economic conditions as a result of COVID-19, management assessed goodwill for impairment as of June 30, 2020 and concluded there was no impairment. Goodwill is the Company’s sole intangible asset with an indefinite life.

 

The Company also has a core deposit intangible asset, which is amortized over the weighted average estimated life of the related deposits and is not estimated to have a significant residual value. During the three and six months ended June 30, 2020, the Company recorded intangible amortization expense totaling $64,000 and $128,000, respectively.

 

Amortization expense related to the core deposit intangible for the remainder of 2020 and beyond is estimated as follows (in thousands):

 

   

June 30,

2020

 

July 2020 – December 2020

  $ 128  

2021

    256  

2022

    256  

2023

    256  

2024

    256  

Thereafter

    1,220  
    $ 2,372  

 

v3.20.2
Note 7 - Deposits
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Deposit Liabilities Disclosures [Text Block]

Note 7 – Deposits

 

The following table details deposits by category:

 

   

June 30,

2020

   

December 31,

2019

 
   

(in thousands)

 

Non-interest bearing

  $ 224,901     $ 187,551  

Interest checking

    167,814       146,038  

Money market

    166,376       160,837  

Savings

    119,327       56,015  

Certificates of deposit

    446,370       476,534  

Total

  $ 1,124,788     $ 1,026,975  

 

Time deposits of $250,000 or more were $66.6 million and $51.2 million at June 30, 2020 and December 31, 2019, respectively.

 

Scheduled maturities of total time deposits at June 30, 2020 for each of the next five years and thereafter are as follows (in thousands):

 

Year 1

  $ 362,819  

Year 2

    42,047  

Year 3

    17,112  

Year 4

    12,242  

Year 5

    11,801  

Thereafter

    349  
    $ 446,370  

 

v3.20.2
Note 8 - Advances from the Federal Home Loan Bank
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Federal Home Loan Bank Advances, Disclosure [Text Block]

Note 8 – Advances from the Federal Home Loan Bank

 

Advances from the Federal Home Loan Bank were as follows:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 
         

Short term advances

 $  $60,000 

Long term advances (fixed rates 0.00% to 0.77%) maturing April 2021 to February 2030

  20,644   1,389 

Total advances from the Federal Home Loan Bank

 $20,644  $61,389 

 

FHLB advances had a weighted-average rate of 0.75% at June 30, 2020 and 1.70% at December 31, 2019. Each advance is payable per terms on agreement, with a prepayment penalty. No prepayment penalties were incurred during 2020 or 2019. The advances were collateralized by approximately $147.2 million and $166.0 million of first mortgage loans, under a blanket lien arrangement at June 30, 2020 and December 31, 2019, respectively, and $41.9 million of loans originated under the SBA Payment Protection Plan at June 30, 2020. At June 30, 2020, our additional borrowing capacity with the FHLB was $124.9 million.

 

Scheduled principal payments on the above during the next five years and thereafter (in thousands):

 

  

Advances

 

Year 1

 $644 

Year 2

   

Year 3

   

Year 4

   

Year 5

   

Thereafter

  20,000 
  $20,644 

 

v3.20.2
Note 9 - Borrowings
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Long-term Debt [Text Block]

Note 9Borrowings

 

Junior Subordinated Debentures – The junior subordinated debentures are redeemable at par prior to maturity at the option of the Company as defined within the trust indenture. The Company has the option to defer interest payments on the junior subordinated debentures from time to time for a period not to exceed 20 consecutive quarters. A deferral period may begin at the Company’s discretion so long as interest payments are current. The Company is prohibited from paying dividends on preferred and common shares when interest payments are in deferral. At June 30, 2020, the Company is current on all interest payments.

 

Subordinated Capital Notes – The Company’s $17.0 million subordinated notes mature on July 31, 2029. The notes carry interest at a fixed rate of 5.75% until July 30, 2024 and then convert to variable at three-month LIBOR plus 395 basis points until maturity. The subordinated capital notes qualify as Tier 2 regulatory capital. Subsequent to quarter end on July 31, 2020, the Company completed the issuance of an additional $8.0 million in subordinated notes under the July 23, 2019 indenture with the same terms as the current outstanding subordinated notes with the additional commitment by the Company to extend the optional prepayment date to July 31, 2025 so long as the additional notes qualify as Tier 2 regulatory capital. The Company used the net proceeds from the issuance of the additional notes to retire its senior debt and retained the remaining balance for general corporate purposes. The subordinated capital notes qualify as Tier 2 regulatory capital.

 

Senior Debt - The Company’s $5.0 million senior secured loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty. Subsequent to quarter end, the Company retired this loan.

 

The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i) the Company must maintain minimum cash on hand of not less than $2,500,000, (ii) the Company must maintain a total risk based capital ratio at least equal to 10% of risk-weighted assets, (iii) the Bank must maintain a total risk based capital ratio at least equal to 11% of risk-weighted assets, and (iv) non-performing assets of the Bank may not exceed 2.5% of the Bank’s total assets. Both the Company and Bank were in compliance with the covenants as of June 30, 2020.

v3.20.2
Note 10 - Fair Values Measurement
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

Note 10 – Fair Values Measurement

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Various valuation techniques are used to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

 

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, the fair value hierarchy is classified on the lowest level of input that is significant to the fair value measurement. The following methods and significant assumptions are used to estimate fair value.

 

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

 

Impaired Loans: An impaired loan is evaluated at the time the loan is identified as impaired and is recorded at fair value less costs to sell. Fair value is measured based on the value of the collateral securing the loan and is classified as Level 3 in the fair value hierarchy. Fair value is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

 

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 

Management routinely applies internal discounts to the value of appraisals used in the fair value evaluation of our impaired loans. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from 10% for routine real estate collateral to 25% for real estate that is determined to have a thin trading market or to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

 

Management also applies discounts to the expected fair value of collateral for impaired loans where the likely resolution involves litigation or foreclosure. Resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment. Discounts ranging from 10% to 33% have been utilized in our impairment evaluations when applicable.

 

Impaired loans are evaluated quarterly for additional impairment. Management obtains updated appraisals on properties securing our loans when circumstances are warranted such as at the time of renewal or when market conditions have significantly changed. This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and the assessment of deterioration of real estate values in the market in which the property is located.

 

Other Real Estate Owned (OREO): OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or internal evaluation less estimated cost to sell. Quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family homes, management consults with staff from the Bank’s special assets group as well as external realtors and appraisers. Based on these consultations, management determines asking prices for OREO properties being marketed for sale. If the internally evaluated fair value or asking price is below the recorded investment in the property, appropriate write-downs are taken.

 

For larger dollar commercial real estate properties, management obtains a new appraisal of the subject property or has staff in the special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Management generally obtains updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. When an asking price is lowered below the most recent appraised value, appropriate write-downs are taken.

 

Financial assets measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 are summarized below:

 

           

Fair Value Measurements at June 30, 2020 Using

 
           

(in thousands)

 
           

Quoted Prices In

           

Significant

 
           

Active Markets for

   

Significant Other

   

Unobservable

 
   

Carrying

   

Identical Assets

   

Observable Inputs

   

Inputs

 

Description

 

Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

Available for sale securities

                               

U.S. Government and federal agency

  $ 21,074     $     $ 21,074     $  

Agency mortgage-backed: residential

    88,179             88,179        

Collateralized loan obligations

    41,688             41,688        

State and municipal

    29,568             29,568        

Corporate bonds

    22,087             22,087        

Total

  $ 202,596     $     $ 202,596     $  

 

 

           

Fair Value Measurements at December 31, 2019 Using

 
           

(in thousands)

 

Description

 

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Available for sale securities

                               

U.S. Government and federal agency

  $ 22,330     $     $ 22,330     $  

Agency mortgage-backed: residential

    92,200             92,200        

Collateralized loan obligations

    49,419             49,419        

State and municipal

    28,366             28,366        

Corporate bonds

    16,685             16,685        

Total

  $ 209,000     $     $ 209,000     $  

 

There were no transfers between Level 1 and Level 2 during 2020 or 2019.

 

Financial assets measured at fair value on a non-recurring basis are summarized below: 

 

           

Fair Value Measurements at June 30, 2020 Using

 
           

(in thousands)

 
Description  

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

 

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Impaired loans:

                               

Commercial real estate:

                               

Farmland

  $ 124     $     $     $ 124  

Nonfarm nonresidential

    145                   145  

Residential real estate:

                               

1-4 Family

    73                   73  

 

 

           

Fair Value Measurements at December 31, 2019 Using

 
           

(in thousands)

 

Description

 

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

 

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Impaired loans:

                               

Commercial

  $ 21     $     $     $ 21  

Commercial real estate:

                               

Farmland

    245                   245  

Residential real estate:

                               

1-4 Family

    145                   145  

 

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $367,000 at June 30, 2020 with a valuation allowance of $25,000, resulting in $5,000 and no additional provision for loan losses for the three and six months ended June 30, 2020, respectively. Impaired loans had a carrying amount of $1.0 million with a valuation allowance of $195,000, resulting in $2,000 and no additional provision for loan losses for the three and six months ended June 30, 2019, respectively. At December 31, 2019, impaired loans had a carrying amount of $453,000, with a valuation allowance of $42,000.

 

Carrying amount and estimated fair values of financial instruments were as follows for the periods indicated:

 

           

Fair Value Measurements at June 30, 2020 Using

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(in thousands)

 

Financial assets

                                       

Cash and cash equivalents

  $ 49,017     $ 49,017     $     $     $ 49,017  

Securities available for sale

    202,596             202,596             202,596  

Federal Home Loan Bank stock

    6,142       N/A       N/A       N/A       N/A  

Loans, net

    965,531                   940,327       940,327  

Accrued interest receivable

    5,231             982       4,249       5,231  

Financial liabilities

                                       

Deposits

  $ 1,124,788     $ 224,901     $ 902,166     $     $ 1,127,067  

Federal Home Loan Bank advances

    20,644             20,701             20,701  

Junior subordinated debentures

    21,000                   14,436       14,436  

Subordinated capital notes

    17,000                   16,358       16,358  

Senior Debt

    5,000                   4,919       4,919  

Accrued interest payable

    761             324       437       761  

 

           

Fair Value Measurements at December 31, 2019 Using

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(in thousands)

 

Financial assets

                                       

Cash and cash equivalents

  $ 30,203     $ 30,203     $     $     $ 30,203  

Securities available for sale

    209,000             209,000             209,000  

Federal Home Loan Bank stock

    6,237       N/A       N/A       N/A       N/A  

Loans, net

    917,895                   925,388       925,388  

Accrued interest receivable

    4,257             1,118       3,139       4,257  

Financial liabilities

                                       

Deposits

  $ 1,026,975     $ 187,551     $ 839,882     $     $ 1,027,433  

Federal Home Loan Bank advances

    61,389             61,395             61,395  

Junior subordinated debentures

    21,000                   17,466       17,466  

Subordinated capital notes

    17,000                   17,003       17,003  

Senior Debt

    5,000                   5,022       5,022  

Accrued interest payable

    1,129             647       482       1,129  

 

In accordance with ASU 2016-01, the methods utilized to measure the fair value of financial instruments represent an approximation of exit price; however, an actual exit price may differ.

v3.20.2
Note 11 - Income Taxes
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 11 – Income Taxes

 

Deferred tax assets and liabilities were due to the following as of:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 

Deferred tax assets:

        

Net operating loss carry-forward

 $23,662  $22,915 

Allowance for loan losses

  2,552   2,090 

OREO write-down

  769   2,665 

Alternative minimum tax credit carry-forward

     173 

Net assets from acquisitions

  149   228 

New market tax credit carry-forward

  208   208 

Nonaccrual loan interest

  307   303 

Accrued expenses

  104   102 

Lease liability

  672   766 

Other

  265   309 
   28,688   29,759 
         

Deferred tax liabilities:

        

FHLB stock dividends

  500   563 

Fixed assets

  55   57 

Deferred loan costs

  186   170 

Net unrealized gain on securities

  115   331 

Lease right-of-use assets

  672   766 

Other

  106   107 
   1,634   1,994 

Net deferred tax asset

 $27,054  $27,765 

 

At June 30, 2020, the Company had net federal operating loss carryforwards of $106.4 million, which will begin to expire in 2031, and state net operating loss carryforwards of $33.6 million, which begin to expire in 2025. As of June 30, 2020, a total of $173,000 in alternative minimum tax credit carryforward was reclassified to other assets as it is currently refundable for the 2019 tax year due to the enactment of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).

 

The Company does not have any beginning and ending unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. There were no interest and penalties recorded in the income statement or accrued for the three or six months ended June 30, 2020 or June 30, 2019 related to unrecognized tax benefits.

 

Under Section 382 of the Internal Revenue Code, as amended (“Section 382”), the Company’s net operating loss carryforwards and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section 382. This would occur if shareholders owning (or deemed to own under the tax rules) 5% or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than 50 percentage points over a defined period of time.

 

In 2015, the Company took two measures to preserve the value of its NOLs. First, the Company adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Upon adoption of this plan, the Company declared a dividend of one preferred stock purchase right for each common share outstanding as of the close of business on July 10, 2015. Any shareholder or group that acquires beneficial ownership of 5% or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does not approve such acquisition. Existing shareholders holding 5% or more of the Company will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board not to jeopardize the Company's deferred tax assets. The rights plan was extended in May 2018 to expire upon the earlier of (i) June 30, 2021, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefits may be carried forward, (iii) the repeal or amendment of Section 382 or any successor statute, if the Board of Directors determines that the plan is no longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.

