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 September 30~~, 201~~7 30, 2022

☐	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

~~PORTER~~LIMESTONE BANCORP, INC.

(Exact name of registrant as specified in itsits 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’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	The Nasdaq Stock Market

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 and posted on its corporate Web site, if any,~~electronically every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ~~☐ (Do not check if a smaller reporting company)~~ ☒	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~~’sissuer’s classes of common stock, as of the latest practicable date.

4,~~668,264~~6,638,883 Common Shares and ~~1,591,600~~1,000,000 Non-Voting Common Shares ~~no par value,~~ were outstanding at October ~~31, 2017.~~28, 2022.

Table of Contents

INDEX

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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

Unaudited Consolidated Balance Sheets ~~for~~ ~~September 30, 2017 and December 31, 2016~~

Unaudited Consolidated Statements of Income ~~for the three and nine months ended September 30, 2017 and 2016~~

Unaudited Consolidated Statements of Comprehensive Income ~~for the three and nine months ended September 30, 2017 and 2016~~(Loss)

Unaudited Consolidated Statement of Changes in ~~Stockholders~~’Stockholders’ Equity ~~for the nine months ended September 30, 2017~~

Unaudited Consolidated Statements of Cash Flows ~~for the~~ ~~nine months ended September 30, 2017 and 2016~~

Notes to Unaudited Consolidated Financial Statements

Table of Contents

~~PORTER~~LIMESTONE BANCORP, INC.

Unaudited Consolidated Balance Sheets

(dollars in thousands except share data)

September 30,
2017

December 31,
2016

Assets

Cash and due from banks
$ 9,557 $ 9,449
Interest bearing deposits in banks
37,812 56,867
Cash and cash equivalents
47,369 66,316
Securities available for sale
149,797 152,790
Securities held to maturity (fair value of $43,397 and $43,072, respectively)
41,424 41,818
Loans, net of allowance of $8,977 and $8,967, respectively
673,534 630,269
Premises and equipment, net
16,975 17,848
Other real estate owned
6,330 6,821
Federal Home Loan Bank stock
7,323 7,323
Bank owned life insurance
15,131 14,838
Accrued interest receivable and other assets
5,082 7,154
Total assets
$ 962,965 $ 945,177

Liabilities and Stockholders’ Equity

Deposits

Non-interest bearing
$ 133,896 $ 124,395
Interest bearing
732,951 725,530
Total deposits
866,847 849,925
Federal Home Loan Bank advances
16,847 22,458
Accrued interest payable and other liabilities
5,728 15,911
Subordinated capital note
2,475 3,150
Junior subordinated debentures
21,000 21,000
Senior debt
10,000 —
Total liabilities
922,897 912,444
Stockholders’ equity

Preferred stock, no par

Series E - 6,198 issued and outstanding; Liquidation preference of $6.2 million
1,644 1,644
Series F - 4,304 issued and outstanding; Liquidation preference of $4.3 million
1,127 1,127
Total preferred stockholders’ equity
2,771 2,771
Common stock, no par, 86,000,000 shares authorized, 4,668,264 and 4,632,933 voting, and 34,380,437 non-voting shares authorized, 1,591,600 and 1,591,600 non-voting issued and outstanding, respectively
125,729 125,729
Additional paid-in capital
24,368 24,097
Retained deficit
(108,378
)
(113,561
)
Accumulated other comprehensive loss
(4,422
)
(6,303
)
Total common stockholders’ equity
37,297 29,962
Total stockholders' equity
40,068 32,733
Total liabilities and stockholders’ equity
$ 962,965 $ 945,177

~~See accompanying~~ ~~notes to unaudited consolidated financial statements.~~

	September 30, 2022			December 31, 2021
Assets
Cash and due from banks	$	6,430		$	10,493
Interest bearing deposits in banks		50,940			67,110
Cash and cash equivalents		57,370			77,603
Securities available for sale		181,292			214,213
Securities held to maturity (fair value of $33,768 and $46,280, respectively)		43,350			46,460
Loans, net of allowance of $13,031 and $11,531, respectively		1,114,914			990,309
Premises and equipment, net		22,503			21,575
Premises held for sale		—			310
Federal Home Loan Bank stock		5,176			5,116
Bank owned life insurance		31,032			23,946
Deferred taxes, net		23,002			21,583
Goodwill		6,252			6,252
Other intangible assets, net		1,797			1,989
Accrued interest receivable and other assets		7,007			6,336
Total assets	$	1,493,695		$	1,415,692

Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	287,938		$	274,083
Interest bearing		930,642			934,585
Total deposits		1,218,580			1,208,668
Federal Home Loan Bank advances		90,000			20,000
Accrued interest payable and other liabilities		10,744			10,065
Junior subordinated debentures		21,000			21,000
Subordinated capital notes		25,000			25,000
Total liabilities		1,365,324			1,284,733
Commitments and contingent liabilities (Note 13)		—			—
Stockholders’ equity
Common stock, no par, 39,000,000 shares authorized, 6,639,033 and 6,594,749 voting, and 1,000,000 and 1,000,000 non-voting issued and outstanding, respectively		140,639			140,639
Additional paid-in capital		26,101			25,625
Retained deficit		(19,486	)		(31,769	)
Accumulated other comprehensive loss		(18,883	)		(3,536	)
Total stockholders' equity		128,371			130,959
Total liabilities and stockholders’ equity	$	1,493,695		$	1,415,692

~~PORTER BANCORP, INC.~~

~~Unaudited Consolidated Statements of~~ ~~Income~~

~~(dollars in thousands, except per share data)~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Interest income

Loans, including fees
$ 8,021 $ 7,699 $ 23,493 $ 23,036
Taxable securities
1,088 956 3,370 2,895
Tax exempt securities
143 153 432 475
Federal funds sold and other
194 123 510 415
9,446 8,931 27,805 26,821
Interest expense

Deposits
1,324 1,262 3,877 3,850
Federal Home Loan Bank advances
13 17 64 54
Subordinated capital note
32 35 98 112
Senior Debt
97 — 97
Junior subordinated debentures
193 159 553 500
1,659 1,473 4,689 4,516
Net interest income
7,787 7,458 23,116 22,305
Negative provision for loan losses
— (750
)
— (1,900
)
Net interest income after negative provision for loan losses
7,787 8,208 23,116 24,205

Non-interest income

Service charges on deposit accounts
568 520 1,617 1,422
Bank card interchange fees
245 214 713 637
Other real estate owned rental income
— 46 — 451
Income from bank owned life insurance
103 101 309 316
Net gain (loss) on sales and calls of investment securities
— (16
)
(5
)
187
Other
266 240 723 635
1,182 1,105 3,357 3,648
Non-interest expense

Salaries and employee benefits
3,683 3,945 11,433 11,624
Occupancy and equipment
836 842 2,501 2,504
Professional fees
232 374 776 1,251
Marketing expense
364 289 880 706
FDIC Insurance
356 442 1,055 1,458
Data processing expense
321 295 931 887
State franchise and deposit tax
225 255 675 765
Other real estate owned expense
111 322 92 1,284
Litigation and loan collection expense
78 222 121 575
Other
969 934 2,826 2,893
7,175 7,920 21,290 23,947
Income before income taxes
1,794 1,393 5,183 3,906
Income tax expense
— — — 21
Net income
1,794 1,393 5,183 3,885
Less:

Earnings allocated to participating securities
45 46 133 129
Net income available to common shareholders
$ 1,749 $ 1,347 $ 5,050 $ 3,756
Basic and diluted income per common share
$ 0.29 $ 0.22 $ 0.83 $ 0.66

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

~~PORTER~~LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of ~~Comprehensive~~ Income

(dollars in ~~thousands)~~thousands, except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Net income
$ 1,794 $ 1,393 $ 5,183 $ 3,885
Other comprehensive income:

Unrealized gain (loss) on securities:

Unrealized gain (loss) arising during the period
(280
)
597 1,783 2,465
Amortization during the period of net unrealized loss transferred to held to maturity
32 32 98 96
Reclassification adjustment for (gains) losses included in net income
— 16 — (187
)
Net unrealized gain recognized in comprehensive income
(248
)
645 1,881 2,374
Tax effect
— — — —
Other comprehensive income (loss)
(248
)
645 1,881 2,374

Comprehensive income
$ 1,546 $ 2,038 $ 7,064 $ 6,259

	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022			2021
Interest income
Loans, including fees	$	13,179		$	11,565	$	35,537		$	33,573
Taxable securities		1,592			1,183		4,338			3,402
Tax exempt securities		166			168		495			476
Interest-bearing deposits and other		184			59		300			150
		15,121			12,975		40,670			37,601
Interest expense
Deposits		1,242			812		2,790			2,755
Federal Home Loan Bank advances		354			39		502			115
Junior subordinated debentures		239			128		546			390
Subordinated capital notes		374			375		1,126			1,126
		2,209			1,354		4,964			4,386
Net interest income		12,912			11,621		35,706			33,215
Provision (negative provision) for loan losses		(1,250	)		300		(50	)		650
Net interest income after provision for loan losses		14,162			11,321		35,756			32,565

Non-interest income
Service charges on deposit accounts		748			583		2,072			1,651
Bank card interchange fees		1,061			1,044		3,151			3,077
Income from bank owned life insurance		148			112		599			420
Gain on sale of other real estate owned		—			—		—			191
Gain (loss) on sales and calls of securities, net		—			465		(3	)		460
Gain on sale of premises held for sale		—			—		163			—
Other		271			232		740			656
		2,228			2,436		6,722			6,455
Non-interest expense
Salaries and employee benefits		4,959			4,582		14,174			13,531
Occupancy and equipment		1,134			1,024		3,218			3,063
Deposit account related expense		571			545		1,692			1,592
Data processing expense		402			378		1,191			1,133
Professional fees		206			219		663			701
Marketing expense		159			200		464			561
FDIC Insurance		90			90		270			315
Deposit tax		99			90		297			270
Communications expense		108			153		293			520
Insurance expense		104			105		318			324
Postage and delivery		156			169		469			460
Other		709			495		1,846			1,518
		8,697			8,050		24,895			23,988
Income before income taxes		7,693			5,707		17,583			15,032
Income tax expense		1,880			1,366		4,155			3,568
Net income		5,813			4,341		13,428			11,464
Basic and diluted income per common share	$	0.76		$	0.57	$	1.76		$	1.51

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

~~PORTER~~LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net income	$	5,813		$	4,341		$	13,428		$	11,464
Other comprehensive income (loss):
Unrealized gain (loss) on securities:
Unrealized gain (loss) arising during the period		(5,126	)		756			(20,245	)		1,718
Amortization during period of net unrealized gain transferred to held to maturity		(57	)		(91	)		(207	)		(261	)
Less reclassification adjustment for gains (losses) included in net income		—			465			(3	)		460
Net unrealized gain (loss) recognized in comprehensive income (loss)		(5,183	)		200			(20,449	)		997
Tax effect		1,293			(50	)		5,102			(249	)
Other comprehensive income (loss)		(3,890	)		150			(15,347	)		748

Comprehensive income (loss)	$	1,923		$	4,491		$	(1,919	)	$	12,212

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Changes in StockholdersC~~onsolidated Statements~~’ Equityof C~~hanges~~in S~~tockholders~~~~’ E~~~~quity~~

For Three and Nine Months Ended September 30,, ~~201~~7 2022

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

Shares Amount
Common Preferred
Preferred
Common

Common

Non-Voting
Common

Total
Common

Series E

Series F

Common and
Non-Voting Common

Series E

Series F

Additional
Paid-In
Capital

Retained
Deficit

Accumulated
Other
Compre-
hensive
Income
(Loss)

Total

Balances, January 1, 2017
4,632,933 1,591,600 6,224,533 6,198 4,304 $ 125,729 $ 1,644 $ 1,127 $ 24,097 $ (113,561 ) $ (6,303 ) $ 32,733
Issuance of unvested stock
37,865 — 37,865 — — — — — — — — —
Forfeited unvested stock
(1,316 ) — (1,316 ) — — — — — — — — —
Reverse stock split rounding shares
(1,218 ) — (1,218 ) — — — — — — — — —
Stock-based compensation expense
— — — — — — — — 271 — — 271
Net income
— — — — — — — — — 5,183 — 5,183
Net change in accumulated other
comprehensive income, net of taxes
— — — — — — — — — — 1,881 1,881
Balances, September 30, 2017
4,668,264 1,591,600 6,259,864 6,198 4,304 $ 125,729 $ 1,644 $ 1,127 $ 24,368 $ (108,378 ) $ (4,422 ) $ 40,068

~~See accompanying notes~~ ~~to unaudited consolidated financial statements.~~

	Shares								Amount
	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, 2022		6,594,749			1,000,000		7,594,749		$	140,639	$	25,625		$	(31,769	)	$	(3,536	)	$	130,959
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon vesting		27,722			—		27,722			—		(197	)		—			—			(197	)
Forfeited unvested stock		(314	)		—		(314	)		—		—			—			—			—
Stock-based compensation expense		—			—		—			—		305			—			—			305
Net income		—			—		—		��	—		—			3,579			—			3,579
Dividends declared on common stock ($0.05 per share)		—			—		—			—		—			(381	)		—			(381	)
Net change in accumulated other comprehensive loss, net of taxes		—			—		—			—		—			—			(6,045	)		(6,045	)
Balances, March 31, 2022		6,622,157			1,000,000		7,622,157		$	140,639	$	25,733		$	(28,571	)	$	(9,581	)	$	128,220
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon vesting		26,671			—		26,671			—		—			—			—			—
Forfeited unvested stock		(8,148	)		—		(8,148	)		—		—			—			—			—
Stock-based compensation expense		—			—		—			—		156			—			—			156
Net income		—			—		—			—		—			4,036			—			4,036
Dividends declared on common stock ($0.05 per share)		—			—		—			—		—			(382	)		—			(382	)
Net change in accumulated other comprehensive loss, net of taxes		—			—		—			—		—			—			(5,412	)		(5,412	)
Balances, June 30, 2022		6,640,680			1,000,000		7,640,680		$	140,639	$	25,889		$	(24,917	)	$	(14,993	)	$	126,618
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon vesting		—			—		—			—		—			—			—			—
Forfeited unvested stock		(1,647	)		—		(1,647	)		—		—			—			—			—
Stock-based compensation expense		—			—		—			—		212			—			—			212
Net income		—			—		—			—		—			5,813			—			5,813
Dividends declared on common stock ($0.05 per share)		—			—		—			—		—			(382	)		—			(382	)
Net change in accumulated other comprehensive loss, net of taxes		—			—		—			—		—			—			(3,890	)		(3,890	)
Balances, September 30, 2022		6,639,033			1,000,000		7,639,033		$	140,639	$	26,101		$	(19,486	)	$	(18,883	)	$	128,371

~~PORTER BANCORP, INC.~~

~~Unaudited Consolidated Statements of Cash Flows~~

~~For~~ ~~Nine~~ ~~Months Ended~~ ~~September~~ 30~~, 201~~7 ~~and 201~~6

~~(dollars in thousands)~~

2017

2016

Cash flows from operating activities

Net income
$ 5,183 $ 3,885
Adjustments to reconcile net loss to net cash from operating activities

Depreciation and amortization
896 1,141
Negative provision for loan losses
— (1,900
)
Net amortization on securities
931 965
Stock-based compensation expense
271 315
Net gain on sales of loans held for sale
(39
)
(61
)
Origination of loans for sale
(2,179
)
(3,830
)
Proceeds from sales of loans held for sale
2,218 3,943
Net gain on sales of other real estate owned
(75
)
(221
)
Write-down of other real estate owned
98 970
Net realized (gain) loss on sales and calls of investment securities
5 (187
)
Increase in cash surrender value of owned life insurance, net of premium expense
(293
)
(300
)
Net change in accrued interest receivable and other assets
1,929 (701
)
Net change in accrued interest payable and other liabilities
(10,183
)
(57
)
Net cash from operating activities
(1,238
)
3,962

Cash flows from investing activities

Purchases of available for sale securities
(15,340
)
(18,868
)
Proceeds from sales and calls of available for sale securities
2,000 6,276
Proceeds from maturities and prepayments of available for sale securities
17,480 16,925
Proceeds from calls of held to maturity securities
47 —
Proceeds from maturities of held to maturity securities
145 —
Proceeds from sale of other real estate owned
738 12,340
Loan originations and payments, net
(43,590
)
(4,781
)
Sales (purchases) of premises and equipment, net
175 (386
)
Purchase of bank owned life insurance
— (5,000
)
Net cash from investing activities
(38,345
)
6,506

Cash flows from financing activities

Net change in deposits
16,922 (41,053
)
Payments of Federal Home Loan Bank advances
(30,611
)
(462
)
Advances from Federal Home Loan Bank
25,000 —
Payments of subordinated capital note
(675
)
(675
)
Proceeds from senior debt
10,000 —
Proceeds from issuance of common stock
— 2,231
Net cash from financing activities
20,636 (39,959
)
Net change in cash and cash equivalents
(18,947
)
(29,491
)
Beginning cash and cash equivalents
66,316 93,335
Ending cash and cash equivalents
$ 47,369 $ 63,844

Supplemental cash flow information:

Interest paid
$ 4,140 $ 3,933
Income taxes paid (refunded)
— 21
Supplemental non-cash disclosure:

Proceeds from common stock issuance directed by investors for junior subordinated debenture interest
$ — $ 2,799
Transfer from loans to other real estate
270 1,243
Financed sales of other real estate owned
— 270

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

For Three and Nine Months Ended September 30, 2021

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

	Shares								Amount
	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, 2021		6,498,865			1,000,000		7,498,865		$	140,639	$	25,013		$	(46,678	)	$	(2,950	)	$	116,024
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon vesting		95,634			—		95,634			—		(48	)		—			—			(48	)
Forfeited unvested stock		—			—		—			—		—			—			—			—
Stock-based compensation expense		—			—		—			—		149			—			—			149
Net income		—			—		—			—		—			3,222			—			3,222
Net change in accumulated other comprehensive loss, net of taxes		—			—		—			—		—			—			173			173
Balances, March 31, 2021		6,594,499			1,000,000		7,594,499		$	140,639	$	25,114		$	(43,456	)	$	(2,777	)	$	119,520
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon vesting		8,586			—		8,586			—		(39	)		—			—			(39	)
Forfeited unvested stock		(399	)		—		(399	)		—		—			—			—			—
Stock-based compensation expense		—			—		—			—		152			—			—			152
Net income		—			—		—			—		—			3,901			—			3,901
Net change in accumulated other comprehensive income, net of taxes		—			—		—			—		—			—			425			425
Balances, June 30, 2021		6,602,686			1,000,000		7,602,686		$	140,639	$	25,227		$	(39,555	)	$	(2,352	)	$	123,959
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon vesting		—			—		—			—		—			—			—			—
Forfeited unvested stock		—			—		—			—		—			—			—			—
Stock-based compensation expense		—			—		—			—		214			—			—			214
Net income		—			—		—			—		—			4,341			—			4,341
Net change in accumulated other comprehensive income, net of taxes		—			—		—			—		—			—			150			150
Balances, September 30, 2021		6,602,686			1,000,000		7,602,686		$	140,639	$	25,441		$	(35,214	)	$	(2,202	)	$	128,664

See accompanying notes to unaudited consolidated financial statements.

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LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Cash Flows

For Nine Months Ended September 30, 2022 and 2021

(dollars in thousands)

	2022			2021
Cash flows from operating activities
Net income	$	13,428		$	11,464
Adjustments to reconcile net income to net cash from operating activities
Depreciation, amortization and accretion, net		1,435			3,878
Provision (negative provision) for loan losses		(50	)		650
Net amortization on securities		291			422
Stock-based compensation expense		673			515
Deferred taxes, net		3,682			3,304
Net realized (gain) loss on sales and calls of investment securities		3			(460	)
Net realized gain on sales of other real estate owned		—			(191	)
Net realized loss on sales of premises and equipment		—			1
Net write-down on premises held for sale		—			80
Net gain on sale of premises held for sale		(163	)		—
Increase in cash surrender value of life insurance, net of premium		(586	)		(404	)
Amortization of operating lease right-of-use assets		301			269
Net change in accrued interest receivable and other assets		(2,068	)		(3,138	)
Net change in accrued interest payable and other liabilities		679			145
Net cash from operating activities		17,625			16,535

Cash flows from investing activities
Purchases of available for sale securities		(9,924	)		(68,827	)
Proceeds from sales and calls of available for sale securities		—			6,500
Proceeds from maturities and prepayments of available for sale securities		22,362			28,182
Purchases of held to maturity securities		(658	)		(15,414	)
Proceeds from calls of held to maturity securities		1,314			704
Proceeds from maturities and prepayments of held to maturity securities		2,195			2,665
Purchases of Federal Home Loan Bank stock		(727	)		—
Proceeds from mandatory redemptions of Federal Home Loan Bank stock		667			771
Proceeds from sale of other real estate owned		—			1,956
Net change in loans		(124,958	)		(8,998	)
Purchases of premises and equipment		(672	)		(953	)
Proceeds from sale of premises held for sale		473			—
Purchase of bank owned life insurance		(6,500	)		—
Net cash from investing activities		(116,428	)		(53,414	)

Cash flows from financing activities
Net change in deposits		9,912			28,384
Repayment of Federal Home Loan Bank advances		(70,000	)		(623	)
Advances from Federal Home Loan Bank		140,000			—
Common shares withheld for taxes		(197	)		(87	)
Cash dividends paid on common stock		(1,145	)		—
Net cash from financing activities		78,570			27,674
Net change in cash and cash equivalents		(20,233	)		(9,205	)
Beginning cash and cash equivalents		77,603			67,693
Ending cash and cash equivalents	$	57,370		$	58,488

Supplemental cash flow information:
Interest paid	$	5,142		$	4,837
Income taxes paid		310			220
Supplemental non-cash disclosure:
Transfer from available for sale to held to maturity securities		—			34,741
AOCI component of transfer from available for sale to held to maturity		—			1,081

See accompanying notes to unaudited consolidated financial statements.