 

On September 23, 2015, the Company’s shareholders approved an amendment to its articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section 382. The transfer restrictions were extended in May 2018 by shareholder vote and will expire on the earlier of (i) May 23, 2021, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefit may be carried forward, (iii) the repeal of Section 382 or any successor statute if our Board determines that the transfer restrictions are no longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are no longer necessary.

 

The Company and its subsidiaries are subject to U.S. federal income tax and the Company is subject to income tax in the Commonwealth of Kentucky. The Company is no longer subject to examination by taxing authorities for years before 2016.

v3.20.2
Note 12 - Stock Plans and Stock Based Compensation
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]

Note 12 – Stock Plans and Stock Based Compensation

 

Shares available for issuance under the 2018 Omnibus Equity Compensation Plan (“2018 Plan”) total 275,367. Shares issued to employees under the plan vest annually on the anniversary date of the grant over three years. Shares issued annually to non-employee directors have a fair market value of $25,000 and vest on December 31 in the year of grant.

 

The fair value of the 2020 unvested shares issued was $349,000, or $17.03 per weighted-average share. The Company recorded $104,000 and $210,000 of stock-based compensation to salaries for the three and six months ended June 30, 2020, respectively, and $93,000 and $175,000 for the three and six months ended June 30, 2019, respectively. Management expects substantially all of the unvested shares outstanding at the end of the period to vest according to the vesting schedule. A deferred tax benefit of $22,000 and $44,000 was recognized related to this expense during the three and six months ended June 30, 2020, respectively, and $19,000 and $37,000 for the three and six months ended June 30, 2019, respectively.

 

The following table summarizes unvested share activity as of and for the periods indicated for the Stock Compensation Plan:

 

   

Six Months Ended

   

Twelve Months Ended

 
   

June 30, 2020

   

December 31, 2019

 
           

Weighted

           

Weighted

 
           

Average

           

Average

 
           

Grant

           

Grant

 
   

Shares

   

Price

   

Shares

   

Price

 

Outstanding, beginning

    57,774     $ 13.35       116,909     $ 8.69  

Granted

    20,507       17.03       34,501       14.81  

Vested

    (27,625

)

    12.35       (89,388

)

    7.83  

Forfeited

                (4,248

)

    13.07  

Outstanding, ending

    50,656     $ 15.39       57,774     $ 13.35  

 

Unrecognized stock based compensation expense related to unvested shares for the remainder of 2020 and beyond is estimated as follows (in thousands):

 

July 2020 – December 2020

  $ 201  

2021

    311  

2022

    136  

2023

    14  

 

v3.20.2
Note 13 - Earnings per Share
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Earnings Per Share [Text Block]

Note 13 – Earnings per Share

 

The factors used in the basic and diluted earnings per share computations follow:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands, except share and per share data)

 
                 

Net income

 $1,982  $3,633  $3,822  $6,472 

Less:

                

Earnings allocated to unvested shares

  15   32   30   71 

Net income available to common shareholders, basic and diluted

 $1,967  $3,601  $3,792  $6,401 
                 

Basic

                

Weighted average common shares including unvested common shares outstanding

  7,488,173   7,459,631   7,485,028   7,464,743 

Less:

                

Weighted average unvested common shares

  57,804   64,974   57,794   82,285 

Weighted average common shares outstanding

  7,430,369   7,394,657   7,427,234   7,382,458 

Basic income per common share

 $0.26  $0.49  $0.51  $0.87 
                 

Diluted

                

Add: Dilutive effects of assumed exercises of common stock warrants

            

Weighted average common shares and potential common shares

  7,430,369   7,394,657   7,427,234   7,382,458 

Diluted income per common share

 $0.26  $0.49  $0.51  $0.87 

 

The Company had no outstanding stock options or warrants at June 30, 2020 or 2019.

v3.20.2
Note 14 - Regulatory Capital Matters
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Regulatory Capital Requirements under Banking Regulations [Text Block]

Note 14Regulatory Capital Matters

 

Banks and bank holding companies are subject to regulatory capital requirements in accordance with Basel III, as administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action.

 

The Basel III rules established a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. The minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. An institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions without prior regulatory approval.

 

As of June 30, 2020, Management believes the Company and Bank met all capital adequacy requirements to which they are subject. As of June 30, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the institution’s category.

 

The following tables show the ratios (excluding capital conservation buffer) and amounts of common equity Tier 1, Tier 1 capital, and total capital to risk-adjusted assets and the leverage ratios for the Bank at the dates indicated (dollars in thousands):

 

   

Actual

   

Minimum Requirement

for Capital Adequacy

Purposes

   

Minimum Requirement

to be Well Capitalized

Under Prompt Corrective

Action Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

As of June 30, 2020:

                                               

Total risk-based capital (to risk- weighted assets)

  $ 131,788       12.78     $ 82,499       8.00     $ 103,124       10.00

%

Total common equity Tier 1 risk- based capital (to risk-weighted assets)

    121,560       11.79       46,406       4.50       67,030       6.50  

Tier 1 capital (to risk-weighted assets)

    121,560       11.79       61,874       6.00       82,499       8.00  

Tier 1 capital (to average assets)

    121,560       9.54       50,992       4.00       63,739       5.00  

 

 

   

Actual

   

Minimum Requirement

for Capital Adequacy

Purposes

   

Minimum Requirement

to be Well Capitalized

Under Prompt Corrective

Action Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

As of December 31, 2019:

                                               

Total risk-based capital (to risk- weighted assets)

  $ 121,335       12.08

%

  $ 80,341       8.00

%

  $ 100,426       10.00

%

Total common equity Tier 1 risk- based capital (to risk-weighted assets)

    112,959       11.25       45,192       4.50       65,277       6.50  

Tier 1 capital (to risk-weighted assets)

    112,959       11.25       60,256       6.00       80,341       8.00  

Tier 1 capital (to average assets)

    112,959       9.99       45,208       4.00       56,510       5.00  

 

Kentucky banking laws limit the amount of dividends that may be paid to a holding company by its subsidiary banks without prior approval. These laws limit the amount of dividends that may be paid in any calendar year to current year’s net income, as defined in the laws, combined with the retained net income of the preceding two years, less any dividends declared during those periods. In addition, a bank must have positive retained earnings.

v3.20.2
Note 15 - Off Balance Sheet Risks, Commitments, and Contingent Liabilities
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]

Note 15Off Balance Sheet Risks, Commitments, and Contingent Liabilities

 

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. The financial instruments include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

 

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding. Commitments to make loans are generally made for periods of one year or less.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material. No liability is currently established for standby letters of credit.

 

The following table presents the contractual amounts of financial instruments with off-balance sheet risk for each period ended:

 

  

June 30, 2020

  

December 31, 2019

 
  

Fixed

Rate

  

Variable

Rate

  

Fixed

Rate

  

Variable

Rate

 
  

(in thousands)

 

Commitments to make loans

 $13,118  $21,199  $11,577  $20,415 

Unused lines of credit

  6,697   118,606   7,916   111,230 

Standby letters of credit

  531   1,336   531   3,164 

 

Commitments to make loans are generally made for periods of one year or less.

 

In connection with the purchase of loan participations, the Bank entered into risk participation agreements, which had notional amounts totaling $26.6 million at June 30, 2020 and December 31, 2019. The risk participation agreements are not designated against specific assets or liabilities under ASC 815, Derivatives and Hedging, and, therefore, do not qualify for hedge accounting. The derivatives are recorded in other liabilities on the balance sheet at fair value and changes in fair value of both the borrower and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.

 

In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.

 

The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s revenues or income for such period. The Company will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated. The Company is not currently involved in any material litigation.

v3.20.2
Note 16 - Revenue from Contracts With Customers
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

Note 16 – Revenue from Contracts with Customers

 

All of the Company’s revenue from customers within the scope of ASC 606 is recognized as non-interest income. A description of the Company’s revenue streams accounted for under ASC 606 follows:

 

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges are withdrawn from the customer’s account balance.

 

Bank Card Interchange Income: The Company earns interchange fees from bank cardholder transactions conducted through a third-party payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Prior to adopting ASC 606, the Company reported bank card interchange fees net of expenses. Under ASC 606, bank card interchange fees are reported gross.

 

Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. Gains and losses on sales of OREO are netted with OREO expense and reported in non-interest expense.

 

Other Non-interest Income: Other non-interest income includes revenue from several sources that are within the scope of ASC 606, including title insurance commissions, income from secondary market loan sales, and other transaction-based revenue that is individually immaterial. Other non-interest income included approximately $129,000 and $285,000 of revenue for the three and six months ended June 30, 2020, respectively, within the scope of ASC 606. Other non-interest income included approximately $119,000 and $255,000 of revenue for the three and six months ended June 30, 2019, respectively, within the scope of ASC 606. The remaining other non-interest income for the three and six months is excluded from the scope of ASC 606.

 

v3.20.2
Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation – The consolidated financial statements include Limestone Bancorp, Inc. (Company) and its subsidiary, Limestone Bank, Inc. (Bank). The Company owns a 100% interest in the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the entire year. A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

 

Use of Estimates, Policy [Policy Text Block]

Use of Estimates – To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

 

In March 2020, the World Health Organization declared novel coronavirus disease 2019 (“COVID-19”) as a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in markets in which the Company is located or does business.

 

The extent to which the COVID-19 pandemic impacts the Company’s business, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may have a material adverse effect on all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, or deferred tax assets.

 

Reclassification, Comparability Adjustment [Policy Text Block]

Reclassifications – Some items in the prior year financial statements were reclassified to conform to the current presentation. The reclassifications did not impact net income or stockholders’ equity.

 

New Accounting Pronouncements, Policy [Policy Text Block] New Accounting Standards – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under the CECL model, certain financial assets that are carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined. The impact of CECL model implementation is being evaluated, but it is expected that a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance. In December 2018, the OCC, The Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to the credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from adoption of the new accounting standard. In October 2019, the FASB voted to delay implementation for smaller reporting companies, private companies, and not-for-profit entities. The Company currently qualifies as a smaller reporting company. Companies qualifying for the delay will be required to implement CECL for fiscal year and interim periods beginning after December 15, 2022.
v3.20.2
Note 2 - Securities (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Marketable Securities [Table Text Block]
  

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

 
  

(in thousands)

 

June 30, 2020

                

Available for sale

                

U.S. Government and federal agency

 $20,302  $772  $  $21,074 

Agency mortgage-backed: residential

  85,048   3,152   (21

)

  88,179 

Collateralized loan obligations

  44,730      (3,042

)

  41,688 

State and municipal

  28,708   917   (57

)

  29,568 

Corporate bonds

  23,347   313   (1,573

)

  22,087 

Total available for sale

 $202,135  $5,154  $(4,693

)

 $202,596 

 

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

 
December 31, 2019                

Available for sale

                

U.S. Government and federal agency

 $22,281  $196  $(147

)

 $22,330 

Agency mortgage-backed: residential

  91,269   1,186   (255

)

  92,200 

Collateralized loan obligations

  49,831      (412

)

  49,419 

State and municipal

  27,819   550   (3

)

  28,366 

Corporate bonds

  16,472   213      16,685 

Total available for sale

 $207,672  $2,145  $(817

)

 $209,000 
Schedule of Realized Gain (Loss) [Table Text Block]
  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  (in thousands)  (in thousands) 

Proceeds

 $2,530  $1,452  $8,530  $2,452 

Gross gains

     1      1 

Gross losses

  5   6   5   6 
Investments Classified by Contractual Maturity Date [Table Text Block]
  

June 30, 2020

 
  

Amortized

Cost

  

Fair

Value

 
  

(in thousands)

 

Maturity

        

Available for sale

        

Within one year

 $15,142  $14,048 

One to five years

  41,133   42,486 

Five to ten years

  37,615   36,545 

Beyond ten years

  23,197   21,338 

Agency mortgage-backed: residential

  85,048   88,179 

Total

 $202,135  $202,596 
Schedule of Unrealized Loss on Investments [Table Text Block]
  

Less than 12 Months

  

12 Months or More

  

Total

 

Description of Securities

 

Fair

Value

  

Unrealized

Loss

  

Fair

Value

  

Unrealized

Loss

  

Fair

Value

  

Unrealized

Loss

 
  

(in thousands)

 

June 30, 2020

                        

Available for sale

                        

U.S. Government and federal agency

 $  $  $  $  $  $ 

Agency mortgage-backed: residential

  6,100   (21

)

        6,100   (21

)

Collateralized loan obligations

  10,813   (732

)

  30,875   (2,310

)

  41,688   (3,042

)

State and municipal

  3,258   (57

)

        3,258   (57

)

Corporate bonds

  14,760   (1,573

)

        14,760   (1,573

)

Total temporarily impaired

 $34,931  $(2,383

)

 $30,875  $(2,310

)

 $65,806  $(4,693

)

December 31, 2019

                        

Available for sale

                        

U.S. Government and federal agency

 $12,567  $(147

)

 $  $  $12,567  $(147

)

Agency mortgage-backed: residential

  18,457   (97

)

  10,665   (158

)

  29,122   (255

)

Collateralized loan obligations

  9,539   (46

)

  35,336   (366

)

  44,875   (412

)

State and municipal

  911   (3

)

        911   (3

)

Corporate bonds

                  

Total temporarily impaired

 $41,474  $(293

)

 $46,001  $(524

)

 $87,475  $(817

)

v3.20.2
Note 3 - Loans (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]
  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 

Commercial (1)

 $221,292  $145,551 

Commercial Real Estate:

        

Construction

  73,195   64,911 

Farmland

  79,555   79,118 

Nonfarm nonresidential

  254,616   255,459 

Residential Real Estate:

        

Multi-family

  65,113   70,950 

1-4 Family

  204,283   226,629 

Consumer

  38,828   47,790 

Agriculture

  38,286   35,064 

Other

  591   799 

Subtotal

  975,759   926,271 

Less: Allowance for loan losses

  (10,228

)

  (8,376

)

Loans, net

 $965,531  $917,895 
Financing Receivable, Allowance for Credit Loss [Table Text Block]
  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

June 30, 2020:

                            

Beginning balance

 $2,025  $4,212  $1,909  $593  $409  $2  $9,150 

Provision (negative provision)

  504   210   189   134   65   (2

)

  1,100 

Loans charged off

  (3

)

  (28

)

  (7

)

  (152

)

  (3

)

     (193

)

Recoveries

  6   100   55   6   1   3   171 

Ending balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             
                             

June 30, 2019:

                            

Beginning balance

 $1,447  $4,498  $2,227  $159  $353  $2  $8,686 

Provision (negative provision)

  (45

)

  (46

)

  52   (16

)

  55       

Loans charged off

        (35

)

  (34

)

  (3

)

     (72

)

Recoveries

  90   1   83   44         218 

Ending balance

 $1,492  $4,453  $2,327  $153  $405  $2  $8,832 
  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

June 30, 2020:

                            

Beginning balance

 $1,710  $4,080  $1,743  $485  $355  $3  $8,376 

Provision (negative provision)

  843   351   409   399   152   (4

)

  2,150 

Loans charged off

  (32

)

  (57

)

  (82

)

  (313

)

  (44

)

     (528

)

Recoveries

  11   120   76   10   9   4   230 

Ending balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             
                             

June 30, 2019:

                            

Beginning balance

 $1,299  $4,676  $2,452  $130  $321  $2  $8,880 

Provision (negative provision)

  98   (211

)

  (152

)

  177   88       

Loans charged off

     (15

)

  (117

)

  (214

)

  (4

)

     (350

)

Recoveries

  95   3   144   60         302 

Ending balance

 $1,492  $4,453  $2,327  $153  $405  $2  $8,832 
Impairment Evaluation of Financing Receivables [Table Text Block]
  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

Allowance for loan losses:

                            

Ending allowance balance attributable to loans:

                            

Individually evaluated for impairment

 $  $24  $1  $  $  $  $25 

Collectively evaluated for impairment

  2,532   4,470   2,145   581   472   3   10,203 

Total ending allowance balance

 $2,532  $4,494  $2,146  $581  $472  $3  $10,228 
                             

Loans:

                            

Loans individually evaluated for impairment

 $103  $1,014  $940  $14  $  $  $2,071 

Loans collectively evaluated for impairment

  221,189   406,352   268,456   38,814   38,286   591   973,688 

Total ending loans balance

 $221,292  $407,366  $269,396  $38,828  $38,286  $591  $975,759 
  

Commercial

  

Commercial

Real Estate

  

Residential

Real Estate

  

Consumer

  

Agriculture

  

Other

  

Total

 
  

(in thousands)

 

Allowance for loan losses:

                            

Ending allowance balance attributable to loans:

                            

Individually evaluated for impairment

 $3  $37  $2  $  $  $  $42 

Collectively evaluated for impairment

  1,707   4,043   1,741   485   355   3   8,334 

Total ending allowance balance

 $1,710  $4,080  $1,743  $485  $355  $3  $8,376 
                             
                             

 

Loans:

                            

Loans individually evaluated for impairment

 $74  $1,064  $892  $98  $42  $  $2,170 

Loans collectively evaluated for impairment

  145,477   398,424   296,687   47,692   35,022   799   924,101 

Total ending loans balance

 $145,551  $399,488  $297,579  $47,790  $35,064  $799  $926,271 
Impaired Financing Receivables [Table Text Block]
  

As of June 30, 2020

  

Three Months Ended

June 30, 2020

  

Six Months Ended

June 30, 2020

 
  

Unpaid

Principal

Balance

  

Recorded

Investment

  

Allowance

For Loan

Losses

Allocated

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

 

Average

Recorded

Investment

  

 

Interest

Income

Recognized

 
  

(in thousands)

 

 

With No Related Allowance Recorded:

                            

Commercial

 $210  $103  $  $131  $  $104  $ 

Commercial real estate:

                            

Construction

                     

Farmland

  411   295      297   3   296   13 

Nonfarm nonresidential

  986   426      453   10   465   18 

Residential real estate:

                            

Multi-family

                     

1-4 Family

  1,819   866      856   51   819   54 

Consumer

  224   14      78      85   1 

Agriculture

  297               14    

Other

                     

Subtotal

  3,947   1,704      1,815   64   1,783   86 

With An Allowance Recorded:

                            

Commercial

                 8    

Commercial real estate:

                            

Construction

                     

Farmland

  143   143   19   143   2   189   4 

Nonfarm nonresidential

  161   150   5   75      50    

Residential real estate:

                            

Multi-family

                     

1-4 Family

  74   74   1   74   1   98   3 

Consumer

                     

Agriculture

                     

Other

                     

Subtotal

  378   367   25   292   3   345   7 

Total

 $4,325  $2,071  $25  $2,107  $67  $2,128  $93 
  

As of December 31, 2019

  

Three Months Ended

June 30, 2019

  

Six Months Ended

June 30, 2019

 
  

Unpaid

Principal

Balance

  

Recorded

Investment

  

Allowance

For Loan

Losses

Allocated

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

 

Average

Recorded

Investment

  

 

Interest

Income

Recognized

 
  (in thousands) 

With No Related Allowance Recorded:

                            

Commercial

 $138  $50  $  $66  $  $62  $ 

Commercial real estate:

                            

Construction

                     

Farmland

  380   293      156   3   134   8 

Nonfarm nonresidential

  1,057   489      246   4   251   7 

Residential real estate:

                            

Multi-family

                     

1-4 Family

  1,679   745      1,448   28   1,508   50 

Consumer

  309   98      14   2   9   2 

Agriculture

  304   42      65      43    

Other

                     

Subtotal

  3,867   1,717      1,995   37   2,007   67 

With An Allowance Recorded:

                            

Commercial

  24   24   3   13   1   9   1 

Commercial real estate:

                            

Construction

                     

Farmland

  282   282   37   225      203    

Nonfarm nonresidential

                     

Residential real estate:

                            

Multi-family

                     

1-4 Family

  183   147   2   715   10   717   21 

Consumer

                     

Agriculture

                     

Other

                     

Subtotal

  489   453   42   953   11   929   22 

Total

 $4,356  $2,170  $42  $2,948  $48  $2,936  $89 
Financing Receivable, Troubled Debt Restructuring [Table Text Block]
  

TDRs

Performing to

Modified Terms

  

TDRs Not

Performing to

Modified Terms

  

Total

TDRs

 
  

(in thousands)

 

June 30, 2020

            

Commercial Real Estate:

            

Nonfarm nonresidential

 $388  $  $388 

Residential Real Estate:

            

1-4 Family

  74      74 

Total TDRs

 $462  $  $462 
  

TDRs

Performing to

Modified Terms

  

TDRs Not

Performing to

Modified Terms

  

Total

TDRs

 
  

(in thousands)

 

December 31, 2019

            

Commercial Real Estate:

            

Nonfarm nonresidential

 $400  $  $400 

Residential Real Estate:

            

1-4 Family

  75      75 

Total TDRs

 $475  $  $475 
Financing Receivable, Nonaccrual [Table Text Block]
  

Nonaccrual

  

Loans Past Due 90 Days

And Over Still Accruing

 
  

June 30,

2020

  

December 31,

2019

  

June 30,

2020

  

December 31,

2019

 
  

(in thousands)

 
                 

Commercial

 $104  $50  $  $ 

Commercial Real Estate:

                

Construction

            

Farmland

  295   431       

Nonfarm nonresidential

  188   90       

Residential Real Estate:

                

Multi-family

            

1-4 Family

  809   817       

Consumer

  14   98       

Agriculture

     42       

Other

            

Total

 $1,410  $1,528  $  $ 
Financing Receivable, Past Due [Table Text Block]
  

30 – 59

Days

Past Due

  

60 – 89

Days

Past Due

  

90 Days

And Over

Past Due

  

 

 

Nonaccrual

  

Total

Past Due

And

Nonaccrual

 
  

(in thousands)

 

June 30, 2020

                    

Commercial

 $  $  $  $104  $104 

Commercial Real Estate:

                    

Construction

               

Farmland

  55         295   350 

Nonfarm nonresidential

     40      188   228 

Residential Real Estate:

                    

Multi-family

               

1-4 Family

  331   88      809   1,228 

Consumer

  67   69      14   150 

Agriculture

  5            5 

Other

               

Total

 $458  $197  $  $1,410  $2,065 
  

30 – 59

Days

Past Due

  

60 – 89

Days

Past Due

  

90 Days

And Over

Past Due

  

 

 

Nonaccrual

  

Total

Past Due

And

Nonaccrual

 
                     
  

(in thousands)

 

December 31, 2019

                    

Commercial

 $14  $3  $  $50  $67 

Commercial Real Estate:

                    

Construction

               

Farmland

  274         431   705 

Nonfarm nonresidential

  206         90   296 

Residential Real Estate:

                    

Multi-family

               

1-4 Family

  1,162   503      817   2,482 

Consumer

  91   164      98   353 

Agriculture

           42   42 

Other

               

Total

 $1,747  $670  $  $1,528  $3,945 
Financing Receivable Credit Quality Indicators [Table Text Block]
  

Pass

  

Watch

  

Special

Mention

  

Substandard

  

Doubtful

  

Total

 
  

(in thousands)

 

June 30, 2020

                        

Commercial

 $203,360  $16,048  $  $1,884  $  $221,292 

Commercial Real Estate:

                        

Construction

  73,195               73,195 

Farmland

  72,750   6,008      797      79,555 

Nonfarm nonresidential

  246,118   6,726      1,772      254,616 

Residential Real Estate:

                        

Multi-family

  54,665   10,448            65,113 

1-4 Family

  198,014   3,617      2,652      204,283 

Consumer

  38,780   3      45      38,828 

Agriculture

  38,085   164      37      38,286 

Other

  591               591 

Total

 $925,558  $43,014  $  $7,187  $  $975,759 
  

Pass

  

Watch

  

Special

Mention

  

Substandard

  

Doubtful

  

Total

 
                         
  

(in thousands)

 

December 31, 2019

                        

Commercial

 $130,312  $11,280  $  $3,959  $  $145,551 

Commercial Real Estate:

                        

Construction

  64,911               64,911 

Farmland

  71,503   6,663      952      79,118 

Nonfarm nonresidential

  245,995   6,986      2,478      255,459 

Residential Real Estate:

                        

Multi-family

  70,950               70,950 

1-4 Family

  221,727   2,420      2,482      226,629 

Consumer

  47,657   5      128      47,790 

Agriculture

  34,853   168      43      35,064 

Other

  799               799 

Total

 $888,707  $27,522  $  $10,042  $  $926,271 
v3.20.2
Note 4 - Leases (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Lessee, Operating Lease, Liability, Maturity [Table Text Block]
  

June 30,

2020

 
     

July – December 2020

 $255 

2021

  241 

2022

  223 

2023

  226 

2024

  225 

Thereafter

  3,720 

Total minimum lease payments

  4,890 

Discount effect of cash flows

  (2,195

)

Present value of lease liabilities

 $2,695 
v3.20.2
Note 5 - Other Real Estate Owned (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Real Estate Properties [Table Text Block]
   

June 30,

2020

   

December 31,

2019

 
   

(in thousands)

 

Commercial Real Estate:

               

Construction, land development, and other land

  $ 1,625     $ 3,225  
    $ 1,625     $ 3,225  
Schedule of Expenses Related to Foreclosed Real Estate [Table Text Block]
   

For the Six

Months Ended

June 30,

 
   

2020

   

2019

 
   

(in thousands)

 

OREO Activity

               

OREO as of January 1

  $ 3,225     $ 3,485  

Real estate acquired

           

Valuation adjustment write-downs

          (260

)

Net gain on sales

           

Proceeds from sales of properties

    (1,600

)

     

OREO as of June 30

  $ 1,625     $ 3,225  
Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]
   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
    (in thousands)     (in thousands)  

Net gain on sales

  $     $     $     $  

Valuation adjustment write-downs

          110             260  

Operating expense

    22       32       38       48  

Total

  $ 22     $ 142     $ 38     $ 308  
v3.20.2
Note 6 - Goodwill and Intangible Assets (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Intangible Assets and Goodwill [Table Text Block]
   

June 30, 2020

   