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~~PORTER~~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 ~~Porter~~Limestone Bancorp, Inc. (Company) and its subsidiary, ~~PBI~~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 an~~d10-Q and Rule ~~10-01~~10-01 of Regulation ~~S-X.~~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 nine months ended September 30, ~~2017~~ 2022 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, ~~2016~~ 2021 included in the Company’s Annual Report on Form ~~10-K.~~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 created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, and results of operations of the Company and its customers. The COVID-19 pandemic caused changes in the behavior of customers, businesses, and their employees, as well as supply chain interruptions, and overall economic and financial market instability.

Future effects, including further actions taken by federal, state, and local governments in response to the disruptions and economic and geopolitical instabilities that have followed COVID-19 or their impact, are unknown. In addition, federal governmental actions are meaningfully influencing the interest-rate environment. If these actions are sustained, it may adversely impact several industries within the Company’s geographic footprint and impair the ability of the Company’s customers to fulfill their contractual obligations. This could cause the Company to experience a material adverse effect on business operations, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios. Material adverse impacts may include 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 August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). This ASU is an update to ASU 2014-09, and delays the effective date of ASU 2014-09. The ASU provides guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted. The Company’s revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of this guidance, and non-interest income. Based on the evaluation of the Company’s non-interest income revenue streams, adoption of this new guidance will not have a material impact on the consolidated financial statements.

~~In January~~June 2016, ~~the FASB issued an update ASU No.~~ 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update impact public business entities as follows: 1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. 3) Eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. 4) Require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 5) Require an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. 6) Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. 7) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The impact of adopting the new guidance on the consolidated financial statements is not expected to have a material impact. The Company currently does not have any equity investments.

~~In February 2016, the FASB issued an update ASU N~~o. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting in largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The impact of adopting the new guidance on the consolidated financial statements will not have a material impact.

~~In June 2016,~~ the FASB issued ASU No. ~~2016-13,~~2016-13, Financial Instruments – Credit Losses (Topic ~~326)~~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, and off-balance sheet credit exposures 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 standard~~Management is ~~effective for public companies for fiscal years beginning after December 15, 2019. We are currently gathering loan level data,~~focused on refining assumptions, reviewing challenges to the model, analyzing forecast scenarios, and ~~assessing our data~~stress testing the volatility of the model. Additionally, management is implementing various accounting policies, developing processes and ~~system needs. The impact of CECL model implementation is being evaluated, but it is expected that a one-time~~related controls, and considering various reporting disclosures. 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 ~~magnitude~~Board of ~~any adjustment or~~Governors of the ~~overall impact~~Federal Reserve System (Federal Reserve), 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 ~~standard on financial condition or results of operation cannot yet~~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 and, as such, will be ~~determined.~~required to implement CECL for fiscal year and interim periods beginning after December 15, 2022.

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In March ~~2017,~~ 2022, the FASB issued ASU ~~No. 2017-08,~~ ~~Receivables~~2022-02, Financial Instruments – ~~Nonrefundable Fees~~Credit Losses (Topic 326): Troubled Debt Restructurings and ~~Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities.~~Vintage Disclosures. The final standard affects all entities after adoption of ASU 2016-13 (Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments) and eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The Company currently qualifies as a smaller reporting company and, as such, will ~~shorten the amortization period for premiums on callable debt securities by requiring that premiums~~ be ~~amortized~~required to ~~the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. The standard is effective for public companies~~implement CECL and ASU 2022-02 for fiscal ~~years~~year and interim periods beginning after December 15, ~~2018. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.~~2022.

Note 22– – Securities

Securities are classified ~~into~~as available for sale ~~(AFS) and~~(“AFS”) or held to maturity ~~(HTM) categories.~~(“HTM”). AFS securities ~~are those that~~ 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. HTM securities are those ~~that we have~~securities the Bank has the intent and ability to hold tountil maturity and are reported at amortized cost.

The following table summarizes the amortized cost and fair value of AFS and HTM securities at September 30, 2022 and December 31, 2021 and the ~~related~~corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) ~~were as follows:~~and gross unrecognized gains and losses (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
September 30, 2017
September 30, 2022
Available for sale
U.S. Government and federal agency	$	29,954	$	106	$	(352	)	$	29,708	$	24,810	$	—	$	(2,864	)	$	21,946
Agency mortgage-backed: residential		91,546		808		(619	)		91,735		82,193		16		(11,777	)		70,432
Collateralized loan obligations		23,444		82		—			23,526		48,209		—		(2,221	)		45,988
State and municipal		1,648		13		—			1,661
Corporate bonds		3,079		88		—			3,167		45,493		9		(2,576	)		42,926
Total available for sale	$	149,671	$	1,097	$	(971	)	$	149,797	$	200,705	$	25	$	(19,438	)	$	181,292

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	43,350	$	—	$	(9,582	)	$	33,768
Total held to maturity	$	43,350	$	—	$	(9,582	)	$	33,768

Amortized
Cost

Gross Unrecognized
Gains

Gross Unrecognized
Losses

Fair Value

Held to maturity

State and municipal
$ 41,424 $ 1,973 $ — $ 43,397
Total held to maturity
$ 41,424 $ 1,973 $ — $ 43,397

December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Government and federal agency	$	26,075	$	301	$	(133	)	$	26,243
Agency mortgage-backed: residential		93,650		1,339		(970	)		94,019
Collateralized loan obligations		50,227		—		(78	)		50,149
Corporate bonds		43,432		572		(202	)		43,802
Total available for sale	$	213,384	$	2,212	$	(1,383	)	$	214,213

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

(in thousands)
December 31, 2016

Available for sale

U.S. Government and federal agency
$ 34,757 $ 50 $ (708
)
$ 34,099
Agency mortgage-backed: residential
103,390 455 (1,492
)
102,353
Collateralized loan obligations
11,203 — — 11,203
State and municipal
2,028 25 (8
)
2,045
Corporate bonds
3,069 24 (3
)
3,090
Total available for sale
$ 154,447 $ 554 $ (2,211
)
$ 152,790

Amortized
Cost

Gross Unrecognized
Gains

Gross Unrecognized
Losses

Fair Value

Held to maturity

State and municipal
$ 41,818 $ 1,272 $ (18
)
$ 43,072
Total held to maturity
$ 41,818 $ 1,272 $ (18
)
$ 43,072

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	46,460	$	158	$	(338	)	$	46,280
Total held to maturity	$	46,460	$	158	$	(338	)	$	46,280

Sales and calls of securities were as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(in thousands)
(in thousands)
Proceeds
$ 2,000 $ 2,555 $ 2,047 $ 6,276
Gross gains
— 13 — 216
Gross losses
— 29 5 29

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands) (in thousands)
Proceeds	$	350	$	6,500	$	1,314	$	7,204
Gross gains		—		465		—		465
Gross losses		—		—		3		5

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The amortized cost and fair value of the debt ~~investment~~ securities ~~portfolio~~ are shown by ~~contractual~~contractual maturity. ~~Contractual~~Expected maturities may differ from actual maturities ~~if issuers~~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 ~~detailed~~shown separately.

	September 30, 2017				September 30, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)				(in thousands)
Maturity
Available for sale
Within one year	$	7,340	$	7,432	$	—	$	—
One to five years		15,019		15,102		4,658		4,504
Five to ten years		32,715		32,464		84,522		79,322
Beyond ten years		3,051		3,064		29,332		27,034
Agency mortgage-backed: residential		91,546		91,735		82,193		70,432
Total	$	149,671	$	149,797	$	200,705	$	181,292

Held to maturity
Within one year	$	646	$	646	$	1,147		1,114
One to five years		27,619		28,729		7,740	$	7,386
Five to ten years		13,159		14,022		4,121		3,459
Beyond ten years						30,342		21,809
Total	$	41,424	$	43,397	$	43,350	$	33,768

Securities pledged at September 30, ~~2017~~ 2022 and December 31, ~~2016~~ 2021 had carrying values of approximately ~~$85.3~~$117.8 million and ~~$61.2~~$155.4 million, respectively, and were pledged to secure public deposits.

At September 30, ~~2017~~ 2022 and December 31, ~~2016, we~~2021, the Bank held securities issued by the Commonwealth of Kentucky or Kentucky municipalities having a book value of ~~$15.8 million and $16.4 million, respectively. Additionally, at~~ $35.2 million. At September 30, ~~2017~~ 2022 and December 31, ~~2016, we held securities issued by the State of Texas or Texas municipalities having a book value of $4.3 million at each period end. At September 30, 2017 and December 31, 2016,~~ 2021, 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 Company evaluates securities for ~~other than temporary~~other-than-temporary impairment ~~(OTTI)~~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 ~~credit quality,~~ 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 September 30, ~~2017,~~2022, management does not believe any securities in ~~our~~the portfolio with unrealized losses should be classified as other than temporarily impaired.

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 September 30, 2022, $27.0 million and $19.0 million of the Bank’s CLOs were AA and A rated, respectively. None of the CLOs were subject to ratings downgrade during the nine months ended September 30, 2022.

Stress testing was completed on each security in the CLO portfolio as of September 30, 2022. 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.

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The corporate bond portfolio consists of 16 subordinated debt securities and two senior debt securities of U.S. banks and bank holding companies with maturities ranging from 2024 to 2037. The securities have either initially a fixed rate for five years converting to floating rate at an index over LIBOR or SOFR, or a floating rate at an index over LIBOR or SOFR from inception. Management regularly monitors the financial condition of these corporate issuers by reviewing their regulatory and public filings.

Securities with unrealized and unrecognized losses at September 30, ~~2017~~ 2022 and December 31, ~~2016,~~ 2021, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as ~~follows:~~follows (in thousands):

	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
September 30, 2017
Available for sale
U.S. Government and federal Agency	$	19,543	$	(324	)	$	1,125	$	(28	)	$	20,668	$	(352	)
Agency mortgage-backed: residential		29,928		(489	)		7,261		(130	)		37,189		(619	)
Total temporarily impaired	$	49,471	$	(813	)	$	8,386	$	(158	)	$	57,857	$	(971	)


December 31, 2016
September 30, 2022
Available for sale
U.S. Government and federal agency	$	27,738	$	(708	)	$	—	$	—		$	27,738	$	(708	)	$	21,946	$	(2,864	)	$	—	$	—		$	21,946	$	(2,864	)
Agency mortgage-backed: residential		63,460		(1,449	)		2,745		(43	)		66,205		(1,492	)		43,291		(5,944	)		24,894		(5,833	)		68,185		(11,777	)
State and municipal		465		(8	)		—		—			465		(8	)
Collateralized loan obligations																	30,210		(1,414	)		15,778		(807	)		45,988		(2,221	)
Corporate bonds		—		—			1,566		(3	)		1,566		(3	)		23,240		(1,666	)		15,711		(910	)		38,951		(2,576	)
Total temporarily impaired	$	91,663	$	(2,165	)	$	4,311	$	(46	)	$	95,974	$	(2,211	)	$	118,687	$	(11,888	)	$	56,383	$	(7,550	)	$	175,070	$	(19,438	)

Held to maturity
State and municipal	$	1,540	$	(18	)	$	—	$	—		$	1,540	$	(18	)
Total	$	1,540	$	(18	)	$	—	$	—		$	1,540	$	(18	)

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrecognized Loss			Fair Value		Unrecognized Loss			Fair Value		Unrecognized Loss

Held to maturity
State and municipal	$	15,420		(3,932	)		17,018		(5,650	)		32,438		(9,582	)
Total temporarily impaired	$	15,420	$	(3,932	)	$	17,018	$	(5,650	)	$	32,438	$	(9,582	)

~~There were~~ ~~no held to maturity securities in an unrecognized loss position at September 30, 2017.~~

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss

December 31, 2021
Available for sale
U.S. Government and federal agency	$	11,645	$	(133	)	$	—	$	—		$	11,645	$	(133	)
Agency mortgage-backed: residential		53,733		(960	)		642		(10	)		54,375		(970	)
Collateralized loan obligations		10,036		(7	)		16,514		(71	)		26,550		(78	)
Corporate bonds		22,548		(202	)		—		—			22,548		(202	)
Total temporarily impaired	$	97,962	$	(1,302	)	$	17,156	$	(81	)	$	115,118	$	(1,383	)

	Less than 12 Months					12 Months or More				Total
	Fair Value		Unrecognized Loss			Fair Value		Unrecognized Loss		Fair Value		Unrecognized Loss

Held to maturity
State and municipal	$	26,829		(338	)		—		—		26,829		(338	)
Total temporarily impaired	$	26,829	$	(338	)	$	—	$	—	$	26,829	$	(338	)

Table of Contents

Note 3– Loans

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

	September 30,			December 31,			September 30,			December 31,
	2017			2016			2022			2021
	(in thousands)						(in thousands)
Commercial(1)	$	107,616		$	97,761		$	240,182		$	220,826
Commercial Real Estate:
Construction		44,956			36,330			127,302			74,806
Farmland		88,370			71,507			66,820			68,388
Nonfarm nonresidential		157,956			149,546			399,958			345,893
Residential Real Estate:
Multi-family		55,684			48,197			45,903			50,224
1-4 Family		173,213			188,092			166,715			168,873
Consumer		8,474			9,818			33,894			36,440
Agriculture		45,675			37,508			46,689			35,924
Other		567			477			482			466
Subtotal		682,511			639,236			1,127,945			1,001,840
Less: Allowance for loan losses		(8,977	)		(8,967	)		(13,031	)		(11,531	)
Loans, net	$	673,534		$	630,269		$	1,114,914		$	990,309

(1)	Includes SBA Paycheck Protection Program (“PPP”) loans of $150,000 and $1.2 million at September 30, 2022 and December 31, 2021, respectively.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, ~~2017~~ 2022 and ~~2016:~~2021:

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total			Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
	(in thousands)																					(in thousands)
September 30, 2017:
September 30, 2022:
Beginning balance	$	956		$	4,223		$	3,317		$	53		$	335		$	1		$	8,885		$	2,988		$	7,131		$	1,397		$	537		$	493		$	4		$	12,550
Provision (negative provision)		(41	)		206			(147	)		(31	)		15			(2	)		–			(46	)		(1,132	)		(254	)		43			140			(1	)		(1,250	)
Loans charged off		(5	)		–			(57	)		(5	)		–			–			(67	)		(6	)		–			(43	)		(37	)		–			–			(86	)
Recoveries		3			9			103			25			16			3			159			28			1,492			267			30			–			–			1,817
Ending balance	$	913		$	4,438		$	3,216		$	42		$	366		$	2		$	8,977		$	2,964		$	7,491		$	1,367		$	573		$	633		$	3		$	13,031


September 30, 2016:
September 30, 2021:
Beginning balance	$	730		$	5,429		$	3,778		$	47		$	119		$	1		$	10,104		$	2,304		$	7,799		$	1,646		$	385		$	500		$	3		$	12,637
Provision (negative provision)		(195	)		(436	)		(142	)		(26	)		79			(30	)		(750	)		371			(80	)		(124	)		146			(13	)		–			300
Loans charged off		(15	)		(232	)		(131	)		(21	)		(5	)		(1	)		(405	)		–			–			(18	)		(7	)		–			–			(25	)
Recoveries		102			354			27			23			1			33			540			10			3			34			7			7			–			61
Ending balance	$	622		$	5,115		$	3,532		$	23		$	194		$	3		$	9,489		$	2,685		$	7,722		$	1,538		$	531		$	494		$	3		$	12,973

Table of Contents

The following table presents the activity in the allowance for loan losses by p~~ortfolio~~portfolio segment for the nine months ended September 30, ~~2017~~ 2022 and ~~2016:~~ 2021:

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total			Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
	(in thousands)																					(in thousands)
September 30, 2017:
September 30, 2022:
Beginning balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967		$	2,888		$	6,179		$	1,443		$	538		$	480		$	3		$	11,531
Provision (negative provision)		399			(791	)		134			(5	)		274			(11	)		–
Provision (negative provision)																							70			(244	)		(76	)		92			108			–			(50	)
Loans charged off		(5	)		(58	)		(512	)		(30	)		(95	)		–			(700	)		(31	)		(158	)		(369	)		(122	)		–			–			(680	)
Recoveries		44			393			168			69			25			11			710			37			1,714			369			65			45			–			2,230
Ending balance	$	913		$	4,438		$	3,216		$	42		$	366		$	2		$	8,977		$	2,964		$	7,491		$	1,367		$	573		$	633		$	3		$	13,031


September 30, 2016:
September 30, 2021:
Beginning balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041		$	2,529		$	7,050		$	1,899		$	361		$	600		$	4		$	12,443
Provision (negative provision)		(89	)		(2,024	)		458			(259	)		(1	)		15			(1,900	)		155			788			(403	)		187			(76	)		(1	)		650
Loans charged off		(276	)		(477	)		(1,181	)		(56	)		(13	)		(79	)		(2,082	)		(19	)		(129	)		(30	)		(58	)		(44	)		–			(280	)
Recoveries		169			623			271			216			86			65			1,430			20			13			72			41			14			–			160
Ending balance	$	622		$	5,115		$	3,532		$	23		$	194		$	3		$	9,489		$	2,685		$	7,722		$	1,538		$	531		$	494		$	3		$	12,973

TheThe 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 September 30, ~~2017:~~2022:

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total		Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)														(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	26	$	386	$	–	$	–	$	–	$	425	$	–	$	–	$	1	$	–	$	–	$	–	$	1
Collectively evaluated for impairment		900		4,412		2,830		42		366		2		8,552		2,964		7,491		1,366		573		633		3		13,030
Total ending allowance balance	$	913	$	4,438	$	3,216	$	42	$	366	$	2	$	8,977	$	2,964	$	7,491	$	1,367	$	573	$	633	$	3	$	13,031

Loans:
Loans individually evaluated for impairment	$	608	$	2,749	$	4,092	$	–	$	60	$	–	$	7,509	$	–	$	477	$	509	$	214	$	–	$	–	$	1,200
Loans collectively evaluated for impairment		107,008		288,533		224,805		8,474		45,615		567		675,002		240,182		593,603		212,109		33,680		46,689		482		1,126,745
Total ending loans balance	$	107,616	$	291,282	$	228,897	$	8,474	$	45,675	$	567	$	682,511	$	240,182	$	594,080	$	212,618	$	33,894	$	46,689	$	482	$	1,127,945

Table of Contents

The following t~~able~~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, ~~2016:~~2021:

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
$ 13 $ 35 $ 350 $ – $ 1 $ – $ 399
Collectively evaluated for impairment
462 4,859 3,076 8 161 2 8,568
Total ending allowance balance
$ 475 $ 4,894 $ 3,426 $ 8 $ 162 $ 2 $ 8,967

Loans:

Loans individually evaluated for impairment
$ 595 $ 5,854 $ 8,621 $ 1 $ 60 $ – $ 15,131
Loans collectively evaluated for impairment
97,166 251,529 227,668 9,817 37,448 477 624,105
Total ending loans balance
$ 97,761 $ 257,383 $ 236,289 $ 9,818 $ 37,508 $ 477 $ 639,236

	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	$	–	$	–	$	2	$	–	$	–	$	–	$	2
Collectively evaluated for impairment		2,888		6,179		1,441		538		480		3		11,529
Total ending allowance balance	$	2,888	$	6,179	$	1,443	$	538	$	480	$	3	$	11,531


Loans:
Loans individually evaluated for impairment	$	–	$	2,878	$	566	$	12	$	9	$	–	$	3,465
Loans collectively evaluated for impairment		220,826		486,209		218,531		36,428		35,915		466		998,375
Total ending loans balance	$	220,826	$	489,087	$	219,097	$	36,440	$	35,924	$	466	$	1,001,840