December 31, 2019

 
   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Gross

Carrying

Amount

   

Accumulated

Amortization

 

Goodwill

  $ 6,252     $     $ 6,252     $  

Core deposit intangibles

    2,500       128       2,500        

Outstanding, ending

  $ 8,752     $ 128     $ 8,752     $  
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]
   

June 30,

2020

 

July 2020 – December 2020

  $ 128  

2021

    256  

2022

    256  

2023

    256  

2024

    256  

Thereafter

    1,220  
    $ 2,372  
v3.20.2
Note 7 - Deposits (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Deposits [Table Text Block]
   

June 30,

2020

   

December 31,

2019

 
   

(in thousands)

 

Non-interest bearing

  $ 224,901     $ 187,551  

Interest checking

    167,814       146,038  

Money market

    166,376       160,837  

Savings

    119,327       56,015  

Certificates of deposit

    446,370       476,534  

Total

  $ 1,124,788     $ 1,026,975  
Schedule of Maturities of Time Deposits [Table Text Block]

Year 1

  $ 362,819  

Year 2

    42,047  

Year 3

    17,112  

Year 4

    12,242  

Year 5

    11,801  

Thereafter

    349  
    $ 446,370  
v3.20.2
Note 8 - Advances from the Federal Home Loan Bank (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Federal Home Loan Bank, Advances, by Branch of FHLB Bank [Table Text Block]
  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 
         

Short term advances

 $  $60,000 

Long term advances (fixed rates 0.00% to 0.77%) maturing April 2021 to February 2030

  20,644   1,389 

Total advances from the Federal Home Loan Bank

 $20,644  $61,389 
Schedule of Maturities of Long-term Debt [Table Text Block]
  

Advances

 

Year 1

 $644 

Year 2

   

Year 3

   

Year 4

   

Year 5

   

Thereafter

  20,000 
  $20,644 
v3.20.2
Note 10 - Fair Values Measurement (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Table Text Block]
           

Fair Value Measurements at June 30, 2020 Using

 
           

(in thousands)

 
           

Quoted Prices In

           

Significant

 
           

Active Markets for

   

Significant Other

   

Unobservable

 
   

Carrying

   

Identical Assets

   

Observable Inputs

   

Inputs

 

Description

 

Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

Available for sale securities

                               

U.S. Government and federal agency

  $ 21,074     $     $ 21,074     $  

Agency mortgage-backed: residential

    88,179             88,179        

Collateralized loan obligations

    41,688             41,688        

State and municipal

    29,568             29,568        

Corporate bonds

    22,087             22,087        

Total

  $ 202,596     $     $ 202,596     $  
           

Fair Value Measurements at December 31, 2019 Using

 
           

(in thousands)

 

Description

 

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Available for sale securities

                               

U.S. Government and federal agency

  $ 22,330     $     $ 22,330     $  

Agency mortgage-backed: residential

    92,200             92,200        

Collateralized loan obligations

    49,419             49,419        

State and municipal

    28,366             28,366        

Corporate bonds

    16,685             16,685        

Total

  $ 209,000     $     $ 209,000     $  
           

Fair Value Measurements at June 30, 2020 Using

 
           

(in thousands)

 
Description  

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

 

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Impaired loans:

                               

Commercial real estate:

                               

Farmland

  $ 124     $     $     $ 124  

Nonfarm nonresidential

    145                   145  

Residential real estate:

                               

1-4 Family

    73                   73  
           

Fair Value Measurements at December 31, 2019 Using

 
           

(in thousands)

 

Description

 

Carrying

Value

   

Quoted Prices In

Active Markets for

Identical Assets

(Level 1)

   

 

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Impaired loans:

                               

Commercial

  $ 21     $     $     $ 21  

Commercial real estate:

                               

Farmland

    245                   245  

Residential real estate:

                               

1-4 Family

    145                   145  
Fair Value, by Balance Sheet Grouping [Table Text Block]
           

Fair Value Measurements at June 30, 2020 Using

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(in thousands)

 

Financial assets

                                       

Cash and cash equivalents

  $ 49,017     $ 49,017     $     $     $ 49,017  

Securities available for sale

    202,596             202,596             202,596  

Federal Home Loan Bank stock

    6,142       N/A       N/A       N/A       N/A  

Loans, net

    965,531                   940,327       940,327  

Accrued interest receivable

    5,231             982       4,249       5,231  

Financial liabilities

                                       

Deposits

  $ 1,124,788     $ 224,901     $ 902,166     $     $ 1,127,067  

Federal Home Loan Bank advances

    20,644             20,701             20,701  

Junior subordinated debentures

    21,000                   14,436       14,436  

Subordinated capital notes

    17,000                   16,358       16,358  

Senior Debt

    5,000                   4,919       4,919  

Accrued interest payable

    761             324       437       761  
           

Fair Value Measurements at December 31, 2019 Using

 
   

Carrying

Amount

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(in thousands)

 

Financial assets

                                       

Cash and cash equivalents

  $ 30,203     $ 30,203     $     $     $ 30,203  

Securities available for sale

    209,000             209,000             209,000  

Federal Home Loan Bank stock

    6,237       N/A       N/A       N/A       N/A  

Loans, net

    917,895                   925,388       925,388  

Accrued interest receivable

    4,257             1,118       3,139       4,257  

Financial liabilities

                                       

Deposits

  $ 1,026,975     $ 187,551     $ 839,882     $     $ 1,027,433  

Federal Home Loan Bank advances

    61,389             61,395             61,395  

Junior subordinated debentures

    21,000                   17,466       17,466  

Subordinated capital notes

    17,000                   17,003       17,003  

Senior Debt

    5,000                   5,022       5,022  

Accrued interest payable

    1,129             647       482       1,129  
v3.20.2
Note 11 - Income Taxes (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Deferred Tax Assets and Liabilities [Table Text Block]
  

June 30,

  

December 31,

 
  

2020

  

2019

 
  

(in thousands)

 

Deferred tax assets:

        

Net operating loss carry-forward

 $23,662  $22,915 

Allowance for loan losses

  2,552   2,090 

OREO write-down

  769   2,665 

Alternative minimum tax credit carry-forward

     173 

Net assets from acquisitions

  149   228 

New market tax credit carry-forward

  208   208 

Nonaccrual loan interest

  307   303 

Accrued expenses

  104   102 

Lease liability

  672   766 

Other

  265   309 
   28,688   29,759 
         

Deferred tax liabilities:

        

FHLB stock dividends

  500   563 

Fixed assets

  55   57 

Deferred loan costs

  186   170 

Net unrealized gain on securities

  115   331 

Lease right-of-use assets

  672   766 

Other

  106   107 
   1,634   1,994 

Net deferred tax asset

 $27,054  $27,765 
v3.20.2
Note 12 - Stock Plans and Stock Based Compensation (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Nonvested Share Activity [Table Text Block]
   

Six Months Ended

   

Twelve Months Ended

 
   

June 30, 2020

   

December 31, 2019

 
           

Weighted

           

Weighted

 
           

Average

           

Average

 
           

Grant

           

Grant

 
   

Shares

   

Price

   

Shares

   

Price

 

Outstanding, beginning

    57,774     $ 13.35       116,909     $ 8.69  

Granted

    20,507       17.03       34,501       14.81  

Vested

    (27,625

)

    12.35       (89,388

)

    7.83  

Forfeited

                (4,248

)

    13.07  

Outstanding, ending

    50,656     $ 15.39       57,774     $ 13.35  
Share-based Payment Arrangement, Nonvested Award, Cost [Table Text Block]

July 2020 – December 2020

  $ 201  

2021

    311  

2022

    136  

2023

    14  
v3.20.2
Note 13 - Earnings per Share (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands, except share and per share data)

 
                 

Net income

 $1,982  $3,633  $3,822  $6,472 

Less:

                

Earnings allocated to unvested shares

  15   32   30   71 

Net income available to common shareholders, basic and diluted

 $1,967  $3,601  $3,792  $6,401 
                 

Basic

                

Weighted average common shares including unvested common shares outstanding

  7,488,173   7,459,631   7,485,028   7,464,743 

Less:

                

Weighted average unvested common shares

  57,804   64,974   57,794   82,285 

Weighted average common shares outstanding

  7,430,369   7,394,657   7,427,234   7,382,458 

Basic income per common share

 $0.26  $0.49  $0.51  $0.87 
                 

Diluted

                

Add: Dilutive effects of assumed exercises of common stock warrants

            

Weighted average common shares and potential common shares

  7,430,369   7,394,657   7,427,234   7,382,458 

Diluted income per common share

 $0.26  $0.49  $0.51  $0.87 
v3.20.2
Note 14 - Regulatory Capital Matters (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]
   

Actual

   

Minimum Requirement

for Capital Adequacy

Purposes

   

Minimum Requirement

to be Well Capitalized

Under Prompt Corrective

Action Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

As of June 30, 2020:

                                               

Total risk-based capital (to risk- weighted assets)

  $ 131,788       12.78     $ 82,499       8.00     $ 103,124       10.00

%

Total common equity Tier 1 risk- based capital (to risk-weighted assets)

    121,560       11.79       46,406       4.50       67,030       6.50  

Tier 1 capital (to risk-weighted assets)

    121,560       11.79       61,874       6.00       82,499       8.00  

Tier 1 capital (to average assets)

    121,560       9.54       50,992       4.00       63,739       5.00  
   

Actual

   

Minimum Requirement

for Capital Adequacy

Purposes

   

Minimum Requirement

to be Well Capitalized

Under Prompt Corrective

Action Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

As of December 31, 2019:

                                               

Total risk-based capital (to risk- weighted assets)

  $ 121,335       12.08

%

  $ 80,341       8.00

%

  $ 100,426       10.00

%

Total common equity Tier 1 risk- based capital (to risk-weighted assets)

    112,959       11.25       45,192       4.50       65,277       6.50  

Tier 1 capital (to risk-weighted assets)

    112,959       11.25       60,256       6.00       80,341       8.00  

Tier 1 capital (to average assets)

    112,959       9.99       45,208       4.00       56,510       5.00  
v3.20.2
Note 15 - Off Balance Sheet Risks, Commitments, and Contingent Liabilities (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]
  

June 30, 2020

  

December 31, 2019

 
  

Fixed

Rate

  

Variable

Rate

  

Fixed

Rate

  

Variable

Rate

 
  

(in thousands)

 