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 ~~table~~stables present information related to loans individually evaluated for impairment by class of loans as of September 30, ~~2017~~ 2022 and December 31, ~~2016~~ 2021 and for the three and nine months ended September 30, ~~2017~~ 2022 and ~~2016:~~2021:

							Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017				As of September 30, 2022						Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)														(in thousands)
With No Related Allowance Recorded:
Commercial	$	724	$	508	$	—	$	499	$	—	$	497	$	—	$	265	$	—	$	—	$	—	$	1	$	—	$	1
Commercial real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Farmland		3,783		2,155		—		2,336		—		2,800		209		81		29		—		29		—		112		53
Nonfarm nonresidential		773		301		—		311		1		752		53		1,048		448		—		1,482		2		2,129		148
Residential real estate:
Multi-family		—		—		—		—		—		1,025		—		—		—		—		—		—		—		—
1-4 Family		3,858		2,470		—		2,879		22		2,909		50		1,355		450		—		489		20		501		119
Consumer		8		—		—		—		2		2		2		446		214		—		118		—		70		1
Agriculture		130		60		—		60		1		30		1		315		—		—		—		—		4		23
Other		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		9,276		5,494		—		6,085		26		8,015		315		3,510		1,141		—		2,118		23		2,816		345
With A Related Allowance Recorded:
With An Allowance Recorded:
Commercial		100		100		13		100		1		100		5		—		—		—		—		—		—		—
Commercial real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Farmland		—		—		—		—		—		294		—		—		—		—		—		—		—		—
Nonfarm nonresidential		293		293		26		294		5		298		14		—		—		—		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—		—		—		—		—		—		—		—		—		—		—
1-4 Family		1,183		1,622		386		1,412		17		1,465		51		59		59		1		60		—		84		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Agriculture		—		—		—		—		—		30		—		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		1,576		2,015		425		1,806		23		2,187		70		59		59		1		60		—		84		—
Total	$	10,852	$	7,509	$	425	$	7,891	$	49	$	10,202	$	385	$	3,569	$	1,200	$	1	$	2,178	$	23	$	2,900	$	345

As of December 31, 2016

Three Months Ended
September 30, 2016

Nine Months Ended
September 30, 2016

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
$ 707 $ 495 $ — $ 659 $ — $ 824 $ 1
Commercial real estate:

Construction
— — — 129 3 195 9
Farmland
5,566 3,742 — 4,404 79 4,299 87
Nonfarm nonresidential
4,502 1,219 — 4,023 2 5,569 308
Residential real estate:

Multi-family
4,100 4,100 — 3,254 179 2,235 237
1-4 Family
4,663 2,910 — 3,523 14 6,159 85
Consumer
41 1 — 4 — 8 8
Agriculture
— — — 69 — 92 —
Other
— — — — — — —
Subtotal
19,579 12,467 — 16,065 277 19,381 735
With A Related Allowance Recorded:

Commercial
100 100 13 — — — —
Commercial real estate:

Construction
— — — — — — —
Farmland
614 590 5 600 — 300 —
Nonfarm nonresidential
303 303 30 405 6 421 18
Residential real estate:

Multi-family
— — — 2,080 — 3,133 101
1-4 Family
1,676 1,611 350 1,656 20 1,671 74
Consumer
— — — — — — —
Agriculture
78 60 1 68 — 34 —
Other
— — — — — — —
Subtotal
2,771 2,664 399 4,809 26 5,559 193
Total
$ 22,350 $ 15,131 $ 399 $ 20,874 $ 303 $ 24,940 $ 928

Table of Contents

	As of December 31, 2021						Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
	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	$	290	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Construction		—		—		—		—		—		—		—
Farmland		302		215		—		616		26		596		26
Nonfarm nonresidential		7,755		2,663		—		492		12		517		39
Residential real estate:
Multi-family		—		—		—		—		—		—		—
1-4 Family		1,408		501		—		716		74		829		112
Consumer		272		12		—		28		—		21		1
Agriculture		366		9		—		101		—		99		—
Other		—		—		—		—		—		—		—
Subtotal		10,393		3,400		—		1,953		112		2,062		178
With An Allowance Recorded:
Commercial		—		—		—		—		—		—		—
Commercial real estate:
Construction		—		—		—		—		—		—		—
Farmland		—		—		—		—		—		—		—
Nonfarm nonresidential		—		—		—		4,356		66		4,356		196
Residential real estate:
Multi-family		—		—		—		—		—		—		—
1-4 Family		65		65		2		100		1		102		2
Consumer		—		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Subtotal		65		65		2		4,456		67		4,458		198
Total	$	10,458	$	3,465	$	2	$	6,409	$	179	$	6,520	$	376

Cash basis income recognized on impaired loans for the three and nine months ended September 30, ~~2017~~ 2022 was ~~$24,000~~$21,000 and ~~$309,000,~~$333,000, respectively, compared to ~~$87,000~~$96,000 and ~~$377,000~~$148,000 for the three and nine months ended September 30, ~~2016,~~ 2021, respectively.

Troubled Debt Restructuring

A troubled debt restructuring (TDR) occurs when the Bank has agreed to a loan modification in the form of a concession for 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 ~~allocates~~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~~portfolio segment outstanding as of September 30, ~~2017~~ 2022 and December 31, ~~2016:~~2021:

TDRs
Performing to
Modified
Terms

TDRs Not
Performing to
Modified
Terms

Total
TDRs

(in thousands)

September 30, 2017

Commercial

Rate reduction
$ — $ 33 $ 33
Principal deferral
— 434 434
Commercial Real Estate:

Farmland

Principal deferral
— 1,465 1,465
Nonfarm nonresidential

Rate reduction
489 — 489
Residential Real Estate:

1-4 Family

Rate reduction
737 — 737
Total TDRs
$ 1,226 $ 1,932 $ 3,158

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
September 30, 2022
Commercial Real Estate:
Nonfarm nonresidential	$	146	$	—	$	146
Residential Real Estate:
1-4 Family		—		59		59
Total TDRs	$	146	$	59	$	205

TDRs
Performing to
Modified Terms

TDRs Not
Performing to
Modified Terms

Total
TDRs

(in thousands)

December 31, 2016

Commercial

Rate reduction
$ — $ 33 $ 33
Principal deferral
— 434 434
Commercial Real Estate:

Farmland

Principal deferral
— 2,300 2,300
Nonfarm nonresidential

Rate reduction
507 — 507
Principal deferral
— 607 607
Residential Real Estate:

Multi-family

Rate reduction
4,100 — 4,100
1-4 Family

Rate reduction
743 — 743
Total TDRs
$ 5,350 $ 3,374 $ 8,724

Table of Contents

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 2021
Commercial Real Estate:
Nonfarm nonresidential	$	340	$	—	$	340
Residential Real Estate:
1-4 Family		—		65		65
Total TDRs	$	340	$	65	$	405

At September 30, ~~2017~~ 2022 and December 31, ~~2016, 39%~~2021, 71% and ~~61%~~84%, respectively, of the Company’s TDRs were performing according to their modified terms. The Company allocated ~~$141,000~~$1,000 and ~~$197,000~~$2,000 in reserves to borrowers whose loan terms have been modified in TDRs as of September 30, ~~2017,~~ 2022 and December 31, ~~2016,~~ 2021, respectively. The Company has ~~committed~~no commitment to lend no additional amounts as of September 30, ~~2017~~ 2022 and December 31, ~~2016~~ 2021 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 will continue to comply with the terms of the loan after the date of the renewal/modification. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms considered to be at market for loans with comparable risk and management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance. In March 2017, the TDR classification was removed from two loans that met the requirements as discussed above. These loans totaled $4.1 million at December 31, 2016. These loans are no longer evaluated individually for impairment.

No TDR ~~loan modification~~smodifications occurred during the three or and nine months ended September 30, ~~2017 or~~ 2022. The following table presents a summary of the TDR loan modification by portfolio segment that occurred during the three and nine months ended September 30, ~~2016.~~ 2021:

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
September 30, 2021
Residential Real Estate:
1-4 Family	$	180	$	—	$	180
Total TDRs	$	180	$	—	$	180

During the ~~first~~ three and nine months ~~of 2017~~ ended September 30, 2022 and ~~2016,~~ September 30, 2021, no TDRs defaulted on their restructured loan within the ~~twelve-month~~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~~-~~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 September 30, 2017, and December 31, 2016: Past Due Loans

Nonaccrual

Loans Past Due 90 Days
And Over Still Accruing

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

(in thousands)

Commercial
$ 508 $ 495 $ — $ —
Commercial Real Estate:

Construction
— — — —
Farmland
2,155 4,332 — —
Nonfarm nonresidential
105 1,016 — —
Residential Real Estate:

Multi-family
— — — —
1-4 Family
2,941 3,312 — —
Consumer
— 1 — —
Agriculture
60 60 — —
Other
— — — —
Total
$ 5,769 $ 9,216 $ — $ —

The following table presents the aging of the recorded investment in past due loans as of September 30, ~~2017~~ 2022 and December 31, ~~2016:~~2021:

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)										(in thousands)
September 30, 2017
September 30, 2022
Commercial	$	2	$	—	$	—	$	508	$	510	$	—	$	22	$	—	$	—	$	22
Commercial Real Estate:
Construction		—		—		—		—		—		—		—		—		—		—
Farmland		281		19		—		2,155		2,455		—		—		—		29		29
Nonfarm nonresidential		239		—		—		105		344		31		—		—		302		333
Residential Real Estate:
Residential Real Estate:
Multi-family		—		—		—		—		—		—		—		—		—		—
1-4 Family		300		593		—		2,941		3,834		213		14		—		509		736
Consumer		50		—		—		—		50		30		3		—		214		247
Agriculture		—		—		—		60		60		26		18		—		—		44
Other		—		—		—		—		—		—		—		—		—		—
Total	$	872	$	612	$	—	$	5,769	$	7,253	$	300	$	57	$	—	$	1,054	$	1,411

Table of Contents

	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, 2021
Commercial	$	6	$	—	$	—	$	—	$	6
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		—		—		—		215		215
Nonfarm nonresidential		—		34		—		2,323		2,357
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		513		148		—		566		1,227
Consumer		37		28		—		12		77
Agriculture		—		—		—		8		8
Other		—		—		—		—		—
Total	$	556	$	210	$	—	$	3,124	$	3,890

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, 2016

Commercial
$ — $ — $ — $ 495 $ 495
Commercial Real Estate:

Construction
— — — — —
Farmland
626 — — 4,332 4,958
Nonfarm nonresidential
— 59 — 1,016 1,075
Residential Real Estate:

Multi-family
— — — — —
1-4 Family
1,454 256 — 3,312 5,022
Consumer
19 — — 1 20
Agriculture
203 — — 60 263
Other
— — — — —
Total
$ 2,302 $ 315 $ — $ 9,216 $ 11,833

Credit Quality Indicators

~~We categorize~~Management categorizes all loans into risk categories at origination based upon original underwriting. Thereafter, ~~we categorize~~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~~Additionally, loans are ~~also~~ analyzed through ~~our~~ internal and external loan review ~~processes. Borrower relationships in excess of $500,000~~processes and are routinely analyzed through ~~our~~ credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings:

Wa~~tch~~ Watch –~~Loans~~ Loans classified as watch are those loans which have experienced 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 wethe Bank will sustain some ~~losses~~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.

~~Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be “Pass” rated loans.~~ As of September 30, ~~2017,~~ 2022, and December 31, ~~2016,~~ 2021, 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		Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)												(in thousands)
September 30, 2017
September 30, 2022
Commercial	$	106,645	$	228	$	—	$	743	$	—	$	107,616	$	235,779	$	41	$	—	$	4,362	$	—	$	240,182
Commercial Real Estate:
Construction		44,956		—		—		—		—		44,956		127,302		—		—		—		—		127,302
Farmland		78,156		5,935		—		4,279		—		88,370		64,845		167		—		1,808		—		66,820
Nonfarm nonresidential		153,026		2,948		432		1,550		—		157,956		398,464		1,174		—		320		—		399,958
Residential Real Estate:
Multi-family		46,100		9,584		—		—		—		55,684		45,903		—		—		—		—		45,903
1-4 Family		162,476		4,473		166		6,098		—		173,213		163,329		1,773		—		1,613		—		166,715
Consumer		8,062		323		—		89		—		8,474		33,270		7		—		617		—		33,894
Agriculture		33,215		11,676		—		784		—		45,675		46,635		15		—		39		—		46,689
Other		567		—		—		—		—		567		482		—		—		—		—		482
Total	$	633,203	$	35,167	$	598	$	13,543	$	—	$	682,511	$	1,116,009	$	3,177	$	—	$	8,759	$	—	$	1,127,945

Pass

Watch

Special
Mention

Substandard

Doubtful

Total

(in thousands)

December 31, 2016

Commercial
$ 96,402 $ 294 $ — $ 1,065 $ — $ 97,761
Commercial Real Estate:

Construction
35,823 507 — — — 36,330
Farmland
63,323 1,521 — 6,663 — 71,507
Nonfarm nonresidential
142,222 5,217 445 1,662 — 149,546
Residential Real Estate:

Multi-family
38,281 6,080 — 3,836 — 48,197
1-4 Family
173,565 6,909 52 7,566 — 188,092
Consumer
9,397 348 — 73 — 9,818
Agriculture
26,940 9,555 — 1,013 — 37,508
Other
477 — — — — 477
Total
$ 586,430 $ 30,431 $ 497 $ 21,878 $ — $ 639,236

Table of Contents

	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)
December 31, 2021
Commercial	$	207,729	$	5,207	$	—	$	7,890	$	—	$	220,826
Commercial Real Estate:
Construction		74,806		—		—		—		—		74,806
Farmland		65,836		170		—		2,382		—		68,388
Nonfarm nonresidential		341,780		413		—		3,700		—		345,893
Residential Real Estate:
Multi-family		50,224		—		—		—		—		50,224
1-4 Family		164,850		2,038		—		1,985		—		168,873
Consumer		36,408		5		—		27		—		36,440
Agriculture		35,863		23		—		38		—		35,924
Other		466		—		—		—		—		466
Total	$	977,962	$	7,856	$	—	$	16,022	$	—	$	1,001,840

Note 4– Leases

~~Note 4~~ ~~– Other Real Estate Owned~~As of September 30, 2022, the Company leases real estate for seven branch offices or offsite ATM machines under various operating lease agreements. The lease agreements have maturity dates ranging from 2024 to 2046, including all expected extension periods. The weighted average remaining life of the lease term for these leases was 21 years as of September 30, 2022.

~~Other real estate owned (OREO) is real estate acquired as a result~~In determining the present value 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 expected cost to sell. Any write-down~~lease payments, the Bank uses the implicit lease rate when readily determinable. As most of the ~~property~~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 ~~time~~rate of ~~acquisition is charged~~interest that the Bank estimates it would pay to borrow on a collateralized basis over a similar term in an amount equal to the ~~allowance~~lease payments in a similar economic environment. The weighted average discount rate for ~~loan losses.~~the leases was 4.20% as of September 30, 2022.

~~Fair value~~Total rental expense was $125,000 and $375,000, respectively, for the three and nine months ended September 30, 2022, compared to $78,000 and $326,000, respectively, for the three and nine months ended September 30, 2021. The right-of-use asset, included in premises and equipment, and lease liability, included in other liabilities, was $6.4 million as of ~~OREO is determined on an individual property basis. When foreclosed properties are acquired, we obtain a new appraisal~~September 30, 2022 and $5.3 million as of December 31, 2021.

Total estimated rental commitments for the ~~subject property or have staff from our special assets group evaluate the latest in-file appraisal~~ operating leases were as follows as of September 30, 2022 (in connection with the transfer to OREO. We typically obtain 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 appraised amount. thousands):

	September 30, 2022

October – December 2022	$	114
2023		457
2024		458
2025		438
2026		408
Thereafter		8,899
Total minimum lease payments		10,774
Discount effect of cash flows		(4,352	)
Present value of lease liabilities	$	6,422

~~The following table presents the major categories~~

Table of ~~OREO at the period-ends indicated:~~

September 30,
2017

December 31,
2016

(in thousands)

Commercial Real Estate:

Construction, land development, and other land
$ 6,200 $ 6,571
Farmland
74 —
Residential Real Estate:

1-4 Family
56 250
$ 6,330 $ 6,821

Residential loans secured by 1-4 family residential properties in the process of foreclosure totaled $643,000 and $932,000 at September 30, 2017 and December 31, 2016, respectively. Activity relating to OREO during the nine months ended September 30, 2017 and 2016 is as follows:

For the Nine
Months Ended
September 30,

2017

2016

(in thousands)

OREO Activity

OREO as of January 1
$ 6,821 $ 19,214
Real estate acquired
270 1,243
Valuation adjustment write-downs
(98
)
(970
)
Net gain on sales
75 221
Proceeds from sales of properties
(738
)
(12,610
)
OREO as of September 30
$ 6,330 $ 7,098

~~We recognized~~ ~~no OREO rental income for the three and nine months ended September 30, 2017, respectively, and $46,000 and $451,000 for the three and nine months ended September 30, 2016, respectively.~~

~~Expenses related to other real estate owned include:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(in thousands) (in thousands)
Net gain on sales
$ (10
)
$ (52
)
$ (75
)
$ (221
)
Valuation adjustment write-downs
98 320 98 970
Operating expense
23 54 69 535
Total
$ 111 $ 322 $ 92 $ 1,284

Contents

Note 5– Deposits

The following table ~~shows~~ ~~ending deposit balances~~details deposits by ~~category as of:~~category:

	September 30, 2017		December 31, 2016		September 30, 2022		December 31, 2021
	(in thousands)				(in thousands)
Non-interest bearing	$	133,896	$	124,395	$	287,938	$	274,083
Interest checking		94,523		103,876		286,867		287,208
Money market		156,905		142,497		215,450		217,943
Savings		35,946		34,518		154,545		163,423
Certificates of deposit(1)		445,577		444,639		273,780		266,011
Total	$	866,847	$	849,925	$	1,218,580	$	1,208,668

(1)	Includes brokered deposits of $29.0 million at September 30, 2022. There were no brokered deposits at December 31, 2021.

Time deposits of $250,000 or more were ~~$33.1~~$65.3 million and ~~$29.1~~$33.4 million at September 30, ~~2017~~ 2022 and December 31, ~~2016,~~ 2021, respectively.

Scheduled maturities of ~~all~~total time deposits at September 30, ~~2017 were~~2022 for each of the next five years are as follows (in thousands):

Year 1	$	221,600	$	209,169
Year 2		174,906		37,577
Year 3		35,418		17,358
Year 4		6,626		5,918
Year 5		7,027		2,819
Thereafter				939
	$	445,577	$	273,780

Note 6– ~~– Advance~~sAdvances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank ~~(FHLB)~~ were as follows:

September 30,

December 31,

2017

2016

(in thousands)

Advances with fixed rates from 0.00% to 5.24% and maturities ranging from 2017 through 2033, averaging 1.24% at September 30, 2017 and 0.85% at December 31, 2016
$ 16,847 $ 22,458

	September 30,		December 31,
	2022		2021
	(in thousands)

Short term advances (fixed rates 3.04% to 4.02%) maturing October 2022 to January 2023	$	90,000	$	—
Long term advances		—		20,000
Total advances from the Federal Home Loan Bank	$	90,000	$	20,000

~~Scheduled principal payments on~~ FHLB advances ~~during the next five years~~ had a weighted-average rate of 3.33% at September 30, 2022 and ~~thereafter (in thousands):~~

Advances

Year 1
$ 15,203
Year 2
182
Year 3
492
Year 4
739
Year 5
108
Thereafter
123
$ 16,847

0.77% at December 31, 2021. Each advance is payable ~~based upon the~~per terms ofon agreement, with a prepayment penalty. The $20.0 million long-term advance outstanding at December 31, 2021 was called by the FHLB in May 2022. No prepayment penalties were incurred during ~~2017~~2022 or ~~2016.~~2021. The advances ~~are~~were collateralized by approximately $351.7 million of commercial real estate and first mortgage residential ~~loans. In~~ loans, under a blanket lien arrangement at September ~~2017,~~ 30, 2022. At December 31, 2021, the ~~FHLB notified the Bank~~advances were collateralized by approximately $121.8 million of ~~an upgrade to its collateral reporting status from physical delivery status to blanket summary status whereby the FHLB determines borrowing capacity from the eligible book value of qualifying~~first mortgage residential loans ~~pledged rather than~~under a blanket lien arrangement and loans originated under the ~~discounted market value of loans delivered to physical custody.~~SBA Payment Protection Plan. At September 30, ~~2017, our~~2022, the Bank’s additional borrowing capacity with the FHLB was ~~$74.8~~$71.5 million.

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

	Advances
Year 1		90,000
	$	90,000

Note 7– Borrowings

~~Note 7~~ Junior Subordinated Debentures – ~~Senior Debt~~

~~On June 30, 2017,~~The junior subordinated debentures are redeemable at par prior to maturity at the option of the Company ~~entered into a $10.0 million senior secured loan agreement with a commercial bank. The loan matures on June 3~~0, 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% ofas defined within 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.~~

~~The Company contributed $9.0 million~~ of the borrowing proceeds to the Bank as common equity Tier 1 capital. The remaining $1.0 million of the borrowing proceeds were retained by the lender in escrow to service quarterly interest payments.trust indenture. At September 30, ~~2017, the escrow account had a balance of $903,000.~~

~~The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i)~~ 2022, the Company ~~must maintain minimum cash~~is current on hand of not less than $750,000 through June 30, 2018, and not less than $2,500,000 thereafter, (ii) the Company must maintain a total risk based capital ratio at least equal to 9% of risk-weighted assets to June 30, 2018, and 10% thereafter, (iii) the Bank must maintain a total risk based capital ratio at least equal to 10% of risk-weighted assets to June 30, 2018, and 11% thereafter, 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 September 30, 2017.all interest payments.

Table of Contents

A summary of the junior subordinated debentures is as follows:

Description	Issuance Date	Interest Rate (1)	Junior Subordinated Debt Owed To Trust		Maturity Date (2)
Statutory Trust I	2/13/2004	3-month LIBOR + 2.85%	$	3,000,000	2/13/2034
Statutory Trust II	2/13/2004	3-month LIBOR + 2.85%		5,000,000	2/13/2034
Statutory Trust III	4/15/2004	3-month LIBOR + 2.79%		3,000,000	4/15/2034
Statutory Trust IV	12/14/2006	3-month LIBOR + 1.67%		10,000,000	3/01/2037
			$	21,000,000

(1)	As of September 30, 2022, 3-month LIBOR was 3.75%.

(2)	The debentures are callable at the Company’s option at their principal amount plus accrued interest.

Subordinated Capital Notes – The Company’s 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.

Federal Funds Line – At September 30, 2022, the Company had a $5.0 million federal funds line of credit available on an unsecured basis from a correspondent institution.

Note 8–8 – Fair Values Measurement

Fair value is the ~~exchange~~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. ~~We use various~~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 ~~leve~~lslevels of the fair value hierarchy. When that occurs, ~~we classify~~ the fair value hierarchy is classified on the lowest level of input that is significant to the fair value measurement. ~~We used the~~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~~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~~relative index 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.

Table of Contents

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~~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.

WeManagement routinely ~~apply an~~applies internal ~~discount~~discounts to the value of appraisals used in the fair value evaluation of ~~our~~the Bank’s 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~~the Bank’s 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 (1) to have a thin trading market or (2) to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

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

Im~~paired~~Impaired loans are evaluated quarterly for additional impairment. ~~We obtain~~Management obtains updated appraisals on properties securing ~~our~~the Bank’s 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 ~~our~~the assessment of deterioration of real estate values in the market in which the property is located. The first stage of our assessment involves management’s inspection of the property in question. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal.

~~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 cost to sell. Our quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family homes, we consult with staff from our special assets group as well as external realtors and appraisers. Based on these consultations, we determine asking prices for OREO properties we are marketing for sale. If the internally evaluated fair value or asking price is below our recorded investment in the property, appropriate write-downs are taken.

~~For larger dollar commercial real estate properties, we obtain a new appraisal of the subject property or have staff in our special assets group evaluate the latest in-file appraisal in connection wit~~h the transfer to other real estate owned. We generally obtain 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.

We routinely apply an internal discount to the value of appraisals used in the fair value evaluation of our OREO. 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 (1) to have a thin trading market or (2) to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

Financial assets measured at fair value on a recurring basis at September 30, ~~2017~~ 2022 and December 31, ~~2016~~ 2021 are summarized below:

			Fair Value Measurements at September 30, 2017 Using								Fair Value Measurements at September 30, 2022 Using
			(in thousands)								(in thousands)
			Quoted Prices In				Significant				Quoted Prices In				Significant
			Active Markets for		Significant Other		Unobservable				Active Markets for		Significant Other		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs		*Carrying*		*Identical Assets*		*Observable Inputs*		*Inputs*
Description	Value		(Level 1)		(Level 2)		(Level 3)		*Value*		*(Level 1)*		*(Level 2)*		*(Level 3)*
Available for sale securities
Available for sale securities
U.S. Government and federal agency	$	29,708	$	—	$	29,708	$	—	$	21,946	$	—	$	21,946	$	—
Agency mortgage-backed: residential		91,735		—		91,735		—		70,432		—		70,432		—
Collateralized loan obligations		23,526		—		23,526		—		45,988		—		45,988		—
State and municipal		1,661		—		1,661		—
Corporate bonds		3,167		—		3,167		—		42,926		—		29,594		13,332
Total	$	149,797	$	—	$	149,797	$	—	$	181,292	$	—	$	167,960	$	13,332

Fair Value Measurements at December 31, 2016 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
$ 34,099 $ — $ 34,099 $ —
Agency mortgage-backed: residential
102,353 — 102,353 —
Collateralized loan obligations
11,203 — 11,203 —
State and municipal
2,045 — 2,045 —
Corporate bonds
3,090 — 3,090 —
Total
$ 152,790 $ — $ 152,790 $ —

			Fair Value Measurements at December 31, 2021 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	$	26,243	$	—	$	26,243	$	—
Agency mortgage-backed: residential		94,019		—		94,019		—
Collateralized loan obligations		50,149		—		50,149		—
Corporate bonds		43,802	$	—	$	29,761	$	14,041
Total	$	214,213	$	—	$	200,172	$	14,041

There were no transfers between Level 1 and Level 2 during ~~2017~~2022 or ~~2016.~~2021.

The Company’s policy is to transfer assets or liabilities from one level to another when the methodology to obtain the fair value changes such that there are more or fewer unobservable inputs as of the end of the reporting period. There were no transfers between Level 2 and Level 3 during 2022.

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The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022 and 2021:

	September 30, 2022
	Corporate Bonds
	(in thousands)
Balance of recurring Level 3 assets at January 1, 2022	$	14,041
Total gains or losses for the year:
Included in other comprehensive income		(709	)
Transfers into Level 3		—
Balance of recurring Level 3 assets at September 30, 2022	$	13,332

	September 30, 2021
	Collateralized Loan Obligations		Corporate Bonds
	(in thousands)
Balance of recurring Level 3 assets at January 1, 2021	$	2,388	$	11,916
Total gains or losses for the year:
Included in earnings		—		465
Included in other comprehensive income		106		1,479
Calls		—		(5,000	)
Transfers into Level 3		—		—
Balance of recurring Level 3 assets at September 30, 2021	$	2,494	$	8,860

The following table presents quantitative information about recurring level 3 fair value measurements are summarized below (in thousands):

	Fair Value Measurements at September 30, 2022
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)


Corporate bonds	$	13,332	Discounted cash flow	Constant prepayment rate			0%
				Spread to benchmark yield	224%	-	377%	(288%)
				Indicative broker bid	80%	-	97%	(89%)

	Fair Value Measurements at December 31, 2021
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)


Corporate bonds	$	14,041	Discounted cash flow	Constant prepayment rate			0%
				Spread to benchmark yield	200%	-	298%	(235%)
				Indicative broker bid	99%	-	106%	(103%)

Financial assets measured at fair value on a non-recurring basis are summarized ~~below:~~below (in thousands):

Fair Value Measurements at September 30, 2017 Using

(in thousands)

Carrying
Value

Quoted Prices In
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Description

Impaired loans:

Commercial
$ 87 $ — $ — $ 87
Commercial real estate:

Construction
— — — —
Farmland
— — — —
Nonfarm nonresidential
— — — —
Residential real estate:

Multi-family
— — — —
1-4 Family
1,236 — — 1,236
Consumer
— — — —
Agriculture
— — — —
Other
— — — —
Other real estate owned:

Commercial real estate:

Construction, land development, and other land
6,200 — — 6,200
Farmland
74 — — 74
Nonfarm nonresidential
— — — —
Residential real estate:

Multi-family
— — — —
1-4 Family
56 — — 56

			Fair Value Measurements at September 30, 2022 Using

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:
Residential real estate:
1-4 Family	$	58	$	—	$	—	$	58

Fair Value Measurements at December 31, 2016 Using

(in thousands)

Carrying
Value

Quoted Prices In
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Description

Impaired loans:

Commercial
$ 87 $ — $ — $ 87
Commercial real estate:

Construction
— — — —
Farmland
585 — — 585
Nonfarm nonresidential
— — — —
Residential real estate:

Multi-family
— — — —
1-4 Family
1,261 — — 1,261
Consumer
— — — —
Agriculture
59 — — 59
Other
— — — —
Other real estate owned:

Commercial real estate:

Construction, land development, and other land
6,571 — — 6,571
Farmland
— — — —
Nonfarm nonresidential
— — — —
Residential real estate:

Multi-family
— — — —
1-4 Family
250 — — 250

Table of Contents

			Fair Value Measurements at December 31, 2021 Using

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:
Residential real estate:
1-4 Family	$	63	$	—	$	—	$	63

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of ~~$1.7 million~~$59,000 at September 30, ~~2017~~ 2022 with a valuation allowance of ~~$399,000,~~$1,000, resulting in ~~$171,000 and $29,000 in additional~~no provision for loan losses for the three ~~and~~ months or nine months ended September 30, ~~2017, respectively.~~ 2022. Impaired loans had a carrying amount of ~~$2.5~~$4.5 million at September 30, 2021 with a valuation allowance of ~~$309,000,~~$2.2 million, resulting in ~~$220,000 and~~ no ~~additional~~ provision for loan losses for the three ~~and nine~~ months ended September 30, ~~2016.~~2021 and $1,000 provision for loan losses for the nine months ended September 30, 2021, respectively. At December 31, ~~2016,~~ 2021, impaired loans had a carrying amount of ~~$2.4 million,~~$65,000, with a valuation allowance of ~~$370,000.~~

~~OREO~~, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $6.3 million as of September 30, 2017, compared with $6.8 million at December 31, 2016. Write-downs of $98,000 were recorded on OREO for the three and nine months ended September 30, 2017, compared to write-downs of $761,000 and $1.6 million for the three and nine months ended September 30, 2016, respectively.

~~The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2017:~~

Fair Value

Valuation
Technique(s)

Unobservable Input(s)

Range (Weighted
Average)

(in thousands)

Impaired loans – Residential real estate
$ 1,236
Sales comparison approach

Adjustment for differences between the comparable sales
0% - 34% (11%)

Other real estate owned – Commercial real estate
$ 6,274
Sales comparison approach

Adjustment for differences between the comparable sales
0% - 11% (5%)

Income approach Discount or capitalization rate 18% (18%)

~~The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2016:~~

Fair Value

Valuation
Technique(s)

Unobservable Input(s)

Range (Weighted
Average)

(in thousands)

Impaired loans – Residential real estate
$ 1,261
Sales comparison approach

Adjustment for differences between the comparable sales
0% - 22% (9%)

Other real estate owned – Commercial real estate
$ 6,571
Sales comparison approach

Adjustment for differences between the comparable sales
0% - 20% (9%)

Income approach Discount or capitalization rate 18% - 20% (19%)

$2,000.

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

			Fair Value Measurements at September 30, 2017 Using										Fair Value Measurements at September 30, 2022 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)										(in thousands)
Financial assets
Cash and cash equivalents	$	47,369	$	27,815	$	19,554	$	—	$	47,369	$	57,370	$	57,370	$	—	$	—	$	57,370
Securities available for sale		149,797		—		149,797		—		149,797		181,292		—		167,960		13,332		181,292
Securities held to maturity		41,424		—		43,397		—		43,397		43,350		—		33,768		—		33,768
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A		5,176		N/A		N/A		N/A		N/A
Loans, net		673,534		—		—		673,616		673,616		1,114,914		—		—		1,043,243		1,043,243
Accrued interest receivable		3,285		—		1,137		2,148		3,285		4,351		—		1,094		3,257		4,351
Financial liabilities
Deposits	$	866,847	$	133,896	$	719,827	$	—	$	853,723	$	1,218,580	$	287,938	$	926,278	$	—	$	1,214,216
Federal Home Loan Bank advances		16,847		—		16,865		—		16,865		90,000		—		90,009		—		90,009
Subordinated capital note		2,475		—		—		2,458		2,458
Junior subordinated debentures		21,000		—		—		19,087		19,087		21,000		—		—		18,498		18,498
Senior debt		10,000		—		—		10,000		10,000
Subordinated capital notes												25,000		—		—		23,791		23,791
Accrued interest payable		1,284		—		366		918		1,284		586		—		285		301		586

			Fair Value Measurements at December 31, 2016 Using										Fair Value Measurements at December 31, 2021 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)										(in thousands)
Financial assets
Cash and cash equivalents	$	66,316	$	31,091	$	35,225	$	—	$	66,316	$	77,603	$	77,603	$	—	$	—	$	77,603
Securities available for sale		152,790		—		152,790		—		152,790		214,213		—		200,172		14,041		214,213
Securities held to maturity		41,818		—		43,072		—		43,072		46,460		—		46,280		—		46,280
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A		5,116		N/A		N/A		N/A		N/A
Loans, net		630,269		—		—		632,528		632,528		990,309		—		—		981,995		981,995
Accrued interest receivable		3,137		—		1,203		1,934		3,137		3,870		—		1,022		2,848		3,870
Financial liabilities
Deposits	$	849,925	$	124,395	$	712,458	$	—	$	836,853	$	1,208,668	$	274,083	$	935,768	$	—	$	1,209,851
Federal Home Loan Bank advances		22,458		—		22,475		—		22,475		20,000		—		20,046		—		20,046
Subordinated capital note		3,150		—		—		3,091		3,091
Junior subordinated debentures		21,000		—		—		13,263		13,263		21,000		—		—		19,500		19,500
Subordinated capital notes												25,000		—		—		26,149		26,149
Accrued interest payable		734		—		369		365		734		764		—		136		628		764

~~The~~In accordance with ASU 2016-01, the methods ~~and assumptions, not previously presented, used~~utilized to ~~estimate fair values are described as follows:~~

~~(a) Cash and Cash Equivalents~~

~~The carrying amou~~nts of cash and short-term instruments approximate fair values and are classified as either Level 1 or Level 2. Non-interest bearing deposits are Level 1 whereas interest bearing due from bank accounts and fed funds sold are Level 2.

~~(b) FHLB Stock~~

~~It is~~ ~~not practical to determine~~measure the fair value of ~~FHLB stock due to restrictions placed on its transferability.~~financial instruments represent an approximation of exit price; however, an actual exit price may differ.

~~(c) Loans, Net~~

Fair ~~values~~value estimates are made at a specific point in time based on relevant market information and information about financial instruments. Because no market exists for a portion of ~~loans, excluding loans held for~~ ~~sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk,~~the Company’s financial instruments, fair ~~values~~value estimates are based on ~~carrying values resulting~~judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Therefore, calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(d~~) Deposits~~

The fair values disclosed for non-interest bearing deposits are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level 1 classification. The carrying amounts of variable rate interest bearing deposits approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate interest bearing deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(e~~) Other Borrowings~~

~~The fair values~~current sale of the ~~Company’s FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates resulting~~instrument. Changes in ~~a Level 2 classification.~~

~~The fair values of the Company~~’s subordinated capital notes, junior subordinated debentures, and senior debt are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

(f~~) Accrued Interest Receivable/Payable~~

~~The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification based on the level of the asset or liability with which the accrual is associated.~~assumptions could significantly impact estimates.

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Note 9–9 – Income Taxes

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

	September 30,			December 31,			September 30,		December 31,
	2017			2016			2022		2021
	(in thousands)						(in thousands)
Deferred tax assets:
Net operating loss carry-forward	$	43,515		$	42,094		$	15,329	$	19,335
Allowance for loan losses		3,142			3,139			3,252		2,877
Other real estate owned write-down		3,401			3,366
Alternative minimum tax credit carry-forward		692			692
Net assets from acquisitions		617			674
Net unrealized loss on securities		209			867			4,711		—
New market tax credit carry-forward		208			208			208		208
Nonaccrual loan interest		477			481			328		321
Accrued expenses		193			3,860
Deferred compensation		463			465
Accrued expenses								94		138
Lease liability								1,603		1,328
Other		394			360			179		202
		53,311			56,206			25,704		24,409

Deferred tax liabilities:
FHLB stock dividends		928			928			361		415
Fixed assets		70			89			120		133
Deferred loan costs		266			274			165		176
Net unrealized gain on securities								—		390
Lease right-of-use assets								1,603		1,328
Net assets from acquisitions								249		108
Other		145			866			204		276
		1,409			2,157			2,702		2,826
Net deferred tax assets before valuation allowance		51,902			54,049
Valuation allowance		(51,902	)		(54,049	)
Net deferred tax asset	$	—		$	—		$	23,002	$	21,583

~~Our es~~timate of our ability to realize the deferred tax asset depends on our estimate of projected future levels of taxable income. In analyzing future taxable income levels, we considered all evidence currently available, both positive and negative. Based on our analysis, we established a valuation allowance for all deferred tax assets as of December 31, 2011. The valuation allowance remains in effect as of At September 30, ~~2017.~~2022, the Company had net federal operating loss carryforwards of $68.6 million, which will begin to expire in 2033, and state net operating loss carryforwards of $23.2 million, which begin to expire in 2029.

The Company does not have any beginning and ending unrecognized tax benefits. The Co~~mpany~~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 nine months ended September 30, ~~2017~~ 2022 or September 30, ~~2016~~ 2021 related to unrecognized tax benefits.

Under Section 382 of the Internal Revenue Code, as amended (“Section 382”), the Company’s ~~its~~ net operating loss carryforwards ~~(“NOLs”)~~ 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, wethe 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, as amended November 25, 2019, 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 ~~will~~plan was extended in May 2021 to expire upon the earlier of (i) June ~~29, 2018, (ii)~~30, 2024, (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 October 24, 2022, with the unanimous approval of the Company’s Board of Directors, the Company amended the rights plan to accelerate its final expiration date to October 24, 2022, effectively terminating the tax benefits preservation plan as of that date.

Table of Contents

On September 23, 2015, ~~our~~the Company’s shareholders approved an amendment to ~~the Company’s~~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~~the Company’s common shares that could result in an ownership change under Section 382. The transfer restrictions were extended in May 2021 by shareholder vote and will expire on the earlier of (i) ~~September 23, 2018, (ii)~~May 19, 2024, (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~~the Board determines that the transfer restrictions are no longer needed to preserve the tax benefits of ~~our~~the NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are no longer necessary.

The Company and its ~~subsidiaries~~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 ~~2014.~~2019.

Note 10–10 – Stock Plans and Stock Based Compensation

S~~hares~~Shares available for issuance under the ~~2016~~2018 Omnibus Equity Compensation Plan ~~(“2016~~(“2018 Plan”) total ~~25,000.~~122,203. Shares issued to employees under the plan vest ~~annually on the anniversary date~~over periods of ~~the grant generally over three~~up to ~~four~~seven years.

~~The Company~~ also maintains the Porter Bancorp, Inc. 2006 Non-Employee Directors Stock Ownership Incentive Plan (“2006 Director Plan”) pursuant to which 2,834 shares remain available for issuance as annual awards of restricted stock to the Company’s non-employee directors. 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 t~~he 2017~~the 2022 unvested shares issued was ~~$365,000,~~$1.3 million, or ~~$9.64~~$19.61 per weighted-average share. The Company recorded ~~$129,000~~$212,000 and ~~$271,000~~$673,000 of stock-based compensation to salaries ~~and employee benefits~~expense for the three and nine months ended September 30, ~~2017,~~ 2022, respectively, and ~~$148,000~~$214,000 and ~~$315,000~~$515,000 for the three and nine months ended September 30, ~~2016,~~ 2021, respectively. ~~We expect~~Management expects substantially all of the unvested shares outstanding at the end of the period to vest according to the vesting schedule. NoA deferred tax benefit of $53,000 and $168,000 was recognized related to this expense during the three and nine months ended September 30, 2022, respectively, and $54,000 and $129,000 for ~~either period.~~the three and nine months ended September 30, 2021, respectively.