Commitments to make loans

 $13,118  $21,199  $11,577  $20,415 

Unused lines of credit

  6,697   118,606   7,916   111,230 

Standby letters of credit

  531   1,336   531   3,164 
v3.20.2
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies (Details Textual)
Jun. 30, 2020
Limestone Bank [Member]  
Noncontrolling Interest, Ownership Percentage by Parent 100.00%
v3.20.2
Note 2 - Securities (Details Textual)
$ in Thousands
Jun. 30, 2020
USD ($)
Dec. 31, 2019
USD ($)
Security Owned and Pledged as Collateral, Fair Value, Total $ 85,100 $ 75,800
Debt Securities, Available-for-sale, Total $ 202,596 $ 209,000
Concentration Risk Number 0 0
Risk Level, AA Rated [Member]    
Collateralized Agreements, Total $ 26,400  
Risk Level, A Rated [Member]    
Collateralized Agreements, Total 15,300  
Risk Level, Below A Rated [Member]    
Collateralized Agreements, Total 0  
Risk Level, Subject to Downgrade [Member]    
Collateralized Agreements, Total 0  
Kentucky Municipalities [Member]    
Debt Securities, Available-for-sale, Total 15,400 $ 14,500
Collateralized Debt Obligations [Member]    
Debt Securities, Available-for-sale, Total $ 41,688 $ 49,419
Collateralized Debt Obligations [Member] | Measurement Input, Constant Prepayment Rate [Member]    
Debt Securities, Available-for-sale, Measurement Input 0.10  
Collateralized Debt Obligations [Member] | Measurement Input, Constant Default Rate for First Four Years [Member]    
Debt Securities, Available-for-sale, Measurement Input 0.12  
Collateralized Debt Obligations [Member] | Measurement Input, Constant Default Rate for After First Four Years [Member]    
Debt Securities, Available-for-sale, Measurement Input 0.04  
Collateralized Debt Obligations [Member] | Measurement Input, Recovery Rate Over One Year Lag [Member]    
Debt Securities, Available-for-sale, Measurement Input 0.45  
v3.20.2
Note 2 - Securities - Amortized Cost, Gross Unrealized Gains or Losses, and Fair Value of Investment Securities (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Available for sale securities, amortized cost $ 202,135 $ 207,672
Available for sale securities, gross unrealized gains 5,154 2,145
Available for sale securities, gross unrealized losses (4,693) (817)
Securities available for sale 202,596 209,000
US Treasury and Government [Member]    
Available for sale securities, amortized cost 20,302 22,281
Available for sale securities, gross unrealized gains 772 196
Available for sale securities, gross unrealized losses 0 (147)
Securities available for sale 21,074 22,330
Residential Mortgage Backed Securities [Member]    
Available for sale securities, amortized cost 85,048 91,269
Available for sale securities, gross unrealized gains 3,152 1,186
Available for sale securities, gross unrealized losses (21) (255)
Securities available for sale 88,179 92,200
Collateralized Debt Obligations [Member]    
Available for sale securities, amortized cost 44,730 49,831
Available for sale securities, gross unrealized gains 0 0
Available for sale securities, gross unrealized losses (3,042) (412)
Securities available for sale 41,688 49,419
US States and Political Subdivisions Debt Securities [Member]    
Available for sale securities, amortized cost 28,708 27,819
Available for sale securities, gross unrealized gains 917 550
Available for sale securities, gross unrealized losses (57) (3)
Securities available for sale 29,568 28,366
Corporate Debt Securities [Member]    
Available for sale securities, amortized cost 23,347 16,472
Available for sale securities, gross unrealized gains 313 213
Available for sale securities, gross unrealized losses (1,573) 0
Securities available for sale $ 22,087 $ 16,685
v3.20.2
Note 2 - Securities - Sales and Calls of Securities (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Proceeds $ 2,530 $ 1,452 $ 8,530 $ 2,452
Gross gains 0 1 0 1
Gross losses $ 5 $ 6 $ 5 $ 6
v3.20.2
Note 2 - Securities - Amortized Cost and Fair Value of Debt Investment Securities Portfolio by Contractual Maturity (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Within one year, amortized cost $ 15,142  
Within one year, fair value 14,048  
One to five years, amortized cost 41,133  
One to five years, fair value 42,486  
Five to ten years, amortized cost 37,615  
Five to ten years, fair value 36,545  
Beyond ten years, amortized cost 23,197  
Beyond ten years, fair value 21,338  
Agency mortgage-backed: residential, amortized cost 85,048  
Agency mortgage-backed: residential, fair value 88,179  
Total, amortized cost 202,135 $ 207,672
Total, fair value $ 202,596 $ 209,000
v3.20.2
Note 2 - Securities - Securities With Unrealized Losses (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Available for sale, fair value, less than 12 months $ 34,931 $ 41,474
Available for sale, unrealized loss, less than 12 months (2,383) (293)
Available for sale, fair value, 12 months or more 30,875 46,001
Available for sale, unrealized loss, 12 months or more (2,310) (524)
Available for sale, fair value 65,806 87,475
Available for sale, unrealized loss (4,693) (817)
US Treasury and Government [Member]    
Available for sale, fair value, less than 12 months 0 12,567
Available for sale, unrealized loss, less than 12 months 0 (147)
Available for sale, fair value, 12 months or more 0 0
Available for sale, unrealized loss, 12 months or more 0 0
Available for sale, fair value 0 12,567
Available for sale, unrealized loss 0 (147)
Residential Mortgage Backed Securities [Member]    
Available for sale, fair value, less than 12 months 6,100 18,457
Available for sale, unrealized loss, less than 12 months (21) (97)
Available for sale, fair value, 12 months or more 0 10,665
Available for sale, unrealized loss, 12 months or more 0 (158)
Available for sale, fair value 6,100 29,122
Available for sale, unrealized loss (21) (255)
Collateralized Loan Obligations [Member]    
Available for sale, fair value, less than 12 months 10,813 9,539
Available for sale, unrealized loss, less than 12 months (732) (46)
Available for sale, fair value, 12 months or more 30,875 35,336
Available for sale, unrealized loss, 12 months or more (2,310) (366)
Available for sale, fair value 41,688 44,875
Available for sale, unrealized loss (3,042) (412)
US States and Political Subdivisions Debt Securities [Member]    
Available for sale, fair value, less than 12 months 3,258 911
Available for sale, unrealized loss, less than 12 months (57) (3)
Available for sale, fair value, 12 months or more 0 0
Available for sale, unrealized loss, 12 months or more 0 0
Available for sale, fair value 3,258 911
Available for sale, unrealized loss (57) (3)
Corporate Debt Securities [Member]    
Available for sale, fair value, less than 12 months 14,760 0
Available for sale, unrealized loss, less than 12 months (1,573) 0
Available for sale, fair value, 12 months or more 0 0
Available for sale, unrealized loss, 12 months or more 0 0
Available for sale, fair value 14,760 0
Available for sale, unrealized loss $ (1,573) $ 0
v3.20.2
Note 3 - Loans (Details Textual)
3 Months Ended 6 Months Ended
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Mar. 31, 2020
USD ($)
Dec. 31, 2019
USD ($)
Loans and Leases Receivable, Gross, Total $ 975,759,000   $ 975,759,000   $ 975,759,000 $ 926,271,000
Impaired Financing Receivable, Interest Income, Cash Basis Method, Total $ 54,000 $ 30,000 $ 68,000 $ 60,000    
Financing Receivable Modifications Percentage of Performing TDRs to Total TDRs 100.00%   100.00%     100.00%
Troubled Debt Restructuring Reserve $ 1,000   $ 1,000     $ 1,000
Financing Receivable, Troubled Debt Restructuring, Commitment to Lend $ 0   $ 0     0
Financing Receivable, Modifications, Number of Contracts 0 0 0 0    
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts 0 0 0 0    
Commercial Portfolio Segment [Member]            
Loans and Leases Receivable, Gross, Total $ 221,292,000   $ 221,292,000   $ 221,292,000 [1] $ 145,551,000 [1]
Commercial Portfolio Segment [Member] | SBA CARES Act Paycheck Protection Program [Member]            
Loans and Leases Receivable, Gross, Total $ 41,900,000   $ 41,900,000      
[1] Includes PPP loans of $41.9 million at June 30, 2020.
v3.20.2
Note 3 - Loans - Loans (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Gross loans $ 975,759 $ 975,759 $ 926,271
Less: Allowance for loan losses (10,228) (10,228) (8,376)
Loans, net 965,531 965,531 917,895
Commercial Portfolio Segment [Member]      
Gross loans 221,292 221,292 [1] 145,551 [1]
Less: Allowance for loan losses (2,532)   (1,710)
Commercial Real Estate Portfolio Segment [Member]      
Gross loans 407,366   399,488
Less: Allowance for loan losses (4,494)   (4,080)
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]      
Gross loans 73,195 73,195 64,911
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]      
Gross loans 79,555 79,555 79,118
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]      
Gross loans 254,616 254,616 255,459
Residential Portfolio Segment [Member]      
Gross loans 269,396   297,579
Less: Allowance for loan losses (2,146)   (1,743)
Residential Portfolio Segment [Member] | Multifamily Loans [Member]      
Gross loans 65,113 65,113 70,950
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]      
Gross loans 204,283 204,283 226,629
Consumer Portfolio Segment [Member]      
Gross loans 38,828 38,828 47,790
Less: Allowance for loan losses (581)   (485)
Agriculture Portfolio Segment [Member]      
Gross loans 38,286 38,286 35,064
Less: Allowance for loan losses (472)   (355)
Other Portfolio Segment [Member]      
Gross loans 591 $ 591 799
Less: Allowance for loan losses $ (3)   $ (3)
[1] Includes PPP loans of $41.9 million at June 30, 2020.
v3.20.2
Note 3 - Loans - Activity in Allowance for Loan Losses by Portfolio Segment (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Balance $ 9,150 $ 8,686 $ 8,376 $ 8,880
Provision for loan losses 1,100 0 2,150 0
Loans charged off (193) (72) (528) (350)
Recoveries 171 218 230 302
Balance 10,228 8,832 10,228 8,832
Commercial Portfolio Segment [Member]        
Balance 2,025 1,447 1,710 1,299
Provision for loan losses 504 (45) 843 98
Loans charged off (3) 0 (32) 0
Recoveries 6 90 11 95
Balance 2,532 1,492 2,532 1,492
Commercial Real Estate Portfolio Segment [Member]        
Balance 4,212 4,498 4,080 4,676
Provision for loan losses 210 (46) 351 (211)
Loans charged off (28) 0 (57) (15)
Recoveries 100 1 120 3
Balance 4,494 4,453 4,494 4,453
Residential Portfolio Segment [Member]        
Balance 1,909 2,227 1,743 2,452
Provision for loan losses 189 52 409 (152)
Loans charged off (7) (35) (82) (117)
Recoveries 55 83 76 144
Balance 2,146 2,327 2,146 2,327
Consumer Portfolio Segment [Member]        
Balance 593 159 485 130
Provision for loan losses 134 (16) 399 177
Loans charged off (152) (34) (313) (214)
Recoveries 6 44 10 60
Balance 581 153 581 153
Agriculture Portfolio Segment [Member]        
Balance 409 353 355 321
Provision for loan losses 65 55 152 88
Loans charged off (3) (3) (44) (4)
Recoveries 1 0 9 0
Balance 472 405 472 405
Other Portfolio Segment [Member]        
Balance 2 2 3 2
Provision for loan losses (2) 0 (4) 0
Loans charged off 0 0 0 0
Recoveries 3 0 4 0
Balance $ 3 $ 2 $ 3 $ 2
v3.20.2
Note 3 - Loans - Balance in Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Bases on Impairment Method (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Individually evaluated for impairment $ 25   $ 42
Collectively evaluated for impairment 10,203   8,334
Total ending allowance balance 10,228 $ 10,228 8,376
Loans individually evaluated for impairment 2,071   2,170
Loans collectively evaluated for impairment 973,688   924,101
Total ending loans balance 975,759 975,759 926,271
Commercial Portfolio Segment [Member]      
Individually evaluated for impairment 0   3
Collectively evaluated for impairment 2,532   1,707
Total ending allowance balance 2,532   1,710
Loans individually evaluated for impairment 103   74
Loans collectively evaluated for impairment 221,189   145,477
Total ending loans balance 221,292 221,292 [1] 145,551 [1]
Commercial Real Estate Portfolio Segment [Member]      
Individually evaluated for impairment 24   37
Collectively evaluated for impairment 4,470   4,043
Total ending allowance balance 4,494   4,080
Loans individually evaluated for impairment 1,014   1,064
Loans collectively evaluated for impairment 406,352   398,424
Total ending loans balance 407,366   399,488
Residential Portfolio Segment [Member]      
Individually evaluated for impairment 1   2
Collectively evaluated for impairment 2,145   1,741
Total ending allowance balance 2,146   1,743
Loans individually evaluated for impairment 940   892
Loans collectively evaluated for impairment 268,456   296,687
Total ending loans balance 269,396   297,579
Consumer Portfolio Segment [Member]      
Individually evaluated for impairment 0   0
Collectively evaluated for impairment 581   485
Total ending allowance balance 581   485
Loans individually evaluated for impairment 14   98
Loans collectively evaluated for impairment 38,814   47,692
Total ending loans balance 38,828 38,828 47,790
Agriculture Portfolio Segment [Member]      
Individually evaluated for impairment 0   0
Collectively evaluated for impairment 472   355
Total ending allowance balance 472   355
Loans individually evaluated for impairment 0   42
Loans collectively evaluated for impairment 38,286   35,022
Total ending loans balance 38,286 38,286 35,064
Other Portfolio Segment [Member]      
Individually evaluated for impairment 0   0
Collectively evaluated for impairment 3   3
Total ending allowance balance 3   3
Loans individually evaluated for impairment 0   0
Loans collectively evaluated for impairment 591   799
Total ending loans balance $ 591 $ 591 $ 799
[1] Includes PPP loans of $41.9 million at June 30, 2020.
v3.20.2
Note 3 - Loans - Loans Individually Evaluated for Impairment by Class of Loans (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Unpaid principal balance, with no related allowance recorded $ 3,947   $ 3,947   $ 3,867
Recorded investment, with no related allowance recorded 1,704   1,704   1,717
Average recorded investment, with no related allowance recorded 1,815 $ 1,995 1,783 $ 2,007  
Interest income recognized, with no related allowance recorded 64 37 86 67  
Unpaid principal balance, with an allowance recorded 378   378   489
Recorded investment, with an allowance recorded 367   367   453
Allowance for loan losses allocated, with an allowance recorded 25   25   42
Average recorded investment, with an allowance recorded 292 953 345 929  
Interest income recognized, with an allowance recorded 3 11 7 22  
Unpaid principal balance, total 4,325   4,325   4,356
Recorded investment, total 2,071   2,071   2,170
Average recorded investment, total 2,107 2,948 2,128 2,936  
Interest income recognized, total 67 48 93 89  
Commercial Portfolio Segment [Member]          
Unpaid principal balance, with no related allowance recorded 210   210   138
Recorded investment, with no related allowance recorded 103   103   50
Average recorded investment, with no related allowance recorded 131 66 104 62  
Interest income recognized, with no related allowance recorded 0 0 0 0  
Unpaid principal balance, with an allowance recorded 0   0   24
Recorded investment, with an allowance recorded 0   0   24
Allowance for loan losses allocated, with an allowance recorded 0   0   3
Average recorded investment, with an allowance recorded 0 13 8 9  
Interest income recognized, with an allowance recorded 0 1 0 1  
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]          
Unpaid principal balance, with no related allowance recorded 0   0   0
Recorded investment, with no related allowance recorded 0   0   0
Average recorded investment, with no related allowance recorded 0 0 0 0  
Interest income recognized, with no related allowance recorded 0 0 0 0  
Unpaid principal balance, with an allowance recorded 0   0   0
Recorded investment, with an allowance recorded 0   0   0
Allowance for loan losses allocated, with an allowance recorded 0   0   0
Average recorded investment, with an allowance recorded 0 0 0 0  
Interest income recognized, with an allowance recorded 0 0 0 0  
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]          
Unpaid principal balance, with no related allowance recorded 411   411   380
Recorded investment, with no related allowance recorded 295   295   293
Average recorded investment, with no related allowance recorded 297 156 296 134  
Interest income recognized, with no related allowance recorded 3 3 13 8  
Unpaid principal balance, with an allowance recorded 143   143   282
Recorded investment, with an allowance recorded 143   143   282
Allowance for loan losses allocated, with an allowance recorded 19   19   37
Average recorded investment, with an allowance recorded 143 225 189 203  
Interest income recognized, with an allowance recorded 2 0 4 0  
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]          
Unpaid principal balance, with no related allowance recorded 986   986   1,057
Recorded investment, with no related allowance recorded 426   426   489
Average recorded investment, with no related allowance recorded 453 246 465 251  
Interest income recognized, with no related allowance recorded 10 4 18 7  
Unpaid principal balance, with an allowance recorded 161   161   0
Recorded investment, with an allowance recorded 150   150   0
Allowance for loan losses allocated, with an allowance recorded 5   5   0
Average recorded investment, with an allowance recorded 75 0 50 0  
Interest income recognized, with an allowance recorded 0 0 0 0  
Residential Portfolio Segment [Member] | Multifamily Loans [Member]          
Unpaid principal balance, with no related allowance recorded 0   0   0
Recorded investment, with no related allowance recorded 0   0   0
Average recorded investment, with no related allowance recorded 0 0 0 0  
Interest income recognized, with no related allowance recorded 0 0 0 0  
Unpaid principal balance, with an allowance recorded 0   0   0
Recorded investment, with an allowance recorded 0   0   0
Allowance for loan losses allocated, with an allowance recorded 0   0   0
Average recorded investment, with an allowance recorded 0 0 0 0  
Interest income recognized, with an allowance recorded 0 0 0 0  
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]          
Unpaid principal balance, with no related allowance recorded 1,819   1,819   1,679
Recorded investment, with no related allowance recorded 866   866   745
Average recorded investment, with no related allowance recorded 856 1,448 819 1,508  
Interest income recognized, with no related allowance recorded 51 28 54 50  
Unpaid principal balance, with an allowance recorded 74   74   183
Recorded investment, with an allowance recorded 74   74   147
Allowance for loan losses allocated, with an allowance recorded 1   1   2
Average recorded investment, with an allowance recorded 74 715 98 717  
Interest income recognized, with an allowance recorded 1 10 3 21  
Consumer Portfolio Segment [Member]          
Unpaid principal balance, with no related allowance recorded 224   224   309
Recorded investment, with no related allowance recorded 14   14   98
Average recorded investment, with no related allowance recorded 78 14 85 9  
Interest income recognized, with no related allowance recorded 0 2 1 2  
Unpaid principal balance, with an allowance recorded 0   0   0
Recorded investment, with an allowance recorded 0   0   0
Allowance for loan losses allocated, with an allowance recorded 0   0   0
Average recorded investment, with an allowance recorded 0 0 0 0  
Interest income recognized, with an allowance recorded 0 0 0 0  
Agriculture Portfolio Segment [Member]          
Unpaid principal balance, with no related allowance recorded 297   297   304
Recorded investment, with no related allowance recorded 0   0   42
Average recorded investment, with no related allowance recorded 0 65 14 43  
Interest income recognized, with no related allowance recorded 0 0 0 0  
Unpaid principal balance, with an allowance recorded 0   0   0
Recorded investment, with an allowance recorded 0   0   0
Allowance for loan losses allocated, with an allowance recorded 0   0   0
Average recorded investment, with an allowance recorded 0 0 0 0  
Interest income recognized, with an allowance recorded 0 0 0 0  
Other Portfolio Segment [Member]          
Unpaid principal balance, with no related allowance recorded 0   0   0
Recorded investment, with no related allowance recorded 0   0   0
Average recorded investment, with no related allowance recorded 0 0 0 0  
Interest income recognized, with no related allowance recorded 0 0 0 0  
Unpaid principal balance, with an allowance recorded 0   0   0
Recorded investment, with an allowance recorded 0   0   0
Allowance for loan losses allocated, with an allowance recorded 0   0   $ 0
Average recorded investment, with an allowance recorded 0 0 0 0  
Interest income recognized, with an allowance recorded $ 0 $ 0 $ 0 $ 0  
v3.20.2
Note 3 - Loans - Types of Troubled Debt Restructuring Loan Modification by Portfolio Segment (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Troubled debt restructuring $ 462 $ 475
Performing Financial Instruments [Member]    
Troubled debt restructuring 462 475
Nonperforming Financial Instruments [Member]    
Troubled debt restructuring 0 0
Commercial Real Estate Portfolio Segment [Member] | One- to Four-family Residential Properties [Member] | Performing Financial Instruments [Member]    
Troubled debt restructuring 388 400
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]    
Troubled debt restructuring 388 400
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member] | Nonperforming Financial Instruments [Member]    
Troubled debt restructuring 0 0
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]    
Troubled debt restructuring 74 75
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member] | Performing Financial Instruments [Member]    
Troubled debt restructuring 74 75
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member] | Nonperforming Financial Instruments [Member]    
Troubled debt restructuring $ 0 $ 0
v3.20.2
Note 3 - Loans - Recorded Investment in Nonaccrual and Loans Past Due 90 Days and Still on Accrual by Class of Loan (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Nonaccrual $ 1,410 $ 1,528
Loans Past Due 90 Days and Over Still Accruing 0 0
Commercial Portfolio Segment [Member]    
Nonaccrual 104 50
Loans Past Due 90 Days and Over Still Accruing 0 0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]    
Nonaccrual 0 0
Loans Past Due 90 Days and Over Still Accruing 0 0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]    
Nonaccrual 295 431
Loans Past Due 90 Days and Over Still Accruing 0 0
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]    
Nonaccrual 188 90
Loans Past Due 90 Days and Over Still Accruing 0 0
Residential Portfolio Segment [Member] | Multifamily Loans [Member]    
Nonaccrual 0 0
Loans Past Due 90 Days and Over Still Accruing 0 0
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]    
Nonaccrual 809 817
Loans Past Due 90 Days and Over Still Accruing 0 0
Consumer Portfolio Segment [Member]    
Nonaccrual 14 98
Loans Past Due 90 Days and Over Still Accruing 0 0
Agriculture Portfolio Segment [Member]    
Nonaccrual 0 42
Loans Past Due 90 Days and Over Still Accruing 0 0
Other Portfolio Segment [Member]    
Nonaccrual 0 0
Loans Past Due 90 Days and Over Still Accruing $ 0 $ 0
v3.20.2
Note 3 - Loans - Aging of Recorded Investment in Past Due Loans (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Nonaccrual $ 1,410 $ 1,528
Total past due and nonaccrual 2,065 3,945
Financial Asset, 30 to 59 Days Past Due [Member]    
Past due 458 1,747
Financial Asset, 60 to 89 Days Past Due [Member]    
Past due 197 670
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]    
Past due 0 0
Commercial Portfolio Segment [Member]    
Nonaccrual 104 50
Total past due and nonaccrual 104 67
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]    
Past due 0 14
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]    
Past due 0 3
Commercial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]    
Past due 0 0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]    
Nonaccrual 0 0
Total past due and nonaccrual 0 0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]    
Nonaccrual 295 431
Total past due and nonaccrual 350 705
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]    
Nonaccrual 188 90
Total past due and nonaccrual 228 296
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Construction Loans [Member]    
Past due 0 0
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Farmland Loans [Member]    
Past due 55 274
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Nonfarm Nonresidential [Member]    
Past due 0 206
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Construction Loans [Member]    
Past due 0 0
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Farmland Loans [Member]    
Past due 0 0
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Nonfarm Nonresidential [Member]    
Past due 40 0
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Construction Loans [Member]    
Past due 0 0
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Farmland Loans [Member]    
Past due 0 0
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Nonfarm Nonresidential [Member]    
Past due 0 0
Residential Portfolio Segment [Member] | Multifamily Loans [Member]    
Nonaccrual 0 0
Total past due and nonaccrual 0 0
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]    
Nonaccrual 809 817
Total past due and nonaccrual 1,228 2,482
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Multifamily Loans [Member]    
Past due 0 0
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | One- to Four-family Residential Properties [Member]    
Past due 331 1,162
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Multifamily Loans [Member]    
Past due 0 0
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | One- to Four-family Residential Properties [Member]    
Past due 88 503
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Multifamily Loans [Member]    
Past due 0 0
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | One- to Four-family Residential Properties [Member]    
Past due 0 0
Consumer Portfolio Segment [Member]    
Nonaccrual 14 98
Total past due and nonaccrual 150 353
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]    
Past due 67 91
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]    
Past due 69 164
Consumer Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]    
Past due 0 0
Agriculture Portfolio Segment [Member]    
Nonaccrual 0 42
Total past due and nonaccrual 5 42
Agriculture Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]    
Past due 5 0
Agriculture Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]    
Past due 0 0
Agriculture Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]    
Past due 0 0
Other Portfolio Segment [Member]    
Nonaccrual 0 0
Total past due and nonaccrual 0 0
Other Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]    
Past due 0 0
Other Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]    
Past due 0 0
Other Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]    
Past due $ 0 $ 0
v3.20.2
Note 3 - Loans - Risk Category of Loans by Class of Loans (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Gross loans $ 975,759 $ 975,759 $ 926,271
Pass [Member]      
Gross loans 925,558   888,707
Watch [Member]      
Gross loans 43,014   27,522
Special Mention [Member]      
Gross loans 0   0
Substandard [Member]      
Gross loans 7,187   10,042
Doubtful [Member]      
Gross loans 0   0
Commercial Portfolio Segment [Member]      
Gross loans 221,292 221,292 [1] 145,551 [1]
Commercial Portfolio Segment [Member] | Pass [Member]      
Gross loans 203,360   130,312
Commercial Portfolio Segment [Member] | Watch [Member]      
Gross loans 16,048   11,280
Commercial Portfolio Segment [Member] | Special Mention [Member]      
Gross loans 0   0
Commercial Portfolio Segment [Member] | Substandard [Member]      
Gross loans 1,884   3,959
Commercial Portfolio Segment [Member] | Doubtful [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member]      
Gross loans 407,366   399,488
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]      
Gross loans 73,195 73,195 64,911
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]      
Gross loans 79,555 79,555 79,118
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]      
Gross loans 254,616 254,616 255,459
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Construction Loans [Member]      
Gross loans 73,195   64,911
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Farmland Loans [Member]      
Gross loans 72,750   71,503
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Nonfarm Nonresidential [Member]      
Gross loans 246,118   245,995
Commercial Real Estate Portfolio Segment [Member] | Watch [Member] | Construction Loans [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member] | Watch [Member] | Farmland Loans [Member]      
Gross loans 6,008   6,663
Commercial Real Estate Portfolio Segment [Member] | Watch [Member] | Nonfarm Nonresidential [Member]      
Gross loans 6,726   6,986
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Construction Loans [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Farmland Loans [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Nonfarm Nonresidential [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Construction Loans [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Farmland Loans [Member]      