The following table summarizes unvested ~~shar~~eshare activity as of and for the periods indicated for the Stock ~~Incentive~~Compensation Plan:

Nine Months Ended

Twelve Months Ended

September 30, 2017

December 31, 2016

Weighted

Weighted

Average

Average

Grant

Grant

Shares

Price

Shares

Price

Outstanding, beginning
179,513 $ 4.89 184,482 $ 4.81
Granted
37,865 9.64 35,465 9.10
Vested
(58,650
)
4.67 (38,462
)
8.32
Forfeited
(1,316
)
9.35 (1,972
)
6.16
Outstanding, ending
157,412 $ 6.08 179,513 $ 4.89

	Nine Months Ended					Twelve Months Ended
	September 30, 2022					December 31, 2021
				Weighted					Weighted
				Average					Average
				Grant					Grant
	Shares			Price		Shares			Price
Outstanding, beginning		111,536		$	13.73		47,438		$	15.34
Granted		64,600			19.61		110,024			13.52
Vested		(30,827	)		16.06		(37,590	)		15.13
Forfeited		(10,109	)		15.20		(8,336	)		13.66
Outstanding, ending		135,200		$	15.90		111,536		$	13.73

Unrecognized ~~stock based~~stock-based compensation expense related to unvested shares ~~for the remainder of 2017 and beyond~~ is estimated as follows (in thousands):

October 2017 – December 2017
$ 129
2018
258
2019
99
2020 & thereafter
25

October 2022 – December 2022	$	211
2023		467
2024		339
2025		197
2026		189
Thereafter		175

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Note 111–1 – Earnings per Share

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

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2022		2021		2022		2021
	(in thousands, except share and per share data)								(in thousands, except share and per share data)

Net income	$	1,794	$	1,393	$	5,183	$	3,885	$	5,813	$	4,341	$	13,428	$	11,464
Less:
Earnings allocated to unvested shares		45		46		133		129		104		76		221		169
Net income available to common shareholders, basic and diluted	$	1,749	$	1,347	$	5,050	$	3,756
Net income available to common shareholders, basic and diluted									$	5,709	$	4,265	$	13,207	$	11,295

Basic
Basic and Diluted
Weighted average common shares including unvested common shares outstanding		6,259,864		6,223,045		6,245,418		5,897,617		7,639,492		7,602,686		7,628,677		7,591,800
Less:
Weighted average unvested common shares		157,412		206,829		160,825		195,412		136,283		133,073		125,736		111,790
Weighted average common shares outstanding		6,102,452		6,016,216		6,084,593		5,702,205		7,503,209		7,469,613		7,502,941		7,480,010
Basic income per common share	$	0.29	$	0.22	$	0.83	$	0.66

Diluted
Add: Dilutive effects of assumed exercises of common stock warrants		—		—		—		—
Weighted average common shares and potential common shares		6,102,452		6,016,216		6,084,593		5,702,205
Diluted income per common share	$	0.29	$	0.22	$	0.83	$	0.66
Basic and diluted income per common share									$	0.76	$	0.57	$	1.76	$	1.51

The Company had no outstanding stock options or warrants at September 30, ~~2017~~ 2022 or 2016. A warrant for the purchase of 66,113 shares of the Company’s common stock at an exercise price of $79.41 was outstanding at September 30, 2017 and 2016, but was not included in the diluted EPS computation as inclusion would have been anti-dilutive.2021.

Note 1122– –Regulatory Capital ~~Requirements and Restrictions on Retained Earnings~~Matters

Banks and bank holding companies are subject to regulatory capital requirements 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 ~~initiate~~result in regulatory action.

The ~~final~~Basel III rules ~~implementing Basel Committee on Banking Supervision~~’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company and Bank on January 1, 2015 with full compliance with all the requirements being phased in over a multi-year schedule through January 1, 2019. The final rules allowed banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank opted out of this requirement. The rules also establishestablished a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. ~~Once~~Including the capital conservation buffer, ~~is fully phased in,~~ 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%. ~~The phase-in of the capital conservation buffer requirement began in January 2016 at 0.625% of risk-weighted assets with increases to 1.25% in 2017, 1.875% in 2018, and 2.5% in 2019.~~ 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.~~actions without prior regulatory approval.

~~The~~As of September 30, 2022, Management believes the Company and Bank ~~is no longer subject~~met all capital adequacy requirements to ~~a consent order with~~ which they are subject. As of September 30, 2022, the ~~Federal Deposit Insurance Corporation and Kentucky Department of Financial Institutions. We were notified that the Bank’s prior consent order was terminated, effective October 31, 2017.~~

On September 21, 2011, we entered into a Written Agreement with the Federal Reserve Bank of St. Louis. In the Agreement, we made formal commitments to use our financial and management resources to serve as a source of strength formost recent regulatory notifications categorized the Bank ~~to assist~~as well capitalized under the ~~Bank in addressing weaknesses identified in a consent order with~~regulatory framework for prompt corrective action. There are no conditions or events since the FDIC and KDFI (which has since been terminated), to pay no dividends without prior written approval, to pay no interest or principal on trust preferred securities without prior written approval, and to submit an acceptable plan to maintain sufficient capital.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 Company and~~ the Bank at the dates ~~indicated. Regulatory minimums for capital adequacy purposes are prompt corrective action standards. Dollars are~~indicated (dollars in ~~thousands:~~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 September 30, 2017:

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

       Consolidated

$
76,402

10.05
%

$
60,833

8.00
%

N/A

N/A

       Bank

84,299

11.10

60,761

8.00

$
75,951

10.00
%
   Total common equity Tier 1 risk-based capital (to risk-weighted assets)

       Consolidated

41,719

5.49

34,219

4.50

N/A

N/A

       Bank

73,387

9.66

34,178

4.50

49,368

6.50

   Tier 1 capital (to risk-weighted assets)

       Consolidated

55,613

7.31

45,625

6.00

N/A

N/A

       Bank

73,387

9.66

45,571

6.00

60,761

8.00

   Tier 1 capital (to average assets)

       Consolidated

55,613

5.85

38,056

4.00

N/A

N/A

       Bank

73,387

7.73

37,986

4.00

47,482

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, 2016:

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

       Consolidated

$
71,109

10.21
%

$
55,714

8.00
%

N/A

N/A

       Bank

68,773

9.88

55,663

8.00

$
69,579

10.00
%
   Total common equity Tier 1 risk-based capital (to risk-weighted assets)

       Consolidated

36,199

5.20

31,339

4.50

N/A

N/A

       Bank

57,642

8.28

31,311

4.50

45,226

6.50

   Tier 1 capital (to risk-weighted assets)

       Consolidated

48,713

6.99

41,786

6.00

N/A

N/A

       Bank

57,642

8.28

41,747

6.00

55,663

8.00

   Tier 1 capital (to average assets)

       Consolidated

48,713

5.27

36,975

4.00

N/A

N/A

       Bank

57,642

6.24

36,949

4.00

46,186

5.00

~~N/A: Not applicable. Regulatory framework does not define well capitalized for holding companies.~~

	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 September 30, 2022:
Total risk-based capital (to risk- weighted assets)	$	179,662		13.53	%	$	106,196		8.00	%	$	132,745		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)		166,631		12.55			59,735		4.50			86,284		6.50
Tier 1 capital (to risk-weighted assets)		166,631		12.55			79,647		6.00			106,196		8.00
Tier 1 capital (to average assets)		166,631		11.56			57,662		4.00			72,078		5.00

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	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, 2021:
Total risk-based capital (to risk- weighted assets)	$	160,700		13.31	%	$	96,591		8.00	%	$	120,738		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)		149,169		12.35			54,332		4.50			78,480		6.50
Tier 1 capital (to risk-weighted assets)		149,169		12.35			72,443		6.00			96,591		8.00
Tier 1 capital (to average assets)		149,169		10.84			55,057		4.00			68,822		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. ~~The~~These laws limit the amount of dividends that may be paid in any calendar year to current ~~year~~’syear’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.~~Based on these regulations, the Bank was eligible to pay $19.6 million in dividends as of September 30, 2022. The Bank paid the Company $2.4 million in dividends during the nine months ended September 30, 2022.

Note 1133– – Off Balance Sheet Risks, Commitments, and Contingent Liabilities

The Company, in the normal course of business, is party to financial ~~instrumen~~tsinstruments 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.~~less except for home equity loans, which generally have a term of 10 years.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The terms andand 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~~instruments with off-balance sheet risk for each period ended:

September 30, 2017

December 31, 2016

Fixed
Rate

Variable
Rate

Fixed
Rate

Variable
Rate

(in thousands)

Commitments to make loans
$ 32,645 $ 30,764 $ 19,445 $ 18,347
Unused lines of credit
7,252 58,107 7,935 51,407
Standby letters of credit
527 372 582 360

	September 30, 2022				December 31, 2021
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(in thousands)
Commitments to make loans	$	56,136	$	41,637	$	85,294	$	60,683
Unused lines of credit		9,311		114,960		12,828		108,635
Standby letters of credit		365		346		566		326

In connection with the purchase of t~~hree~~ loan participations, the Bank entered into ~~three~~ risk participation agreements, which had notional amounts totaling ~~$19.8~~$12.1 million at September 30, ~~2017~~ 2022 and ~~$14.6 million at~~ December 31, ~~2016.~~2021. 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. The fair value of the derivative instruments incorporates a consideration of credit risk in accordance with ASC 820, resulting in some volatility in earnings each period. At September 30, 2022 and December 31, 2021, the fair value of the risk participation agreements were $5,000 and $67,000, respectively.

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.

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The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Litigation is subject to inherent uncertainties and unfavorable rulings could occur. The Company records contingent liabilities resulting from claims against it when a loss is assessed to be probable andcontests liability and/or the amount of damages as appropriate in each pending matter. In view of the ~~loss is reasonably estimable. Accruals are not made~~inherent difficulty of predicting the outcome of such matters, particularly in cases where ~~liability is not probable~~claimants seek substantial or indeterminate damages or where investigations and proceedings are in the ~~amount~~early stages, the Company cannot ~~be reasonably estimated. Assessing probability~~predict with certainty the loss or range of loss, ~~and estimating probable losses requires analysis of multiple factors, including in some cases judgments about~~if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the ~~potential actions of third party claimants and courts. Recorded contingent liabilities are~~eventual settlement, or other relief, if any, might be. Subject to the foregoing, the Company believes, based on ~~the best information available and actual losses in any future period are inherently uncertain. Based upon~~ current knowledge and after consultation with counsel, that the ~~Company believes~~outcome of such pending ~~legal proceedings or claims should~~ matters will not have a material ~~impact~~adverse effect on ~~its~~the consolidated financial ~~position or results of operations. However, in light~~condition of the ~~uncertainties involved in such proceedings,~~Company, although the outcome of ~~a particular matter may~~such matters could be material to the ~~financial position or~~Company’s operating results ~~of operations~~and cash flows for a particular ~~reporting~~future period, ~~in the future.~~

~~On October 17, 2014, the United States Department of Justice (the “DOJ”) notified the Bank that it was the subject of an investigation into possible violations of federal laws, including,~~depending on, among other things, possible violations related to false bank entries, bank fraud and securities fraud. The investigation concerns allegations that Bank personnel engaged in practices intended to delay or avoid disclosurethe level of the ~~Bank’s asset quality~~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 14– 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 ~~following~~whether collectability of the ~~United States Treasury’s purchase~~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 ~~preferred shares~~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, and other transaction-based revenue that is individually immaterial. Other non-interest income included approximately $195,000 and $512,000 of revenue for the three and nine months ended September 30, 2022, respectively, within the scope of ASC 606. Other non-interest income included approximately $162,000 and $460,000 of revenue for the three and nine months ended September 30, 2021, respectively, within the scope of ASC 606. The remaining other non-interest income for the three and nine months is excluded from the scope of ASC 606.

Note 15– Subsequent Events

Merger Agreement – On October 24, 2022, the Company ~~in November 2008.~~entered into an Agreement and Plan of Merger ("Merger Agreement") with Peoples Bancorp, Inc. (“Peoples”). The ~~Bank has cooperated~~Merger Agreement provides for a business combination whereby the Company will merge with ~~all requests for information from~~and into Peoples (the “Merger”), with Peoples as the ~~DOJ. At this time, the DOJ has not indicated whether it intends to pursue any action~~surviving corporation in the ~~matter.~~Merger. Under the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock, issued and outstanding immediately prior to the Effective Time (except for Dissenting Shares, as provided for in the Merger Agreement), will be converted, in accordance with the procedures set forth in the Merger Agreement, into 0.90 of common shares, no par value, of Peoples (“Peoples Common Shares”). The Merger Agreement contains certain termination rights for both Peoples and the Company, and further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Peoples a termination fee of $8.3 million. The Merger is expected to close in the second quarter of 2023, pending satisfaction of various closing conditions, including, but not limited to: (1) adoption of the Merger Agreement by the shareholders of Peoples and the Company; (2) authorization for listing on Nasdaq of the Peoples Common Shares to be issued in the Merger; (3) the receipt of required regulatory approvals, including the approval of the Board of Governors of the Federal Reserve System, the Ohio Division of Financial Institutions, and the Kentucky Department of Financial Institutions; (4) effectiveness of the registration statement on Form S-4 for the Peoples Common Shares to be issued in the Merger; and (5) the absence of any order, injunction or other legal restraint preventing or making illegal the completion of the Merger or any of the other transactions contemplated by the Merger Agreement.

Tax Benefit Preservation Plan Termination – In 2015, 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. See “Note 9 – Income Taxes,” to the financial statements for additional disclosure related to the Tax Benefits Preservation Plan. On October 24, 2022, with the unanimous approval of the Company’s Board of Directors, the Company amended the Tax Benefits Preservation Plan to accelerate its final expiration date to October 24, 2022, effectively terminating the Tax Benefits Preservation Plan as of that date.

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

This item analyzes ~~our~~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.

~~Cautionary~~Preliminary Note ~~Regarding~~Concerning Forward-Looking Statements

This ~~repo~~rtreport contains statements about the future expectations, ~~actions~~activities and events that constitute forward-looking statements. Forward-looking statements express ~~our~~the Company’s beliefs, assumptions and expectations ~~about our~~of its 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 involve risks and uncertainties that may cause ~~our~~the Company’s actual results to differ materially from the expectations of future results wemanagement expressed or implied in any forward-looking statements. These risks and uncertainties can be difficult to predict and may be ~~out of our~~beyond the Company’s control. Factors that could contribute to differences in ~~our~~the Company’s results include, but are not limited ~~to the following:~~to:

●

~~A significant percentage~~^{the impact of our loan portfolio is comprised of non-owner occupied commercial real estate loans, real estate constructionthe novel coronavirus disease 2019 (}“^COVID-19”^{) pandemic and development loans,the economic and multi-family residential real estate loans, all of which carry a higher degree of risk.financial disruptions and instabilities that have followed it;}

●

~~We continue to hold other real estate owned (“OREO”) properties, which could increase operating expenses~~^{deterioration in the financial condition of borrowers resulting in significant increases in loan losses and result in future losses.provisions for those losses;}

●

~~Our decisions regarding credit risk may not be accurate,~~^{changes in inflation and our allowance for loan losses may not be sufficientefforts to cover actual losses.control it;}

●

~~Our~~^{changes in the interest rate environment, which may reduce the Company}’^{s margins or impact the value of securities, loans, deposits and other financial instruments;}

●

^{changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments;}

●

^{general economic or business conditions, either nationally, regionally or locally in the communities the Bank serves, may be worse than expected, resulting in, among other things, a deterioration in credit quality or a reduced demand for credit;}

●

^{the results of regulatory examinations;}

●

^{any matter that would cause the Bank to conclude that there was impairment of any asset, including intangible assets;}

●

^{the continued service of key management personnel, the Company}’^{s ability to pay cash dividends on our commonattract, motivate and preferred sharesretain qualified employees;}

●

^{factors that increase the competitive pressure among depository and pay interestother financial institutions, including product and pricing pressures and the ability of the Company}’^{s competitors with greater financial resources to develop and introduce products and services that enable them to compete more successfully;}

●

^{inability to comply with regulatory capital requirements and to secure any required regulatory approvals for capital actions;}

●

^{failure in or breach of operational or security systems or infrastructure, or those of third-party vendors and other service providers, including as a result of cyber-attacks;}

●

^{legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry;}

●

^{risks related to the pending Merger with Peoples Bancorp, including risks if the Company is unable to complete the Merger due to the failure of the Company’s shareholders or Peoples’ shareholders to approve the Merger Agreement, the failure to satisfy other conditions to completion of the Merger, including receipt of required regulatory and other approvals, the failure of the proposed Merger to close for any other reason, the diversion of management’s attention from ongoing business operations and opportunities due to the Merger, and the effect of the announcement of the Merger on the junior subordinated debentures that relateCompany’s customer and employee relationships and operating results;}

●

^{fiscal and governmental policies of the United States federal government; and}

●

^{other risks and uncertainties reported from time to our trust preferred securities is currently restricted. Our inability to resume paying interesttime 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 Annual Report on our trust preferred securities could adversely affect our common and preferred shareholders.Form 10-K for the year ended December 31, 2021.}

~~We also refer you to Part II, Item 1A~~ ~~– Risk Factors in this report and to the risks identified and the cautionary statements discussed in greater detail in our December 31, 2016 Annual Report on Form 10-K.~~

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include ~~a statement of~~ the assumptions or bases underlying the forward-looking ~~statement. The Company believes it~~statement. Management has ~~chosen these~~made assumptions and bases in good faith and believe they are reasonable. ~~We caution you however, forward looking statements relying upon~~However, estimates based on such assumptions or bases ~~almost always vary~~frequently differ from actual results, and the differences ~~between those statements and actual results~~ can be material. The forward-looking statements included in this report speak only as of the date of the report. ~~We have no duty, and do~~Management does not intend to update these statements unless required by applicable ~~laws require us~~laws.

Cautionary Statement

The statements in this quarterly report regarding the Company’s Merger Agreement with Peoples are qualified by the detailed terms and conditions of the Merger Agreement, which is Exhibit 2.1 to this report. The Merger Agreement is the contractual document that establishes and governs the legal relations of the Company and Peoples with respect to the Merger and is not intended to be, and should not be relied on as, a source of factual, business or operational information about either the Company or Peoples. The representations, warranties, covenants and agreements made by the parties to the Merger Agreement are made as of specific dates and are qualified and limited, including by information in disclosure schedules that the parties exchanged in connection with the execution of such Merger Agreement. Moreover, certain of the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to an investor. Representations and warranties may be used as a tool to allocate risks between the parties to the Merger Agreement, including where the parties do ~~so.~~not have complete knowledge of all facts. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information regarding Peoples, the Company, their respective affiliates or their respective businesses, the Merger Agreement and the Merger that will be contained in, or incorporated by reference into, the Registration Statement on Form S-4 to be filed by Peoples that will include a proxy statement of the Company and Peoples and a prospectus of Peoples, as well as in the Forms 10-K, Forms 10-Q and other filings that each of Peoples and the Company make with the SEC. INVESTORS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE CORRESPONDING PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER WHEN IT BECOMES AVAILABLE, AS WELL AS ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS TO THOSE DOCUMENTS, AS THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of these documents (when available) through the website maintained by the SEC at www.sec.gov or by accessing Peoples' website (http://www.peoplesbancorp.com) under the tab "Investor Relations" and then under the heading "SEC Filings." and the Company’s website (https://www.limestonebank.com) under the tab “About Us – Investor Relations” and then under the tab “Documents – SEC Filings.” Shareholders of the Company also will be able to obtain copies of the proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the proxy statement/prospectus, without charge, by directing a request to Phil W. Barnhouse, Chief Financial Officer, Limestone Bancorp, Inc., 2500 Eastpoint Parkway, Louisville, Kentucky 40223-4156, telephone 502-499-4800.

This quarterly report is not intended to and shall not constitute an offer to sell or the solicitation of an offer to buy securities. This quarterly report is also not a solicitation of any vote in connection with the Merger. No offer of securities or solicitation will be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

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Overview

~~Porter~~Organized in 1988, Limestone Bancorp, Inc. (the “~~Company”)~~Company) is a bank holding company headquartered in Louisville, Kentucky. ~~We operate PBI~~The Company’s common stock is traded on Nasdaq’s Capital Market under the symbol LMST. The Company operates Limestone Bank, (“Inc. (the Bank), the ~~Bank”), our wholly owned subsidiary and the fourteenth~~thirteenth largest bank domiciled in the Commonwealth of Kentucky based on total assets. ~~We operate~~The Bank operates banking offices in ~~twelve~~14 counties in Kentucky. ~~Our~~The Bank’s markets include metropolitan Louisville in Jefferson County and the surrounding counties of ~~Henry~~Bullitt and ~~Bullitt. We serve~~Henry. The Bank serves south central, ~~Kentucky~~southern, and ~~southern~~western Kentucky from banking ~~offices~~centers in Barren, Butler, Daviess, Edmonson, Green, Hardin, Hart, ~~Edmonson, Barren, Warren,~~ Ohio, and ~~Daviess Counties. We~~Warren counties. The Bank also ~~have an office~~has banking centers in Lexington, Kentucky, the second largest city in ~~Kentucky.~~the state, and Frankfort, Kentucky, the state capital. The Bank is a traditional community bank with a wide range of ~~commercial~~personal and ~~personal~~business banking ~~products.~~products and services. As of September 30, ~~2017, we~~2022, the Company had total assets of ~~$963.0 million,~~$1.49 billion, total loans of ~~$682.5 million,~~$1.13 billion, total deposits of ~~$866.8 million~~$1.22 billion and stockholders’ equity of ~~$40.1~~$128.4 million.

On October 24, 2022, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Peoples Bancorp, Inc. (“Peoples”). The Merger Agreement provides for a business combination whereby the Company will merge with and into Peoples (the “Merger”), with Peoples as the surviving corporation in the Merger. Under the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock, issued and outstanding immediately prior to the Effective Time (except for Dissenting Shares, as provided for in the Merger Agreement), will be converted, in accordance with the procedures set forth in the Merger Agreement, into 0.90 of common shares, no par value, of Peoples. Upon the terms and subject to the conditions set forth in the Merger Agreement, the Merger is expected to close in the second quarter of 2023.

In conjunction with the Merger Agreement discussed above, the Company, with the unanimous approval of the Board of Directors, terminated its Tax Benefit Preservation Plan on October 24, 2022. The Tax Benefit Preservation Plan was originally put in place in 2015 and designed to preserve the benefits of the Company’s substantial tax assets. Restrictions on transfer designed to protect the Company’s tax assets remain in effect under the Company’s Articles of Incorporation, as approved by shareholders.

The Company reported net income of $~~1.8~~$5.8 million, or $0.76 per basic and ~~$5.2~~diluted common share, and $13.4 million, or $1.76 per basic and diluted common share, for the three and nine months ended September 30, ~~2017,~~2022, compared with net income of ~~$1.4~~$4.3 million, or $0.57 per basic and ~~$3.9~~diluted common share, and $11.5 million, or $1.51 per basic and diluted common share, for the same periods of 2016. After deductions for earnings allocated to participating securities, net income available to common shareholders was $1.7 million and $5.1 million for the three and nine months ended September 30, 2017, respectively, compared with net income available to common shareholders of $1.3 million and $3.8 million for the three and nine months ended September 30, 2016, respectively.

~~Basic and diluted net income per common share were $0.~~29 and $0.83 for the three and nine months ended September 30, 2017, respectively, compared with basic and diluted net income per common share of $0.22 and $0.66 for the three and nine months ended September 30, 2016, respectively.2021.

~~We note the~~ ~~following significant items~~Highlights for the nine months ended September 30, ~~2017:~~2022 are as follows:

●

The Bank is no longer subject to a consent order with the Federal Deposit Insurance Corporation and Kentucky Department of Financial Institutions. We were notified that the Bank’s prior consent order was terminated, effective October 31, 2017.

●

~~Loan growth outpaced paydowns during the period.~~ Average loans receivable increased approximately ~~$36.2~~$100.0 million, or ~~5.8%~~10.4%, to ~~$658.0 million~~$1.06 billion for the nine months ended September 30, ~~2017,~~2022, compared with ~~$621.8~~$959.6 million for the first nine months of ~~2016. This~~2021. SBA Paycheck Protection Program (“PPP”) loans averaged $340,000 and $19.4 million for the first nine months of 2022 and 2021, respectively.

●

Net interest margin increased three basis points to 3.56% in the first nine months of 2022 compared with 3.53% in the first nine months of 2021. The Federal Reserve increased the fed funds target by 25 basis points on March 16, 2022, 50 basis points on May 4, 2022, 75 basis points on June 15, 2022, 75 basis points on July 26, 2022, and 75 basis points on September 20, 2022. During the second and third quarters of 2022, the Bank’s fed funds sold, floating rate investment securities, loans with variable rate pricing features, and new loan originations benefitted from the upward movement in short-term rates and are expected to continue to benefit as rates continue to rise. The cost of interest-bearing liabilities has also been impacted to a lesser extent but is also expected to continue to increase as short-term interest rates continue to rise.

●

The yield on earning assets increased to 4.05% for the first nine months of 2022, compared to 4.00% for the first nine months of 2021. The yield on earning assets for the first nine months of 2021 was significantly impacted by $2.5 million in PPP fees, compared to $45,000 for the first nine months of 2022. During the first nine months of 2022, PPP fees represented approximately one basis point of earning asset yield and net interest margin, compared to 27 basis points for the first nine months of 2021. The reduction in PPP fee income was offset by an increase in interest revenue due to an increase in average loans between periods. The increase in average loans resulted in an increase in interest revenue volume of approximately ~~$1.3~~$3.4 million for nine months ended September 30, 2022, which was offset by ~~rate decreases~~a decrease in interest revenue attributable to rates of ~~$852,000 for the nine months September 30, 2017,~~$1.4 million due primarily to lower PPP fees between periods, as compared with the nine months ~~of 2016.~~ended September 30, 2021.

●

The cost of interest-bearing liabilities increased from 0.62% in the first nine months of 2021 to 0.66% in the first nine months of 2022 as a result of increases in short-term interest rates during 2022.

●

Net interest margin decreased three basis points to 3.44% in the third quarter of 2017 compared to 3.47% in the third quarter of 2016. The cost of interest bearing liabilities increased seven basis points to 0.85% in the third quarter of 2017 compared to 0.78% in the third quarter of 2016. Net interest margin increased two basis points to 3.47% in the first nine months of 2017 compared with 3.45% in the first nine months of 2016. The cost of interest bearing liabilities increased two basis points to 0.81% in the first nine months of 2017 compared with 0.79% in the first nine months of 2016.

●

~~During the period, our improving trends in non-performing loans, past due loans, and~~ loan ~~risk categories continued. We recorded no provision for loan losses expense during the first nine months of 2017, compared to negative provisions for loan losses expense of $1.9~~recoveries were $1.6 million for the first nine months of ~~2016 and $750,000 for the third quarter~~2022, compared to net loan charge-offs of ~~2016. Both were attributable to declining historical loss rates, improvements in asset quality, and management’s assessment of risk in the loan portfolio. Net loan recoveries were $10,000~~$120,000 for the first nine months of ~~2017,~~2021. During the third quarter of 2022, the Bank received a payoff of $2.0 million on a nonaccrual commercial real estate loan resulting in a recovery of $1.5 million.

●

A negative provision for loan losses of $1.3 million and $50,000 was recorded in the third quarter and first nine months of 2022, respectively, compared to ~~net~~a provision for loan ~~charge-offs~~losses of ~~$652,000 for~~$300,000 and $650,000 in the third quarter and the first nine months of ~~2016.~~2021, respectively. The 2022 negative loan loss provisions were primarily attributable to the significant recovery recognized during the third quarter and its impact on the historical loss percentages, offset by the additional reserve required by the growth trends within the portfolio during the period. The 2021 loan loss provisions were attributable to growth trends within the portfolio and net loan charge-offs impacting historical loss percentages during the period.

●

Non-performing loans decreased by $3.4 million to $5.8 million at September 30, 2017, compared with $9.2 million at December 31, 2016. The decrease in non-performing loans was primarily due to $4.5 million in paydowns and $528,000 in charge-offs which were partially offset by $2.0 million in loans placed on nonaccrual.

●

Loans past due 30-59 days decreased from ~~$2.3 million~~$556,000 at December 31, ~~2016~~2021 to ~~$872,000~~$300,000 at September 30, ~~2017,~~2022, and loans past due 60-89 days ~~increased~~decreased from ~~$315,000~~$210,000 at December 31, ~~2016~~2021 to ~~$612,000~~$57,000 at September 30, ~~2017.~~2022. Total loans past due and nonaccrual loans decreased to ~~$7.3~~$1.4 million at September 30, ~~2017,~~2022 from ~~$11.8~~$3.9 million at December 31, ~~2016.~~2021.

●

Pass loans represent 92.8% of the portfolio at September 30, 2017, compared to 91.7% at December 31, 2016. During the nine months ended September 30, 2017, the pass category increased approximately $46.8 million, the watch category increased approximately $4.7 million, the special mention category increased approximately $101,000, and the substandard category declined approximately $8.3 million. The $8.3 million decrease in loans classified as substandard was primarily driven by $5.8 million in principal payments received , $4.5 million in loans upgraded from substandard, $623,000 in charge-offs, and $270,000 in loans moved to OREO, offset by $2.8 million in loans moved to substandard during the period.

●

Foreclosed properties were $6.3 million at September 30, 2017, compared with $6.8 million at December 31, 2016, and $7.1 million at September 30, 2016. During the first nine months of 2017, the Company acquired $270,000 and sold $738,000 of OREO. Operating expenses and fair value write downs, net of net gain on sales totaled $1.3 million for the first nine months of 2016 compared to $92,000 for the first nine months of 2017.

●

~~Our ratio of non-performing assets to total assets, including accruing TDRs, decreased to 1.38% at September 30, 2017, compared with 2.26% at December 31, 2016, and 2.55% at September 30, 2016.~~

●

Non-interest income decreased $291,000 to $3.4 million for the first nine months of 2017, compared with $3.6 million for the first nine months of 2016. The decrease was driven primarily by reductions in OREO income of $451,000, partially offset by a $195,000 increase in service charges on deposits.

●

Non-interest expense decreased $2.7 million to $21.3 million for the first nine months of 2017 compared with $23.9 million for the first nine months of 2016, primarily due to a reduction in OREO expenses of approximately $1.2 million, a reduction of professional fees of $475,000, a reduction of litigation and loan collection expense of $454,000, and a reduction of FDIC insurance expense of $403,000.

●

Deposits ~~increased 2.0% to $866.8 million~~were $1.22 billion at September 30, ~~2017,~~2022, compared with ~~$849.9 million~~$1.21 billion at December 31, ~~2016. Noninterest-bearing demand deposits increased 7.6% from $124.4 million at December 31, 206 to $133.9 million at September 30, 2017.~~2021. Certificate of deposit balances increased ~~$938,000~~$7.8 million during the first nine months of ~~2017~~2022 to ~~$446.6~~$273.8 million at September 30, ~~2017,~~2022, from ~~$444.6~~$266.0 million at December 31, ~~2016. Money~~2021. Non-interest bearing accounts increased $13.9 million, savings accounts decreased $8.9 million, money market ~~deposits increased 10.1% at September 30, 2017~~accounts decreased $2.5 million, and interest checking accounts decreased $341,000 during the first nine months of 2022 compared with December 31, ~~2016.~~2021.

Table of Contents

●

On ~~June 30, 2017,~~October 1, 2022, the Company ~~entered into~~paid a ~~$10.0 million senior secured loan agreement with a commercial bank. The loan matures on June 30, 2022. Interest is payable quarterly at a rate~~$0.05 per common share cash dividend to shareholders 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%record as of the ~~issued and outstanding stock~~close of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty. The Company contributed $9.0 million of the borrowing proceeds to the Bank as common equity Tier 1 capital. The remaining $1.0 million of the borrowing proceeds was retained by the lender in escrow to service quarterly interest payments. Atbusiness on September ~~30, 2017, the escrow account had a balance of $903,000.~~16, 2022.

Application of Critical Accounting Policies

WeManagement continually ~~review our~~reviews accounting policies and financial information disclosures. ~~Our~~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~~the Company’s Annual Report on Form 10-K for the calendar year ended December 31, ~~2016.~~2021. Management has discussed the development, selection, and application of ~~our~~the Company’s critical accounting policies with ~~our~~its Audit Committee. During the first nine months of ~~2017,~~2022, 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~~components for the three months ended September 30, ~~2017,~~2022, compared with the same period of ~~2016:~~2021:

	For the Three Months					Change from						For the Three Months					Change from
	Ended September 30,					Prior Period						Ended September 30,					Prior Period
	2017		2016			Amount			Percent			2022			2021		Amount			Percent
	(dollars in thousands)											(dollars in thousands)

Gross interest income	$	9,446	$	8,931		$	515			5.8	%	$	15,121		$	12,975	$	2,146			16.5	%
Gross interest expense		1,659		1,473			186			12.6			2,209			1,354		855			63.1
Net interest income		7,787		7,458			329			4.4			12,912			11,621		1,291			11.1
Provision (negative provision) for loan losses		—		(750	)		750			100.0			(1,250	)		300		(1,550	)		(516.7	)
Non-interest income		1,182		1,105			77			7.0			2,228			2,436		(208	)		(8.5	)
Non-interest expense		7,175		7,920			(745	)		(9.4	)		8,697			8,050		647			8.0
Net income before taxes		1,794		1,393			401			28.8			7,693			5,707		1,986			34.8
Income tax expense		—		—			—			—			1,880			1,366		514			37.6
Net income		1,794		1,393			401			28.8			5,813			4,341		1,472			33.9

Net income for the three months ended September 30, ~~2017~~2022 totaled ~~$1.8~~$5.8 million, compared with ~~$1.4~~$4.3 million for the comparable period of ~~2016.~~2021. Net interest income increased ~~$329,000~~$2.1 million from the ~~2016~~2021 third quarter primarily as a result of an increase in ~~earning assets. Average earning assets increased~~average loans as compared to the prior period. A negative provision for loan losses of $1.3 million was recorded in the third quarter of 2022, as compared to a provision for loan losses of $300,000 in the third quarter of 2021. The 2022 negative loan loss provision was primarily attributable to the significant recovery recognized during the third quarter and its impact on the historical loss percentages, offset by the additional reserve required by the growth trends within the portfolio during the period. The 2021 loan loss provision was attributable to growth trends within the portfolio and net loan charge-offs impacting historical loss percentages during the period.

Non-interest income decreased $208,000 from ~~$864.3~~$2.4 million in the third quarter of 2021 to $2.2 million for the third quarter of ~~2016~~2022. The third quarter of 2021 included a $465,000 gain on the call of a corporate bond from the Bank’s available for sale securities portfolio. Service charges on deposit accounts increased $165,000 as compared to ~~$907.7 for~~ the third quarter of 2017. While net interest income increased, net interest margin decreased three basis points to 3.44% in the third quarter of 2017 compared with 3.47% for the comparable period of 2016. The decrease in margin between periods was2021 due to an increase in ~~the cost of interest bearing liabilities~~transaction volumes. Non-interest expense increased $647,000 from ~~0.78% in the third quarter of 2016 to 0.85% in the third quarter of 2017.~~

~~The third quarter of 2016 benefited from a $750,000 negative loan loss provision. There was no loan loss provisioning in the third quarter of 2017. Non-interest income increased by $77,000 to $1.2 million from $1.1~~$8.1 million in the third quarter of ~~2016 primarily due~~2021 to ~~an increase in service charges in deposit accounts of $48,000. Non-interest expense decreased from $7.9~~$8.7 million in the third quarter of ~~2016 to $7.2 million in~~2022. Salaries and benefits expense increased $377,000 from the third quarter of ~~2017 primarily due to decreased salaries~~2021 as a result of the inflationary impact on talent acquisition and ~~employee benefits expense~~the administration of ~~$262,000, a $211,000 decline in OREO expense, a $144,000 decline in loan collection and litigation expense,~~annual salary adjustments, increased health care utilization costs, and a ~~$142,000 decline~~modest increase in ~~professional fees.~~performance-based incentive compensation. Other non-interest expense increased $214,000 from the third quarter of 2021 primarily related to an increase in losses associated with demand deposit charge-offs and fraudulent check and debit card activity during the period.

The following table summarizes components of income and expense and the change in those ~~component~~scomponents for the nine months ended September 30, ~~2017,~~2022, compared with the same period of ~~2016:~~2021:

	For the Nine Months					Change from						For the Nine Months					Change from
	Ended September 30,					Prior Period						Ended September 30,					Prior Period
	2017		2016			Amount			Percent			2022			2021		Amount			Percent
	(dollars in thousands)											(dollars in thousands)

Gross interest income	$	27,805	$	26,821		$	984			3.7	%	$	40,670		$	37,601	$	3,069			8.2	%
Gross interest expense		4,689		4,516			173			3.8			4,964			4,386		578			13.2
Net interest income		23,116		22,305			811			3.6			35,706			33,215		2,491			7.5
Provision (negative provision) for loan losses		—		(1,900	)		1,900			100.0			(50	)		650		(700	)		(107.7	)
Non-interest income		3,357		3,648			(291	)		(8.0	)		6,722			6,455		267			4.1
Non-interest expense		21,290		23,947			(2,657	)		(11.1	)		24,895			23,988		907			3.8
Net income before taxes		5,183		3,906			1,277			32.7			17,583			15,032		2,551			17.0
Income tax expense		—		21			(21	)		(100.0	)		4,155			3,568		587			16.5
Net income		5,183		3,885			1,298			33.4			13,428			11,464		1,964			17.1

Net ~~income~~income for the nine months ended September 30, ~~2017~~2022 totaled ~~$5.2~~$13.4 million, compared with net income of ~~$3.9~~$11.5 million for the comparable period of ~~2016.~~2021. Net interest income increased ~~$811,000~~$2.5 million from the first nine months of ~~2016~~2021 as a result of an increase in ~~earning assets~~average loans and ~~net interest margin. Net interest margin increased two basis points to 3.47%~~average investment securities. A negative provision for loan losses of $50,000 was recorded in the first nine months of ~~2017~~2022, as compared ~~with 3.45%~~to $650,000 provision for loan losses in the first nine months of ~~2016.~~2021. The increase in margin between periods was due to an increase in the yield on earning assets from 4.14% for the first nine months of 2016 to 4.17% for the first nine months of 2017, partially offset by an increase in the cost of interest bearing liabilities from 0.79% for the first nine months of 2016 to 0.81% for the first nine months of 2017. Average earning assets increased from $874.2 million for the first nine months of 2016 to $899.9 million for the first nine months of 2017.

~~The nine months ended September 30, 2016 benefited from a $1.9 million~~2022 negative loan loss ~~provision. There~~provision was noprimarily attributable to the significant recovery recognized during the third quarter and its impact on the historical loss percentages, offset by the additional reserve required by the growth trends within the portfolio during the period. The 2021 loan loss ~~provisioning in~~provision was attributable to growth trends within the ~~first nine months~~portfolio and net loan charge-offs impacting historical loss percentages during the period.

Table of ~~2017.~~ Contents

Non-interest income ~~decreased~~increased by ~~$291,000~~$267,000 to ~~$3.4~~$6.7 million from ~~$3.6~~$6.5 million in the first nine months of ~~2016~~2021. The increase was primarily due to ~~a decrease in OREO income of $451,000 and a $192,000 decrease in gains on sales of securities. This was partially offset by~~ an increase in ~~service~~services charges on deposit accounts of ~~$195,000 and~~$421,000 due to an increase in transaction volumes, as well as a $179,000 increase in bank ~~card interchange fees~~owned life insurance income due to additional policies being purchased in March 2022. Non-interest income for the first nine months of ~~$76,000.~~2022 also included a $163,000 gain on sale of premises held for sale from the first quarter of 2022, while the first nine months of 2021 included a $191,000 gain on sale of OREO from the second quarter of 2021, as well as a $465,000 gain on the call of a corporate bond from the third quarter of 2021. Non-interest expense ~~decreased~~increased $907,000 from ~~$23.9~~$24.0 million in the first nine months of ~~2016~~2021 to ~~$21.3~~$24.9 million in the first nine months of ~~2017~~2022. The increase was primarily due to ~~a decrease~~an increase of $643,000 in ~~OREO expense of $1.2 million, a $475,000 decline in professional fees, a $454,000 decline in litigation~~salaries and ~~loan collection expense,~~benefits as discussed above, and a ~~$403,000 decline~~$328,000 increase in ~~FDIC insurance.~~other non-interest expense primarily related to losses associated with demand deposit charge-offs and fraudulent check and debit card activity during the period.

Net Interest Income – Net interest income was ~~$7.8~~$12.9 million for the three months ended September 30, ~~2017,~~2022, an increase of ~~$329,000,~~$1.3 million, or ~~4.4%~~11.1%, compared with ~~$7.5~~$11.6 million for the same period in ~~2016.~~2021. Net interest spread and margin were ~~3.31%~~3.52% and ~~3.44%~~3.73%, respectively, for the third quarter of ~~2017,~~2022, compared with ~~3.37%~~3.47% and ~~3.47%~~3.61%, respectively, for the third quarter of ~~2016. Net average non-accrual~~2021.

The Federal Reserve increased the fed funds target by 25 basis points on March 16, 2022, 50 basis points on May 4, 2022, 75 basis points on June 15, 2022, 75 basis points on July 26, 2022, and 75 basis points on September 20, 2022. During the second and third quarters of 2022, the Bank’s fed funds sold, floating rate investment securities, loans ~~were $6.2 million~~with variable rate pricing features, and ~~$11.0 million~~new loan originations benefitted from the upward movement in short-term rates and are expected to continue to benefit as rates continue to rise. The cost of interest-bearing liabilities has also been impacted to a lesser extent but is also expected to continue to increase as short-term interest rates continue to rise.