Gross loans 797   952
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Nonfarm Nonresidential [Member]      
Gross loans 1,772   2,478
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Construction Loans [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Farmland Loans [Member]      
Gross loans 0   0
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Nonfarm Nonresidential [Member]      
Gross loans 0   0
Residential Portfolio Segment [Member]      
Gross loans 269,396   297,579
Residential Portfolio Segment [Member] | Multifamily Loans [Member]      
Gross loans 65,113 65,113 70,950
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]      
Gross loans 204,283 204,283 226,629
Residential Portfolio Segment [Member] | Pass [Member] | Multifamily Loans [Member]      
Gross loans 54,665   70,950
Residential Portfolio Segment [Member] | Pass [Member] | One- to Four-family Residential Properties [Member]      
Gross loans 198,014   221,727
Residential Portfolio Segment [Member] | Watch [Member] | Multifamily Loans [Member]      
Gross loans 10,448   0
Residential Portfolio Segment [Member] | Watch [Member] | One- to Four-family Residential Properties [Member]      
Gross loans 3,617   2,420
Residential Portfolio Segment [Member] | Special Mention [Member] | Multifamily Loans [Member]      
Gross loans 0   0
Residential Portfolio Segment [Member] | Special Mention [Member] | One- to Four-family Residential Properties [Member]      
Gross loans 0   0
Residential Portfolio Segment [Member] | Substandard [Member] | Multifamily Loans [Member]      
Gross loans 0   0
Residential Portfolio Segment [Member] | Substandard [Member] | One- to Four-family Residential Properties [Member]      
Gross loans 2,652   2,482
Residential Portfolio Segment [Member] | Doubtful [Member] | Multifamily Loans [Member]      
Gross loans 0   0
Residential Portfolio Segment [Member] | Doubtful [Member] | One- to Four-family Residential Properties [Member]      
Gross loans 0   0
Consumer Portfolio Segment [Member]      
Gross loans 38,828 38,828 47,790
Consumer Portfolio Segment [Member] | Pass [Member]      
Gross loans 38,780   47,657
Consumer Portfolio Segment [Member] | Watch [Member]      
Gross loans 3   5
Consumer Portfolio Segment [Member] | Special Mention [Member]      
Gross loans 0   0
Consumer Portfolio Segment [Member] | Substandard [Member]      
Gross loans 45   128
Consumer Portfolio Segment [Member] | Doubtful [Member]      
Gross loans 0   0
Agriculture Portfolio Segment [Member]      
Gross loans 38,286 38,286 35,064
Agriculture Portfolio Segment [Member] | Pass [Member]      
Gross loans 38,085   34,853
Agriculture Portfolio Segment [Member] | Watch [Member]      
Gross loans 164   168
Agriculture Portfolio Segment [Member] | Special Mention [Member]      
Gross loans 0   0
Agriculture Portfolio Segment [Member] | Substandard [Member]      
Gross loans 37   43
Agriculture Portfolio Segment [Member] | Doubtful [Member]      
Gross loans 0   0
Other Portfolio Segment [Member]      
Gross loans 591 $ 591 799
Other Portfolio Segment [Member] | Pass [Member]      
Gross loans 591   799
Other Portfolio Segment [Member] | Watch [Member]      
Gross loans 0   0
Other Portfolio Segment [Member] | Special Mention [Member]      
Gross loans 0   0
Other Portfolio Segment [Member] | Substandard [Member]      
Gross loans 0   0
Other Portfolio Segment [Member] | Doubtful [Member]      
Gross loans $ 0   $ 0
[1] Includes PPP loans of $41.9 million at June 30, 2020.
v3.20.2
Note 4 - Leases (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Operating Lease, Weighted Average Discount Rate, Percent 5.47%   5.47%  
Operating Lease, Expense $ 136,000 $ 65,000 $ 256,000 $ 130,000
Premises and Equipment [Member]        
Operating Lease, Right-of-Use Asset 2,700,000 384,000 2,700,000 384,000
Other Liabilities [Member]        
Operating Lease, Liability, Total $ 2,695,000 $ 384,000 $ 2,695,000 $ 384,000
Accounting Standards Update 2016-02 [Member]        
Operating Lease, Weighted Average Remaining Lease Term (Year) 22 years   22 years  
v3.20.2
Note 4 - Leases - Future Minimum Lease Payments (Details) - USD ($)
Jun. 30, 2020
Jun. 30, 2019
July – December 2020 $ 255,000  
2021 241,000  
2022 223,000  
2023 226,000  
2024 225,000  
Thereafter 3,720,000  
Total minimum lease payments 4,890,000  
Discount effect of cash flows (2,195,000)  
Other Liabilities [Member]    
Operating Lease, Liability, Total $ 2,695,000 $ 384,000
v3.20.2
Note 5 - Other Real Estate Owned (Details Textual) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
One- to Four-family Residential Properties [Member]    
Mortgage Loans in Process of Foreclosure, Amount $ 154,000 $ 172,000
v3.20.2
Note 5 - Other Real Estate Owned - Major Categories of OREO (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Other real estate owned, gross $ 1,625 $ 3,225
Commercial Real Estate Portfolio Segment [Member] | Construction, Land Development, and Other Land Loans [Member]    
Other real estate owned, gross $ 1,625 $ 3,225
v3.20.2
Note 5 - Other Real Estate Owned - Activity Relating to Other Real Estate Owned (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
OREO     $ 3,225 $ 3,485
Real estate acquired     0 0
Valuation adjustment write-downs $ 0 $ (110) 0 (260)
Net gain on sales 0 0 0 0
Proceeds from sales of properties     (1,600) 0
OREO $ 1,625 $ 3,225 $ 1,625 $ 3,225
v3.20.2
Note 5 - Other Real Estate Owned - Expenses Related to Other Real Estate Owned (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Net gain on sales $ 0 $ 0 $ 0 $ 0
Valuation adjustment write-downs 0 110 (0) 260
Operating expense 22 32 38 48
Total $ 22 $ 142 $ 38 $ 308
v3.20.2
Note 6 - Goodwill and Intangible Assets (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Dec. 31, 2019
Nov. 15, 2019
Goodwill, Ending Balance $ 6,252,000 $ 6,252,000 $ 6,252,000  
Goodwill, Impairment Loss   0    
Amortization of Intangible Assets, Total $ 64,000 $ 128,000    
Branch Acquisition from Republic Bank and Trust [Member]        
Goodwill, Ending Balance       $ 6,300,000
v3.20.2
Note 6 - Goodwill and Intangible Assets - Schedule of Goodwill and Intangible Assets (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Goodwill, Gross $ 6,252 $ 6,252
Accumulated Amortization 128 0
Total, Gross 8,752 8,752
Core Deposits [Member]    
Core deposit intangibles, Gross 2,500 2,500
Accumulated Amortization $ 128 $ 0
v3.20.2
Note 6 - Goodwill and Intangible Assets - Expected Amortization Expense (Details) - Core Deposits [Member]
$ in Thousands
Jun. 30, 2020
USD ($)
July 2020 – December 2020 $ 128
2021 256
2022 256
2023 256
2024 256
Thereafter 1,220
Finite-Lived Intangible Assets, Net, Ending Balance $ 2,372
v3.20.2
Note 7 - Deposits (Details Textual) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Time Deposits, at or Above FDIC Insurance Limit $ 66.6 $ 51.2
v3.20.2
Note 7 - Deposits - Deposit Balances by Category (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Non-interest bearing $ 224,901 $ 187,551
Interest checking 167,814 146,038
Money market 166,376 160,837
Savings 119,327 56,015
Certificates of deposit 446,370 476,534
Total $ 1,124,788 $ 1,026,975
v3.20.2
Note 7 - Deposits - Maturities of Time Deposits (Details)
$ in Thousands
Jun. 30, 2020
USD ($)
Year 1 $ 362,819
Year 2 42,047
Year 3 17,112
Year 4 12,242
Year 5 11,801
Thereafter 349
Time Deposits, Total $ 446,370
v3.20.2
Note 8 - Advances from the Federal Home Loan Bank (Details Textual) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Federal Home Loan Bank, Advances, Weighted Average Interest Rate 0.75% 1.70%
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Repayment and Penalties $ 0 $ 0
Federal Home Loan Bank, Advances, General Debt Obligations, Amount of Available, Unused Funds 124,900  
First Mortgage Loans [Member]    
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged 147,200 $ 166,000
Paycheck Protection Program CARES Act [Member]    
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged $ 41,900  
v3.20.2
Note 8 - Advances from the Federal Home Loan Bank - Advances From the Federal Home Loan Bank (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Short term advances $ 0 $ 60,000
Long term advances (fixed rates 0.00% to 0.77%) maturing April 2021 to February 2030 20,644 1,389
Total advances from the Federal Home Loan Bank $ 20,644 $ 61,389
v3.20.2
Note 8 - Advances from the Federal Home Loan Bank - Advances From the Federal Home Loan Bank (Details) (Parentheticals)
Jun. 30, 2020
Dec. 31, 2019
Minimum [Member]    
Long term advances from the FHLB, fixed rate 0.00% 0.00%
Maximum [Member]    
Long term advances from the FHLB, fixed rate 0.77% 0.77%
v3.20.2
Note 8 - Advances from the Federal Home Loan Bank - Principal Payments on Advances From the Federal Home Loan Bank (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Year 1 $ 644  
Year 2 0  
Year 3 0  
Year 4 0  
Year 5 0  
Thereafter 20,000  
Advances from Federal Home Loan Banks, Total $ 20,644 $ 61,389
v3.20.2
Note 9 - Borrowings (Details Textual) - USD ($)
1 Months Ended 6 Months Ended 48 Months Ended 60 Months Ended
Jul. 23, 2019
Jul. 31, 2020
Jun. 30, 2020
Jun. 30, 2022
Jul. 31, 2029
Senior Notes [Member]          
Early Repayment of Senior Debt $ 5,000,000.0        
Debt Instrument, Periodic Payment, Principal     $ 250,000    
First Priority Pledge, Percent of Issued and Outstanding Stock     100.00%    
Senior Notes [Member] | Subsidiaries [Member]          
Debt Instrument, Financial Covenants, Non-performing Assets to Total Assets, Percentage, Minimum     2.50%    
Forecast [Member] | Senior Notes [Member]          
Debt Instrument, Financial Convenants, Minimum Cash on Hand       $ 2,500,000  
Debt Instrument, Financial Convenants, Minimum Risk Based Capital to Risk Weighted Assets       10.00%  
Forecast [Member] | Senior Notes [Member] | Subsidiaries [Member]          
Debt Instrument, Financial Convenants, Minimum Risk Based Capital to Risk Weighted Assets       11.00%  
London Interbank Offered Rate (LIBOR) [Member] | Senior Notes [Member]          
Debt Instrument, Basis Spread on Variable Rate     2.50%    
Subordinated Capital Note [Member]          
Proceeds from Issuance of Subordinated Long-term Debt $ 17,000,000.0        
Debt Instrument, Fixed Rate for First Five Years 5.75%        
Subordinated Capital Note [Member] | Subsequent Event [Member]          
Proceeds from Issuance of Subordinated Long-term Debt   $ 8,000,000.0      
Subordinated Capital Note [Member] | London Interbank Offered Rate (LIBOR) [Member] | Forecast [Member]          
Debt Instrument, Basis Spread on Variable Rate         3.95%
v3.20.2
Note 10 - Fair Values Measurement (Details Textual)
3 Months Ended 6 Months Ended
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Impaired Financing Receivable, with Related Allowance, Recorded Investment $ 367,000   $ 367,000   $ 453,000
Impaired Financing Receivable, Related Allowance 25,000   25,000   42,000
Impaired Loans [Member]          
Impaired Financing Receivable, Related Allowance 25,000 $ 195,000 25,000 $ 195,000 42,000
Impaired Financing Receivable Provision for Loan Losses 5,000 2,000 0 0  
Measured for Impairment Using Fair Value of Collateral [Member] | Impaired Loans [Member]          
Impaired Financing Receivable, with Related Allowance, Recorded Investment $ 367,000 $ 1,000,000.0 $ 367,000 $ 1,000,000.0 $ 453,000
Measurement Input, Discount Rate [Member] | Minimum [Member]          
Impaired Loans, Measurement Input 0.10   0.10    
Measurement Input, Discount Rate [Member] | Maximum [Member]          
Impaired Loans, Measurement Input 0.33   0.33    
Measurement Input, Estimated Discount for Cost to Sell [Member] | Minimum [Member]          
Impaired Loans, Measurement Input 0.06   0.06    
Measurement Input, Estimated Discount for Cost to Sell [Member] | Maximum [Member]          
Impaired Loans, Measurement Input 0.10   0.10    
Routine Real Estate Collateral [Member] | Measurement Input, Discount Rate [Member]          
Impaired Loans, Measurement Input 0.10   0.10    
Thin Trading Market or Specialized Collateral [Member] | Measurement Input, Discount Rate [Member]          
Impaired Loans, Measurement Input 0.25   0.25    
v3.20.2
Note 10 - Fair Values Measurement - Financial Assets Measured at the Fair Value on Recurring and Non-recurring Basis (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Securities available for sale $ 202,596 $ 209,000
Recorded investment, total 2,071 2,170
Fair Value, Recurring [Member]    
Securities available for sale 202,596 209,000
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]    
Securities available for sale 0 0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]    
Securities available for sale 202,596 209,000
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]    
Securities available for sale 0 0
US Treasury and Government [Member]    
Securities available for sale 21,074 22,330
US Treasury and Government [Member] | Fair Value, Recurring [Member]    
Securities available for sale 21,074 22,330
US Treasury and Government [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]    
Securities available for sale 0 0
US Treasury and Government [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]    
Securities available for sale 21,074 22,330
US Treasury and Government [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]    
Securities available for sale 0 0
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Portfolio Segment [Member]    
Recorded investment, total   21
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Portfolio Segment [Member] | Fair Value, Inputs, Level 1 [Member]    
Recorded investment, total   0
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Portfolio Segment [Member] | Fair Value, Inputs, Level 2 [Member]    
Recorded investment, total   0
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member]    
Recorded investment, total   21
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]    
Recorded investment, total 124 245
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]    
Recorded investment, total 145  
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Fair Value, Inputs, Level 1 [Member] | Farmland Loans [Member]    
Recorded investment, total 0 0
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Fair Value, Inputs, Level 1 [Member] | Nonfarm Nonresidential [Member]    
Recorded investment, total 0  
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Fair Value, Inputs, Level 2 [Member] | Farmland Loans [Member]    
Recorded investment, total 0 0