The yield on earning assets increased to 4.37% for the third ~~quarters~~quarter of ~~2017 and 2016, respectively.~~

2022, as compared to 4.03% in the third quarter of 2021. Average interest-earning assets were $1.38 billion for the third quarter of 2022, compared with $1.28 billion for the third quarter of 2021, a 7.4% increase. Average loans ~~receivable~~ increased approximately ~~$43.5~~$143.9 million and average investment securities increased $7.4 million, while average lower yielding fed funds sold decreased $56.2 million for the third quarter of ~~2017~~2022, compared with the third quarter of ~~2016. This~~2021. PPP loans averaged $157,000 and $12.6 million for the third quarter of 2022 and 2021, respectively. The increase in average loans resulted in an increase in interest revenue volume of approximately ~~$525,000~~$1.7 million for the quarter ended September 30, 2022, which was partially offset by a decrease in interest ~~income driven by interest rate decreases aggregating $203,000 for the quarter ended September 30, 2017,~~revenue attributable to rates of $117,000 due primarily to lower PPP fees between periods, as compared with the third quarter of ~~2016. Interest foregone on non-accrual loans totaled $105,000~~2021. Total interest income increased 16.5%, or $2.1 million, for the third quarter of ~~2017,~~2022 compared ~~with $180,000~~to the third quarter of 2021.

Loan fee income can meaningfully impact net interest income, loan yields, and net interest margin. The amount of loan fee income included in total interest income was $279,000 and $1.5 million for the quarters ended September 30, 2022 and September 30, 2021, respectively. This represents eight basis points and 48 basis points of yield on earning assets and net interest margin for the third quarter ended September 30, 2022 and 2021, respectively. Loan fee income for the third quarter of ~~2016.~~2022 did not include any fees earned on PPP loans, compared to $1.4 million in the third quarter of 2021, which represented 43 basis points of earning asset yield and net interest margin for the third quarter of 2021.

~~Net interest margin~~ ~~decreased three basis points from our margin~~The cost of ~~3.47% in~~interest-bearing liabilities increased to 0.85% for the third quarter of 2022, as compared to 0.56% for the third quarter of 2021. While deposit mix has continued to improve as compared to the prior year third quarter, the cost of interest-bearing liabilities was impacted by recent increases in short-term interest rates. Future short-term rate increases are expected to ~~3.44%~~further impact the cost of interest-bearing liabilities. Average interest-bearing liabilities increased by 7.9% to $1.03 billion for the third quarter of ~~2017. The yield on earning assets increased one basis point and rates paid on interest-bearing liabilities increased seven basis point from~~2022, as compared to $954.0 million for the third quarter of ~~2016.~~2021 primarily due to an increase of $42.2 million in average FHLB advances and a $32.9 million increase in average interest-bearing deposits. Total interest expense increased by 63.1% to $2.2 million for the third quarter of 2022 as compared to $1.4 million for the third quarter of 2021.

Net interest income was ~~$23.1~~$35.7 million for the nine months ended September 30, ~~2017,~~2022, an increase of ~~$811,000,~~$2.5 million, or ~~3.6%~~7.5%, compared with ~~$22.3~~$33.2 million for the same period in ~~2016.~~2021. Net interest spread and margin were ~~3.36%~~3.39% and ~~3.47%~~3.56%, respectively, for the first nine months of ~~2017,~~2022, compared with ~~3.35%~~3.38% and ~~3.45%~~3.53%, respectively, for the first nine months of ~~2016. Net average non-accrual loans were $7.5 million and $12.0 million~~2021.

The yield on earning assets increased to 4.05% for the first nine months of ~~2017 and 2016, respectively. Cost of interest-bearing liabilities was 0.81% for~~2022, as compared to 4.00% in the first nine months of ~~2017 compared to 0.79% for the first nine months of 2016.~~

2021. Average ~~loans receivable~~ interest-earning assets increased approximately ~~$36.2~~$84.8 million for the nine months ended September 30, ~~2017~~2022, compared with the first nine months of ~~2016. This~~2021. Average loans for the first nine months of 2022 increased approximately $100.0 million and average investment securities increased $30.8 million, while average lower yielding fed funds sold decreased $45.4 million compared with the first nine months of 2021. PPP loans averaged $340,000 and $19.4 million for the first nine months of 2022 and 2021, respectively. The increase in average loans resulted in an increase in interest revenue volume of approximately ~~$1.3~~$3.4 million for nine months ended September 30, 2022, which was offset by a decrease in interest revenue attributable to rates of $1.4 million due primarily to lower PPP fees between periods, as compared with the nine months ended September 30, 2021. The increase in average investment securities also resulted in $565,000 in additional interest income ~~driven by~~as compared to the prior period. Total interest ~~rate decreases aggregating $852,000~~income increased 8.2%, or $3.1 million, for the first nine months of 2022 compared to the first nine months of 2021.

The amount of loan fee income included in total interest income was $776,000 and $3.3 million for the nine months ended September 30, ~~2017 compared with the prior year period. Interest foregone~~2022 and 2021, respectively. This represents eight basis points and 35 basis points of yield on ~~non-accrual loans totaled $368,000~~earning assets and net interest margin for the nine months ended September 30, ~~2017, compared with $576,000~~2022 and 2021, respectively. Loan fee income included PPP fees of $45,000 and $2.5 million for the nine months ended September 30, ~~2016.~~2022 and 2021, respectively, which represents approximately one basis point and 27 basis points of earning asset yield and net interest margin for those nine-month periods, respectively.

~~Net interest margin~~The cost of interest-bearing liabilities increased ~~two basis points~~ to ~~3.47%~~0.66% for the first nine months of ~~2017 from our margin of 3.45% in the first nine months of 2016. The yield on earning assets increased three basis points~~2022, as compared to 0.62% for the first nine months of ~~2017 from~~2021. While deposit mix has continued to improve as compared to the prior year, the cost of interest-bearing liabilities was impacted by the recent increases in short-term interest rates and is expected to continue to increase as short-term interest rates continue to rise. Average interest-bearing liabilities increased by $58.3 million for the nine months ended September 30, 2022 compared with the first nine months of ~~2016,~~2021 primarily due to a $94.3 million increase in average money market accounts, offset by a decrease of $67.4 million in average certificate of deposits. Total interest expense increased by 13.2% to $5.0 million for the nine months ended September 30, 2022 as compared ~~with an increase~~to $4.4 million for the first nine months of ~~two basis points in rates paid on interest-bearing liabilities.~~2021.

Table of Contents

Average Balance Sheets

The following table presents the average balance sheets for the ~~three~~ ~~month~~three-month periods ended September 30, ~~2017~~2022 and ~~2016,~~2021, 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 September 30,																Three Months Ended September 30,
	2017								2016								2022								2021
	Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost
	(dollars in thousands)																(dollars in thousands)

ASSETS
Interest-earning assets:
Loan receivables (1)(2)	$	669,592		$	8,021		4.75	%	$	626,095		$	7,699		4.89	%	$	1,096,478		$	13,179		4.77	%	$	952,567		$	11,565		4.82	%
Securities
Taxable		174,776			1,088		2.47			160,130			956		2.38			219,410			1,592		2.88			213,173			1,183		2.20
Tax-exempt ~~(3)~~		19,547			143		4.47			20,779			153		4.51			29,615			166		2.96			28,464			168		3.12
FHLB stock		7,323			95		5.15			7,323			72		3.91			4,718			63		5.30			5,247			28		2.12
Federal funds sold and other		36,485			99		1.08			49,980			51		0.41			28,550			121		1.68			84,737			31		0.15
Total interest-earning assets		907,723			9,446		4.16	%		864,307			8,931		4.15	%		1,378,771			15,121		4.37	%		1,284,188			12,975		4.03	%
Less: Allowance for loan losses		(8,964	)							(10,135	)							(12,915	)							(12,659	)
Non-interest earning assets		52,928								63,453								85,791								97,843
Total assets	$	951,687							$	917,625							$	1,451,647							$	1,369,372

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Certificates of deposit and other time deposits	$	451,948		$	1,059		0.93	%	$	455,840		$	1,009		0.88	%	$	251,608		$	381		0.60	%	$	290,062		$	384		0.53	%
NOW and money market deposits		253,699			250		0.39			231,601			238		0.41			510,914			729		0.57			436,146			322		0.29
Savings accounts		35,904			15		0.17			33,874			15		0.18			158,380			132		0.33			161,799			106		0.26
FHLB advances		2,350			13		2.19			2,672			17		2.53			62,229			354		2.26			20,000			39		0.77
Junior subordinated debentures		23,696			225		3.77			24,598			194		3.14			21,000			239		4.52			21,000			128		2.42
Senior debt		10,000			97		3.85			—			—		—
Total interest-bearing liabilities		777,597			1,659		0.85	%		748,585			1,473		0.78	%
Subordinated capital notes																		25,000			374		5.94			25,000			375		5.95
Total interest-bearing liabilities																		1,029,131			2,209		0.85	%		954,007			1,354		0.56	%

Non-interest-bearing liabilities:
Non-interest-bearing deposits		129,072								118,611								282,196								278,778
Other liabilities		5,859								8,259								10,974								10,031
Total liabilities		912,528								875,455								1,322,301								1,242,816
Stockholders’ equity		39,159								42,170
Stockholders’ equity																		129,346								126,556
Total liabilities and stockholders’ equity	$	951,687							$	917,625							$	1,451,647							$	1,369,372

Net interest income				$	7,787							$	7,458							$	12,912							$	11,621

Net interest spread							3.31	%							3.37	%							3.52	%							3.47	%
Net interest margin							3.44	%							3.47	%							3.73	%							3.61	%

(1)

~~(1)~~Includes loan fees in both interest income and the calculation of yield on loans.

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

(2)	~~Calculations include non-accruing loans averaging $6.2~~Loan fee income included no PPP fees in the three months ended September 30, 2022 and $1.4 million, ~~and $11.0 million, respectively,~~or 43 basis points, in ~~average loan amounts outstanding.~~

~~(3)~~

~~Taxable equivalent yields are calculated assuming a 35% federal income tax rate.~~the three months ended September 30, 2021.

Table of Contents

The following table presents the av~~erage~~average balance sheets for the ~~nine month~~nine-month periods ended September 30, ~~2017~~2022 and ~~2016,~~2021, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

	Nine Months Ended September 30,																Nine Months Ended September 30,
	2017								2016								2022								2021
	Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost
	(dollars in thousands)																(dollars in thousands)
ASSETS
Interest-earning assets:
Loan receivables (1)(2)	$	657,980		$	23,493		4.77	%	$	621,824		$	23,036		4.95	%	$	1,059,609		$	35,537		4.48	%	$	959,571		$	33,573		4.68	%
Securities
Taxable		175,838			3,370		2.56			161,232			2,895		2.40			223,648			4,338		2.59			197,318			3,402		2.31
Tax-exempt ~~(3)~~		19,805			432		4.49			21,355			475		4.57			29,906			495		2.95			25,476			476		3.33
FHLB stock		7,323			264		4.82			7,323			219		3.99			4,982			127		3.41			5,619			87		2.07
Federal funds sold and other		38,913			246		0.85			62,451			196		0.42			30,234			173		0.77			75,600			63		0.11
Total interest-earning assets		899,859			27,805		4.17	%		874,185			26,821		4.14	%		1,348,379			40,670		4.05	%		1,263,584			37,601		4.00	%
Less: Allowance for loan losses		(8,950	)							(11,138	)							(12,291	)							(12,620	)
Non-interest earning assets		52,904								67,241								89,330								98,339
Total assets	$	943,813							$	930,288							$	1,425,418							$	1,349,303

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Certificates of deposit and other time deposits	$	458,732		$	3,149		0.92	%	$	471,530		$	3,108		0.88	%	$	256,320		$	999		0.52	%	$	323,748		$	1,451		0.60	%
NOW and money market deposits		244,521			683		0.37			231,213			696		0.40			499,568			1,471		0.39			405,238			961		0.32
Savings accounts		35,650			45		0.17			34,460			46		0.18			162,864			320		0.26			155,364			343		0.30
FHLB advances		6,594			64		1.30			2,827			54		2.55			44,103			502		1.52			20,203			115		0.76
Junior subordinated debentures		23,920			651		3.64			24,822			612		3.29			21,000			546		3.48			21,000			390		2.48
Senior debt		3,407			97		3.81			—			—		—
Subordinated capital notes																		25,000			1,126		6.02			25,000			1,126		6.02
Total interest-bearing liabilities		772,824			4,689		0.81	%		764,852			4,516		0.79	%		1,008,855			4,964		0.66	%		950,553			4,386		0.62	%

Non-interest-bearing liabilities:
Non-interest-bearing deposits		125,932								117,377								276,829								268,217
Other liabilities		8,401								9,735								10,317								8,632
Total liabilities		907,157								891,964								1,296,001								1,227,402
Stockholders’ equity		36,656								38,324
Stockholders’ equity																		129,417								121,901
Total liabilities and stockholders’ equity	$	943,813							$	930,288							$	1,425,418							$	1,349,303

Net interest income				$	23,116							$	22,305							$	35,706							$	33,215

Net interest spread							3.36	%							3.35	%							3.39	%							3.38	%

Net interest margin							3.47	%							3.45	%							3.56	%							3.53	%

(1)

~~(1)~~Includes loan fees in both interest income and the calculation of yield on loans.

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

(2)	~~Calculations include non-accruing loans averaging $7.5~~Loan fee income included PPP fees of $45,000, or approximately one basis point, for the nine months ended September 30, 2022 and $2.5 million, ~~and $12.0 million, respectively, in average loan amounts outstanding.~~

~~(3)~~

~~Taxable equivalent yields are calculated assuming a 35% federal income tax rate.~~or 27 basis points, for the nine months ended September 30, 2021.

Table of Contents

Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest income and interest expense for the periods indicated. For each ~~categor~~ycategory 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 September 30, 2017 vs. 2016									Nine Months Ended September 30, 2017 vs. 2016									Three Months Ended September 30, 2022 vs. 2021									Nine Months Ended September 30, 2022 vs. 2021
	Increase (decrease) due to change in									Increase (decrease) due to change in									Increase (decrease) due to change in									Increase (decrease) due to change in
	Rate			Volume			Net Change			Rate			Volume			Net Change			Rate			Volume			Net Change			Rate			Volume			Net Change
	(in thousands)																		(in thousands)
Interest-earning assets:
Loan receivables	$	(203	)	$	525		$	322		$	(852	)	$	1,309		$	457		$	(117	)	$	1,731		$	1,614		$	(1,432	)	$	3,396		$	1,964
Securities		38			84			122			184			248			432			365			42			407			390			565			955
FHLB stock		23			—			23			45			—			45			38			(3	)		35			51			(11	)		40
Federal funds sold and other		65			(17	)		48			144			(94	)		50			124			(34	)		90			169			(59	)		110
Total increase (decrease) in interest income		(77	)		592			515			(479	)		1,463			984			410			1,736			2,146			(822	)		3,891			3,069

Interest-bearing liabilities:
Certificates of deposit and other time deposits		59			(9	)		50			127			(86	)		41			51			(54	)		(3	)		(174	)		(278	)		(452	)
NOW and money market accounts		(10	)		22			12			(52	)		39			(13	)		344			63			407			259			251			510
Savings accounts		(1	)		1			—			(3	)		2			(1	)		28			(2	)		26			(39	)		16			(23	)
FHLB advances		(2	)		(2	)		(4	)		(37	)		47			10			150			165			315			177			210			387
Junior subordinated debentures		38			(7	)		31			62			(23	)		39			111			—			111			156			—			156
Senior debt		—			97			97			—			97			97
Subordinated capital notes																				(1	)		—			(1	)		—			—			—
Total increase (decrease) in interest expense		84			102			186			97			76			173			683			172			855			379			199			578
Increase (decrease) in net interest income	$	(161	)	$	490		$	329		$	(576	)	$	1,387		$	811		$	(273	)	$	1,564		$	1,291		$	(1,201	)	$	3,692		$	2,491

Non-Interest Income – The following table presents the major categories of non-interest income for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~2021:

	For the Three Months					For the Nine Months					For the Three Months				For the Nine Months
	Ended September 30,					Ended September 30,					Ended September 30,				Ended September 30,
	2017		2016			2017			2016		2022		2021		2022			2021
	(dollars in thousands)										(dollars in thousands)

Service charges on deposit accounts	$	568	$	520		$	1,617		$	1,422	$	748	$	583	$	2,072		$	1,651
Bank card interchange fees		245		214			713			637		1,061		1,044		3,151			3,077
Other real estate owned rental income		—		46			—			451
Bank owned life insurance income		103		101			309			316
Net gain (loss) on sales and calls of securities		—		(16	)		(5	)		187
Income from bank owned life insurance												148		112		599			420
Net gain on sale of other real estate owned												—		—		—			191
Gain (loss) on sales and calls of securities, net												—		465		(3	)		460
Gain on sale of premises held for sale												—		—		163			—
Other		266		240			723			635		271		232		740			656
Total non-interest income	$	1,182	$	1,105		$	3,357		$	3,648	$	2,228	$	2,436	$	6,722		$	6,455

Non-interest income for the third quarter of ~~2017 increased~~2022 decreased by ~~$77,000,~~$208,000, or ~~7.0%~~8.5%, compared with the third quarter of ~~2016.~~2021. The ~~increase in non-interest income was primarily driven by an increase in~~third quarter of 2021 included a $465,000 gain on the call of a corporate bond from the Bank’s available for sale securities portfolio. Compared to the third quarter of 2021, service charges on deposit accounts ~~of $48,000 as well as~~increased $165,000 due to an increase in ~~bank card interchange fees of $31,000.~~ transaction volumes.

For the nine months ended September 30, ~~2017,~~2022, non-interest income ~~decreased~~increased by ~~$291,000,~~$267,000, or ~~8.0%~~4.1%, to ~~$3.4~~$6.7 million compared with ~~$3.6~~$6.5 million for the same period of ~~2016.~~2021. The ~~decrease in non-interest income between the nine-month comparative periods~~increase was primarily due to ~~a $451,000 decrease in OREO rental income and a $192,000 decrease in gains on sales of securities. This was partially offset by~~ an increase in ~~service~~services charges on deposit accounts of ~~$195,000 and~~$421,000 due to an increase in transaction volumes, as well as a $179,000 increase in bank ~~card interchange fees~~owned life insurance income due to additional policies being purchased in March 2022. Non-interest income for the first nine months of ~~$76,000.~~2022 also included a $163,000 gain on sale of premises held for sale from the first quarter of 2022, while the first nine months of 2021 included a $191,000 gain on sale of OREO from the second quarter of 2021, as well as, a $465,000 gain on the call of a corporate bond from the third quarter of 2021.

Table of Contents

Non-interest Expense – The following table presents the major categories of non-interest expense for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~2021:

	For the Three Months				For the Nine Months				For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,				Ended September 30,				Ended September 30,
	2017		2016		2017		2016		2022		2021		2022		2021
	(dollars in thousands)								(dollars in thousands)

Salary and employee benefits	$	3,683	$	3,945	$	11,433	$	11,624	$	4,959	$	4,582	$	14,174	$	13,531
Occupancy and equipment		836		842		2,501		2,504		1,134		1,024		3,218		3,063
Deposit account related expenses										571		545		1,692		1,592
Data processing expense										402		378		1,191		1,133
Professional fees		232		374		776		1,251		206		219		663		701
Marketing expense		364		289		880		706		159		200		464		561
FDIC insurance		356		442		1,055		1,458		90		90		270		315
Data processing expense		321		295		931		887
State franchise and deposit tax		225		255		675		765
Other real estate owned expense		111		322		92		1,284
Litigation and loan collection expense		78		222		121		575
Deposit tax										99		90		297		270
Communications expense										108		153		293		520
Insurance expense										104		105		318		324
Postage and delivery										156		169		469		460
Other		969		934		2,826		2,893		709		495		1,846		1,518
Total non-interest expense	$	7,175	$	7,920	$	21,290	$	23,947	$	8,697	$	8,050	$	24,895	$	23,988

Non-interest expense for the third quarter ended September 30, ~~2017 decreased $745,000,~~2022 increased $647,000, or ~~9.4%~~8.0%, compared with the third quarter of ~~2016. This decrease was primarily due to a decrease in salary~~2021. Salaries and ~~employee~~ benefits expense increased $377,000 from the third quarter of ~~$262,000,~~2021 as a ~~$211,000 decrease in OREO expense as~~result of the ~~OREO portfolio was significantly reduced, a $144,000 decline in loan collection~~inflationary impact on talent acquisition and ~~litigation expenses,~~the administration of annual salary adjustments, increased health care utilization costs, and a ~~$142,000 decline~~modest increase in ~~professional fees.~~ performance-based incentive compensation. Other non-interest expense increased $214,000 from the third quarter of 2021 primarily related to an increase in losses associated with demand deposit charge-offs and fraudulent check and debit card activity during the period.