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Fair Value, Inputs, Level 2 [Member] | Nonfarm Nonresidential [Member]    
Recorded investment, total 0  
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | Farmland Loans [Member]    
Recorded investment, total 124 245
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | Nonfarm Nonresidential [Member]    
Recorded investment, total 145  
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]    
Recorded investment, total 73 145
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Fair Value, Inputs, Level 1 [Member] | One- to Four-family Residential Properties [Member]    
Recorded investment, total 0 0
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Fair Value, Inputs, Level 2 [Member] | One- to Four-family Residential Properties [Member]    
Recorded investment, total 0 0
Impaired Loans [Member] | Fair Value, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | One- to Four-family Residential Properties [Member]    
Recorded investment, total 73 145
Residential Mortgage Backed Securities [Member]    
Securities available for sale 88,179 92,200
Residential Mortgage Backed Securities [Member] | Fair Value, Recurring [Member]    
Securities available for sale 88,179 92,200
Residential Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]    
Securities available for sale 0 0
Residential Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]    
Securities available for sale 88,179 92,200
Residential Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]    
Securities available for sale 0 0
Collateralized Debt Obligations [Member]    
Securities available for sale 41,688 49,419
Collateralized Debt Obligations [Member] | Fair Value, Recurring [Member]    
Securities available for sale 41,688 49,419
Collateralized Debt Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]    
Securities available for sale 0 0
Collateralized Debt Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]    
Securities available for sale 41,688 49,419
Collateralized Debt Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]    
Securities available for sale 0 0
US States and Political Subdivisions Debt Securities [Member]    
Securities available for sale 29,568 28,366
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member]    
Securities available for sale 29,568 28,366
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]    
Securities available for sale 0 0
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]    
Securities available for sale 29,568 28,366
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]    
Securities available for sale 0 0
Corporate Debt Securities [Member]    
Securities available for sale 22,087 16,685
Corporate Debt Securities [Member] | Fair Value, Recurring [Member]    
Securities available for sale 22,087 16,685
Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]    
Securities available for sale 0 0
Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]    
Securities available for sale 22,087 16,685
Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]    
Securities available for sale $ 0 $ 0
v3.20.2
Note 10 - Fair Values Measurement - Carrying Amount and Estimated Fair Values of Financial Instruments (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Securities available for sale $ 202,596 $ 209,000
Reported Value Measurement [Member]    
Cash and cash equivalents 49,017 30,203
Securities available for sale 202,596 209,000
Federal Home Loan Bank stock 6,142 6,237
Loans, net 965,531 917,895
Accrued interest receivable 5,231 4,257
Deposits 1,124,788 1,026,975
Federal Home Loan Bank advances 20,644 61,389
Junior subordinated debentures 21,000 21,000
Subordinated capital notes 17,000 17,000
Senior Debt 5,000 5,000
Accrued interest payable 761 1,129
Estimate of Fair Value Measurement [Member]    
Cash and cash equivalents 49,017 30,203
Securities available for sale 202,596 209,000
Loans, net 940,327 925,388
Accrued interest receivable 5,231 4,257
Deposits 1,127,067 1,027,433
Federal Home Loan Bank advances 20,701 61,395
Junior subordinated debentures 14,436 17,466
Subordinated capital notes 16,358 17,003
Senior Debt 4,919 5,022
Accrued interest payable 761 1,129
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]    
Cash and cash equivalents 49,017 30,203
Securities available for sale 0 0
Loans, net 0 0
Accrued interest receivable 0 0
Deposits 224,901 187,551
Federal Home Loan Bank advances 0 0
Junior subordinated debentures 0 0
Subordinated capital notes 0 0
Senior Debt 0 0
Accrued interest payable 0 0
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]    
Cash and cash equivalents 0 0
Securities available for sale 202,596 209,000
Loans, net 0 0
Accrued interest receivable 982 1,118
Deposits 902,166 839,882
Federal Home Loan Bank advances 20,701 61,395
Junior subordinated debentures 0 0
Subordinated capital notes 0 0
Senior Debt 0 0
Accrued interest payable 324 647
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]    
Cash and cash equivalents 0 0
Securities available for sale 0 0
Loans, net 940,327 925,388
Accrued interest receivable 4,249 3,139
Deposits 0 0
Federal Home Loan Bank advances 0 0
Junior subordinated debentures 14,436 17,466
Subordinated capital notes 16,358 17,003
Senior Debt 4,919 5,022
Accrued interest payable $ 437 $ 482
v3.20.2
Note 11 - Income Taxes (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Jul. 10, 2015
Deferred Tax Assets, Tax Credit Carryforwards, Alternative Minimum Tax $ 0   $ 0   $ 173,000  
Unrecognized Tax Benefits, Ending Balance 0   0      
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense, Total 0 $ 0 $ 0 $ 0    
Common Stock Ownership Percentage by Individual     5.00%      
Common Stock Ownership Percentage     50.00%      
Dividend Declared Preferred Stock Purchase Right Per Each Share of Common Stock (in shares)           1
Domestic Tax Authority [Member]            
Operating Loss Carryforwards, Total 106,400,000   $ 106,400,000      
Domestic Tax Authority [Member] | Other Assets [Member]            
Deferred Tax Assets, Tax Credit Carryforwards, Alternative Minimum Tax 173,000   173,000      
State and Local Jurisdiction [Member]            
Operating Loss Carryforwards, Total $ 33,600,000   $ 33,600,000      
v3.20.2
Note 11 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Deferred tax assets:    
Net operating loss carry-forward $ 23,662 $ 22,915
Allowance for loan losses 2,552 2,090
OREO write-down 769 2,665
Alternative minimum tax credit carry-forward 0 173
Net assets from acquisitions 149 228
New market tax credit carry-forward 208 208
Nonaccrual loan interest 307 303
Accrued expenses 104 102
Lease liability 672 766
Other 265 309
Deferred Tax Assets, Gross, Total 28,688 29,759
Deferred tax liabilities:    
FHLB stock dividends 500 563
Fixed assets 55 57
Deferred loan costs 186 170
Net unrealized gain on securities 115 331
Lease right-of-use assets 672 766
Other 106 107
Deferred Tax Liabilities, Gross, Total 1,634 1,994
Net deferred tax asset $ 27,054 $ 27,765
v3.20.2
Note 12 - Stock Plans and Stock Based Compensation (Details Textual) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other Than Options, Nonvested Intrinsic Value1 $ 349,000   $ 349,000    
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share)     $ 17.03    
Share-based Payment Arrangement, Expense 104,000 $ 93,000 $ 210,000 $ 175,000  
Share-based Payment Arrangement, Expense, Tax Benefit $ 22,000 $ 19,000 $ 44,000 $ 37,000  
2018 Omnibus Equity Compensation Plan [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) 275,367   275,367    
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)     3 years    
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share)     $ 17.03   $ 14.81
Non-Employee Directors Stock Incentive Plan 2006 [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Annual Award to Non Employee Directors, Value     $ 25,000    
v3.20.2
Note 12 - Stock Plans and Stock Based Compensation - Unvested Share Activity (Details) - $ / shares
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Granted, weighted average grant price (in dollars per share) $ 17.03  
2018 Omnibus Equity Compensation Plan [Member]    
Outstanding, beginning (in shares) 57,774 116,909
Outstanding, weighted average grant price (in dollars per share) $ 13.35 $ 8.69
Granted (in shares) 20,507 34,501
Granted, weighted average grant price (in dollars per share) $ 17.03 $ 14.81
Vested (in shares) (27,625) (89,388)
Vested, weighted average grant price (in dollars per share) $ 12.35 $ 7.83
Forfeited (in shares) 0 (4,248)
Forfeited, weighted average grant price (in dollars per share) $ 0 $ 13.07
Outstanding, ending (in shares) 50,656 57,774
Outstanding, weighted average grant price (in dollars per share) $ 15.39 $ 13.35
v3.20.2
Note 12 - Stock Plans and Stock Based Compensation - Unrecognized Stock Based Compensation Expense Related to Unvested Shares (Details)
$ in Thousands
Jun. 30, 2020
USD ($)
July 2020 – December 2020 $ 201
2021 311
2022 136
2023 $ 14
v3.20.2
Note 13 - Earnings per Share (Details Textual) - shares
shares in Thousands
Jun. 30, 2020
Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares) 0 0
v3.20.2
Note 13 - Earnings per Share - Basic and Diluted Loss Per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Net income $ 1,982 $ 1,840 $ 3,633 $ 2,839 $ 3,822 $ 6,472
Earnings allocated to unvested shares 15   32   30 71
Net income available to common shareholders, basic and diluted $ 1,967   $ 3,601   $ 3,792 $ 6,401
Weighted average common shares including unvested common shares outstanding (in shares) 7,488,173   7,459,631   7,485,028 7,464,743
Weighted average shares outstanding (in shares) 7,430,369   7,394,657   7,427,234 7,382,458
Basic income per common share (in dollars per share) $ 0.26   $ 0.49   $ 0.51 $ 0.87
Add: Dilutive effects of assumed exercises of common stock warrants (in shares) 0   0   0 0
Weighted average common shares and potential common shares (in shares) 7,430,369   7,394,657   7,427,234 7,382,458
Diluted income per common share (in dollars per share) $ 0.26   $ 0.49   $ 0.51 $ 0.87
Unvested Shares [Member]            
Weighted average shares outstanding (in shares) 57,804   64,974   57,794 82,285
v3.20.2
Note 14 - Regulatory Capital Matters (Details Textual)
Jun. 30, 2020
Banking Regulation, Capital Conservation Buffer, Capital Conserved, Minimum 2.5
Banking Regulation, Capital Conservation Buffer, Common Equity Tier One Risk-Based Capital, Actual 7.0
Banking Regulation, Capital Conservation Buffer, Tier One Risk-Based Capital, Actual 8.5
Banking Regulation, Capital Conservation Buffer, Tier One Risk-Based Capital, Actual 10.5
v3.20.2
Note 14 - Regulatory Capital Matters - Ratios and Amounts of Common Equity, Capital, and Total Capital to Risk-adjusted Assets (Details)
$ in Thousands
Jun. 30, 2020
USD ($)
Dec. 31, 2019
USD ($)
Total risk-based capital to risk-weighted assets, actual amount $ 131,788 $ 121,335
Total risk-based capital to risk-weighted assets, actual ratio 0.1278 0.1208
Total risk-based capital to risk-weighted assets, for capital adequacy purposes, amount $ 82,499 $ 80,341
Total risk-based capital to risk-weighted assets, for capital adequacy purposes, ratio 0.0800 0.0800
Total risk-based capital to risk-weighted assets, for minimum requirements to be well capitalized, amount $ 103,124 $ 100,426
Total risk-based capital to risk-weighted assets, for minimum requirements to be well capitalized, ratio 0.1000 0.1000
Total common equity Tier 1 risk-based capital (to risk-weighted assets), actual amount $ 121,560 $ 112,959
Total common equity Tier 1 risk-based capital (to risk-weighted assets), actual ratio 0.1179 0.1125
Total common equity Tier 1 risk-based capital (to risk-weighted assets), for capital adequacy purposes, amount $ 46,406 $ 45,192
Total common equity Tier 1 risk-based capital (to risk-weighted assets), for capital adequacy purposes, ratio 0.0450 0.0450
Total common equity Tier 1 risk-based capital (to risk-weighted assets), for minimum requirements to be well capitalized, amount $ 67,030 $ 65,277
Total common equity Tier 1 risk-based capital (to risk-weighted assets), for minimum requirements to be well capitalized, ratio 0.0650 0.0650
Tier I capital to risk-weighted assets, actual amount $ 121,560 $ 112,959
Tier I capital to risk-weighted assets, actual ratio 0.1179 0.1125
Tier I capital to risk-weighted assets, for capital adequacy purposes, amount $ 61,874 $ 60,256
Tier I capital to risk-weighted assets, for capital adequacy purposes, ratio 0.0600 0.0600
Tier I capital to risk-weighted assets, for minimum requirements to be well capitalized, amount $ 82,499 $ 80,341
Tier I capital to risk-weighted assets, for minimum requirements to be well capitalized, ratio 0.0800 0.0800
Tier 1 capital (to average assets), actual amount $ 121,560 $ 112,959
Tier 1 capital (to average assets), actual ratio 0.0954 0.0999
Tier 1 capital (to average assets), for capital adequacy purposes, amount $ 50,992 $ 45,208
Tier 1 capital (to average assets), for capital adequacy purposes, ratio 0.0400 0.0400
Tier 1 capital (to average assets), for minimum requirements to be well capitalized, amount $ 63,739 $ 56,510
Tier 1 capital (to average assets), for minimum requirements to be well capitalized, ratio 0.0500 0.0500
v3.20.2
Note 15 - Off Balance Sheet Risks, Commitments, and Contingent Liabilities (Details Textual) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Commitments Period (Year) 1 year  
Risk Participation Agreement [Member]    
Derivative, Notional Amount $ 26,600 $ 26,600
Standby Letters of Credit [Member]    
Long-term Line of Credit, Total $ 0  
v3.20.2
Note 15 - Off Balance Sheet Risks, Commitments, and Contingent Liabilities - Contractual Amounts of Financial Instruments With Off Balance Sheet Risk (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Fixed Rate [Member] | Commitments to Make Loans [Member]    
Financial Instrument off Balance Sheet Risk, Amount $ 13,118 $ 11,577
Fixed Rate [Member] | Unused lines of Credit [Member]    
Financial Instrument off Balance Sheet Risk, Amount 6,697 7,916
Fixed Rate [Member] | Standby Letters of Credit [Member]    
Financial Instrument off Balance Sheet Risk, Amount 531 531
Variable Rate [Member] | Commitments to Make Loans [Member]    
Financial Instrument off Balance Sheet Risk, Amount 21,199 20,415
Variable Rate [Member] | Unused lines of Credit [Member]    
Financial Instrument off Balance Sheet Risk, Amount 118,606 111,230
Variable Rate [Member] | Standby Letters of Credit [Member]    
Financial Instrument off Balance Sheet Risk, Amount $ 1,336 $ 3,164
v3.20.2
Note 16 - Revenue from Contracts With Customers (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue from Contract with Customer, Including Assessed Tax $ 129,000 $ 119,000 $ 285,000 $ 255,000