For the nine months ended September 30, ~~2017,~~2022, non-interest expense ~~decreased $2.7 million,~~increased $907,000, or ~~11.1%~~3.8% to ~~$21.3~~$24.9 million compared with ~~$23.9~~$24.0 million for the first nine months of ~~2016.~~2021. The ~~decreases~~increase was primarily due to an increase of $643,000 in salaries and benefits as discussed above, and a $328,000 increase in other non-interest expense ~~for~~primarily related to losses associated with demand deposit charge-offs and fraudulent check and debit card activity during the nine months ended September 30, 2017 were primarily attributable to decreased OREO expenses of $1.2 million due to the smaller OREO portfolio. The improvement was also attributable to a reduction in professional fees of $475,000, a decrease of $454,000 in litigation and loan collection expense, and a reduction in FDIC insurance of $403,000.period.

Income Tax Expense– –Effective tax rates differ from the federal statutory rate of ~~35%~~21% applied to income before income taxes due to the following:

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

2017

2016

2017

2016

(dollars in thousands)

Federal statutory rate times financial statement income
$ 628 $ 487 $ 1,814 $ 1,367
Effect of:

Valuation allowance
(551
)
(465
)
(1,488
)
(1,197
)
Tax-exempt income
(50
)
(52
)
(147
)
(161
)
Non-taxable life insurance income
(36
)
(35
)
(108
)
(110
)
Restricted stock vesting
— — (98
)
—
Other, net
9 65 27 122
Total
$ — $ — $ — $ 21

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

2022

2021

2022

2021

(dollars in thousands)

Federal statutory tax rate
21
%
21
%
21
%
21
%
Federal statutory rate times financial statement income
$ 1,615 $ 1,199 $ 3,692 $ 3,157
Effect of:

State income taxes
294 224 657 607
Tax-exempt interest income
(32
)
(38
)
(95
)
(108
)
Non-taxable life insurance income
(31
)
(28
)
(126
)
(105
)
Restricted stock vesting
— (1
)
(21
)
(1
)
Other, net
34 10 48 18
Total
$ 1,880 $ 1,366 $ 4,155 $ 3,568

Analysis of Financial Condition

Total assets increased ~~$17.8~~$78.0 million, or ~~1.9%~~5.5%, to ~~$963.0 million~~$1.49 billion at September 30, ~~2017,~~2022, from ~~$945.2 million~~$1.42 billion at December 31, ~~2016.~~2021. This increase was primarily attributable to an increase in ~~net~~ loans receivable of ~~$43.3~~$126.1 million and bank owned life insurance of $7.1 million, offset by decreases of $36.0 million in the securities portfolio and $20.2 million in cash and cash equivalents.
38
Table of Contents
Investment Securities–The securities portfolio serves as a ~~decrease~~source of liquidity and earnings and contributes to the management of interest rate risk. Investments are made in ~~interest bearing deposits in banks~~various types of ~~$19.1 million~~liquid assets, including U.S. Treasury obligations and ~~a decrease in available for sale~~ securities of ~~$3.0 million.~~
~~Deferred Tax Asset Valuation Allowance~~ –various federal agencies, obligations of states and political subdivisions, corporate bonds, and collateralized loan obligations. The ~~Company has a net deferred tax asset of $51.9~~investment portfolio decreased by $36.0 million, ~~subject~~or 13.8%, to ~~a full valuation allowance~~$224.6 million at September 30, ~~2017. Our ability~~2022, compared with $260.7 million at December 31, 2021. The decrease was comprised primarily of $25.9 million in payment proceeds and $20.2 million in fair value declines attributable to ~~utilize deferred tax assets depends upon generating sufficient future levels~~the rising interest rate environment, partially offset by purchases of ~~taxable income.~~ $10.6 million.
The ~~determination to restore a deferred tax asset and eliminate a valuation allowance depends upon~~following table sets forth the ~~evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. A key element~~carrying value of the ~~evaluation is~~securities portfolio at the ~~achievement~~dates indicated (in thousands):

September 30, 2022
December 31, 2021

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Available for sale

U.S. Government and federal agencies
$ 24,810 $ — $ (2,864
)
$ 21,946 $ 26,075 $ 301 $ (133
)
$ 26,243
Agency mortgage-backed residential
82,193 16 (11,777
)
70,432 93,650 1,339 (970
)
94,019
Collateralized loan obligations
48,209 — (2,221
)
45,988 50,227 — (78
)
50,149
Corporate bonds
45,493 9 (2,576
)
42,926 43,432 572 (202
)
43,802
Total available for sale
$ 200,705 $ 25 $ (19,438
)
$ 181,292 $ 213,384 $ 2,212 $ (1,383
)
$ 214,213

Amortized
Cost

Gross
Unrecognized
Gains

Gross
Unrecognized
Losses

Fair
Value

Amortized
Cost

Gross
Unrecognized
Gains

Gross
Unrecognized
Losses

Fair
Value

Held to maturity

State and municipal
$ 43,350 $ — $ (9,582
)
$ 33,768 $ 46,460 $ 158 $ (338
)
$ 46,280
Total held to maturity
$ 43,350 $ — $ (9,582
)
$ 33,768 $ 46,460 $ 158 $ (338
)
$ 46,280
The Bank owns Collateralized Loan Obligations (CLOs), which are debt securities secured by professionally managed portfolios of ~~pre-tax net income rather~~senior-secured loans to corporations. CLO are typically $300 million to $1 billion in size, contain one hundred or more loans and have five to six credit tranches with credit ratings 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 ~~pre-tax net loss~~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 ~~a cumulative basis for~~ the ~~trailing three-year period.~~underlying loans, capital gains and losses on the underlying loans, prepayments on the underlying loans, and other conditions or economic factors. At September 30, ~~2017, our trailing three-year cumulative pre-tax net~~2022, $27.0 million and $19.0 million of the Bank’s CLOs were risk rated AA and A rated, respectively. None of the CLOs were subject to ratings downgrade during the nine months ended September 30, 2022.
Stress testing was completed on each security in the CLO portfolio as of September 30, 2022. Each security in the portfolio passed, without dollar loss, ~~had declined~~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 corporate bond portfolio consists of 16 subordinated debt securities and two senior debt securities of U.S. banks and bank holding companies with maturities ranging from 2024 to ~~$762,000. We continue~~2037. The securities have either initially a fixed rate for five years converting to ~~monitor~~floating rate at an index over LIBOR or SOFR, or a floating rate at an index over LIBOR or SOFR from inception. Management regularly monitors the financial condition of these corporate issuers by reviewing their regulatory and ~~evaluate the positive~~public filings.
The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and ~~negative evidence and will reverse the valuation allowance~~more frequently when ~~we determine it~~economic or market concerns warrant such evaluation. Consideration is ~~more-likely-than-not the asset will be utilized to reduce future taxes payable related~~given to the ~~future taxable income~~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 ~~Company.~~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 September 30, 2022, management does not believe any securities in the portfolio with unrealized losses should be classified as other than temporarily impaired.

39
Table of Contents

Loans Receivable – Loans receivable increased ~~$43.3~~$126.1 million, or ~~6.8%~~12.6%, during the nine months ended September 30, ~~2017~~2022 to ~~$682.5 million~~$1.13 billion as loan growth outpaced paydowns. ~~Our~~The commercial and commercial real estate portfolios increased by an aggregate of ~~$43.8~~$124.3 million, or ~~12.3%~~17.5%, during the first nine months of ~~2017~~2022 and comprised ~~58.4%~~74.0% of the loan portfolio at September 30, ~~2017.~~2022. Residential real estate and consumer portfolios decreased by an aggregate of $9.0 million, or 3.5%, during the first nine months of 2022 and comprised 21.9% of the loan portfolio at September 30, 2022.

Loan Portfolio Composition – The following table presents a summary of the loan portfolio at the dates indicated, net of deferred loan fees, by type.

As of September 30,

As of December 31,

2017

2016

Amount

Percent

Amount

Percent

(dollars in thousands)

Commercial
$ 107,616 15.77
%
$ 97,761 15.29
%
Commercial Real Estate

Construction
44,956 6.59 36,330 5.68
Farmland
88,370 12.95 71,507 11.19
Nonfarm nonresidential
157,956 23.14 149,546 23.39
Residential Real Estate

Multi-family
55,684 8.16 48,197 7.54
1-4 Family
173,213 25.38 188,092 29.42
Consumer
8,474 1.24 9,818 1.54
Agriculture
45,675 6.69 37,508 5.87
Other
567 0.08 477 0.08
Total loans
$ 682,511 100.00
%
$ 639,236 100.00
%
There are no foreign loans in ~~our portfolio. Except for commercial real estate, 1-4 family residential real estate,~~the portfolio and ~~loans for retail facilities (included in nonfarm nonresidential commercial real estate below),~~other than the categories noted, there is no concentration of loans in any industry exceeding 10% of total loans.

As of September 30,

As of December 31,

2022

2021

Amount

Percent

Amount

Percent

(dollars in thousands)

Commercial (1)
$ 240,182 21.29
%
$ 220,826 22.04
%
Commercial Real Estate

Construction
127,302 11.29 74,806 7.47
Farmland
66,820 5.92 68,388 6.83
Nonfarm nonresidential
399,958 35.46 345,893 34.53
Residential Real Estate

Multi-family
45,903 4.07 50,224 5.01
1-4 Family
166,715 14.78 168,873 16.86
Consumer
33,894 3.00 36,440 3.64
Agriculture
46,689 4.14 35,924 3.59
Other
482 0.05 466 0.03
Total loans
$ 1,127,945 100.00
%
$ 1,001,840 100.00
%
(1)
Includes PPP loans of $150,000 and $1.2 million at September 30, 2022 and December 31, 2021, respectively.
Loan Portfolio by Risk Category –The following table presents a summary of the loan portfolio at the dates indicated, by risk category.
September 30, 2017 December 31, 2016 September 30, 2022 December 31, 2021

Loans

% to
Total

Loans

% to
Total

Loans

% to
Total

Loans

% to
Total

(dollars in thousands)

(dollars in thousands)

Pass
$ 633,203 92.8
%
$ 586,430 91.7
%
$ 1,116,009 98.9
%
$ 977,962 97.6
%
Watch
35,167 5.1 30,431 4.8 3,177 0.3 7,856 0.8
Special Mention
598 0.1 497 0.1 — — — —
Substandard
13,543 2.0 21,878 3.4 8,759 0.8 16,022 1.6
Doubtful
— — — — — — — —
Total
$ 682,511 100.0
%
$ 639,236 100.0
%
$ 1,127,945 100.0
%
$ 1,001,840 100.00
%
~~Our~~ ~~loans~~Loans receivable ~~have~~ increased ~~$43.3~~$126.1 million, or ~~6.8%~~12.6%, during the nine months ended September 30, ~~2017. The~~2022 primarily as a result of loan growth outpacing loan payoffs during the period. Since December 31, 2021, the pass ~~loan~~ category increased approximately ~~$46.8~~$138.0 million, the watch category ~~increased~~decreased approximately $4.7 million, ~~the special mention category increased approximately $101,000,~~ and the substandard category ~~declined~~decreased approximately ~~$8.3~~$7.3 million. The ~~$8.3~~$7.3 million decrease in loans classified as substandard was primarily driven by ~~$5.8~~$7.8 million in ~~principal~~ payments, ~~received, $4.5 million~~$331,000 in charge-offs, and $262,000 in loans upgraded from substandard, ~~$623,000 in charge-offs, and $270,000 in loans moved to OREO,~~ offset by ~~$2.8~~$1.1 million in loans ~~moved~~migrating to ~~substandard during the first nine months of 2017.~~substandard.

40

Table of Contents

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

September 30,
2017

December 31,
2016

September 30,
2022

December 31,
2021

(in thousands)
(in thousands)

Past Due Loans:

30-59 Days
$ 872 $ 2,302 $ 300 $ 556
60-89 Days
612 315 57 210
90 Days and Over
— — — —
Total Loans Past Due 30-90+ Days
1,484 2,617 357 766

Nonaccrual Loans
5,769 9,216 1,054 3,124
Total Past Due and Nonaccrual Loans
$ 7,253 $ 11,833 $ 1,411 $ 3,890

~~During the~~ nine months ended September 30, 2017, nonaccrual loans decreased by $3.4 million to $5.8 million. This decrease was due primarily to $4.5 million in paydowns and $528,000 in charge-offs, offset by $2.0 million in loans placed on nonaccrual status. During the nine months ended September 30, ~~2017,~~2022, nonaccrual loans decreased by $2.1 million to $1.1 million. Loans past due 30-59 days decreased from ~~$2.3 million~~$556,000 at December 31, ~~2016~~2021 to ~~$872,000~~$300,000 at September 30, ~~2017.~~2022. Loans past due 60-89 days ~~increased~~decreased from ~~$315,000~~$210,000 at December 31, ~~2016~~2021 to ~~$612,000~~$57,000 at September 30, ~~2017.~~2022. This represents a ~~$1.1 million~~$409,000 decrease in accruing past due loans from December 31, ~~2016~~2021 to September 30, ~~2017,~~2022 in loans past due 30-89 days. ~~We considered this~~The $2.1 million decrease in nonaccrual loans was primarily due to a payoff of a $2.0 million commercial real estate loan, which resulted in a recovery of $1.5 million. This trend in delinquency levels is considered during the evaluation of qualitative trends in the portfolio when establishing the general component of ~~our~~the allowance for loan losses.
N~~on-Performing Assets~~ – Non-performing assets consist of 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 September 30, 2017 and December 31, 2016.

September
30,
2017

December
31,
2016

(dollars in thousands)

Loans past due 90 days or more still on accrual
$ — $ —
Loans on nonaccrual status
5,769 9,216
Total non-performing loans
5,769 9,216
Real estate acquired through foreclosure
6,330 6,821
Other repossessed assets
— —
Total non-performing assets
$ 12,099 $ 16,037

Non-performing loans to total loans
0.85
%
1.44
%
Non-performing assets to total assets
1.26
%
1.70
%
Allowance for non-performing loans
$ 288 $ 241
Allowance for non-performing loans to non-performing loans
4.99
%
2.62
%
~~Nonperforming loans at~~ September 30, 2017, were $5.8 million, or 0.85% of total loans, compared with $9.2 million, or 1.44% of total loans at December 31, 2016, and $10.1 million, or 1.62% of total loans at September 30, 2016. Net loan recoveries for the first nine months of 2017 totaled $10,000 compared to net charge-offs of $652,000 for the first nine months of 2016.

Troubled Debt Restructuring - A troubled debt restructuring (TDR) occurs when the Bank has agreed to a 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 ~~allocates~~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.

~~We do~~The Bank generally does not have a formal loan modification program. If a borrower is unable to make ~~contractual~~contractual payments, ~~we review~~management reviews the particular circumstances of that borrower’s situation and determine whether or not to negotiate a revised payment stream. ~~Our~~The goal when restructuring a credit is to afford the borrower a reasonable period of time to remedy the issue causing cash flow constraints ~~within their business~~ so that ~~they~~the credit may return to performing status over time.
~~Our loan modifications have taken the form of a reduction in interest rate and/or curtailment of scheduled principal payments for a short-term per~~iod, usually three to six months, but in some cases until maturity of the loan. In some circumstances we may restructure real estate secured loans in a bifurcated fashion whereby we have a fully amortizing “A” loan at a market interest rate and an interest-only “B” loan at a reduced interest rate. The majority of our restructured loans are collateral secured loans. If a borrower fails to perform under the modified terms, ~~we place~~ the loan(s) are placed on nonaccrual status and ~~initiate~~ collection ~~actions.~~

~~We consider~~ any loan that is restructured for a borrower experiencing financial difficulties due to a borrower’s potential inability to pay in accordance with contractual terms of the loan to be a troubled debt restructuring. Specifically, we consider a concession involving a modification of the loan terms, such as (i) a reduction of the stated interest rate, (ii) a reduction or deferral of principal, or (iii) a reduction or deferral of accrued interest at a stated interest rate lower than the current market rate for new debt with similar risk all to be troubled debt restructurings. When a modification of terms is made for a competitive reason, we do not consider it to be a troubled debt restructuring. A primary example of a competitive modification would be an interest rate reduction for a performing customer’s loan to a market rate as the result of a market decline in rates.
~~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 will continue to comply with the terms of the loan after the date of the renewal/modification. 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, and management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.
~~If the borrower fails to perform~~, we place the loan on nonaccrual status and seek to liquidate the underlying collateral. Our nonaccrual policy for restructured loans is identical to our nonaccrual policy for all loans. Our 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 assetsactions 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.initiated.

At September 30, ~~2017, we~~2022 and December 31, 2021, the Bank had ~~six~~two and three restructured loans totaling ~~$3.2 million~~$205,000 and $405,000, respectively, with borrowers who experienced deterioration in financial ~~condition compared with nine loans totaling $8.7 million at December 31, 2016.~~condition. In general, these loans were granted interest rate reductions to provide cash flow relief to borrowers experiencing cash flow difficulties. ~~Two of these~~The Bank had no restructured loans ~~totaling approximately $1.9 million~~that had been granted principal payment deferrals until ~~maturity.~~maturity at September 30, 2022 or December 31, 2021. There were no concessions made to forgive principal relative to these loans, although wepartial charge-offs have been recorded ~~partial charge-offs~~ for certain restructured loans. In general, these loans are secured by first liens on ~~1-4 residential or~~ commercial real estate properties or ~~farmland. Restructured loans also include $467,000 of commercial loans.~~1-4 residential properties. At September 30, ~~2017, $1.2 million of our restructured loans were accruing~~2022 and ~~$1.9 million were on nonaccrual compared with $5.4 million and $3.3 million, respectively, at~~ December 31, ~~2016.~~2021, 71% and 84%, respectively, of the TDRs were performing according to their modified terms.

There were no ~~new TDRs~~modifications granted during ~~the first~~ ~~nine months of 2017 or 2016. During~~ the nine months ended September 30, ~~2017, TDRs were reduced~~2022 and one modification granted during the third quarter and nine months ended September 30, 2021 that resulted in loans being identified as a result of $1.5 million in payments. In addition, the TDR classification was removed in the first quarter of 2017 from two loans that met the requirements as discussed above. These loans totaled $4.1 million at December 31, 2016. These loans are no longer evaluated individually for impairment.TDRs. See “Note 3 -– Loans,” ~~of the notes~~ to the financial statements for additional disclosure related to troubled debt restructuring.

Non-Performing Assets–Non-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 ~~TDRs,~~ non-performing ~~loans, real estate acquired through foreclosure,~~ assets as of September 30, 2022 and ~~other repossessed assets.~~December 31, 2021:

September
30,
2017

December
31,
2016

(dollars in thousands)

Total non-performing loans
$ 5,769 $ 9,216
TDRs on accrual
1,226 5,350
Total non-performing loans and TDRs on accrual
$ 6,995 $ 14,566
Real estate acquired through foreclosure
6,330 6,821
Other repossessed assets
— —
Total non-performing assets and TDRs on accrual
$ 13,325 $ 21,387

Total non-performing loans and TDRs on accrual to total loans
1.02
%
2.28
%
Total non-performing assets and TDRs on accrual to total assets
1.38
%
2.26
%

September 30,
2022

December 31,
2021

(dollars in thousands)

Loans on nonaccrual status
$ 1,054 $ 3,124
Troubled debt restructurings on accrual
146 340
Past due 90 days or more still on accrual
— —
Total non-performing loans
1,200 3,464
Real estate acquired through foreclosure
— —
Other repossessed assets
— —
Total non-performing assets
$ 1,200 $ 3,464

Nonaccrual loans to total loans
0.09
%
0.31
%
Non-performing loans and TDRs on accrual to total loans
0.11
%
0.35
%
Non-performing assets and TDRs on accrual to total assets
0.08
%
0.24
%
Allowance for loan losses to nonaccrual loans
1,236.34
%
369.11
%
Allowance for non-performing loans
$ 22 $ 12
Allowance for non-performing loans to non-performing loans and TDRs on accrual
1.83
%
0.35
%

41
Table of Contents

Allowance for Loan Losses and Provision for Loan Losses–The 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. This assessment is an estimate and is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.
Net loan recoveries were $1.7 million and $1.6 million, for the three and nine months ended September 30, 2022, compared to net loan recoveries of $36,000 and net loan charge-offs of $120,000, for the three and nine months ended September 30, 2021. During the third quarter of 2022, the Bank received a payoff of $2.0 million on a nonaccrual commercial real estate loan resulting in a recovery of $1.5 million.
A negative provision for loan losses of $1.3 million and $50,000 was recorded in the third quarter and first nine months of 2022, respectively, compared to a provision for loan losses of $300,000 and $650,000 in the third quarter and the first nine months of 2021, respectively. The 2022 negative loan loss provisions were primarily attributable to the significant recovery during the third quarter and its impact on the historical loss percentages, offset by the additional reserve required by the growth trends within the portfolio during the period. The 2021 loan loss provisions were attributable to growth trends within the portfolio and net loan charge-offs impacting historical loss percentages during the period.
The following table sets forth an analysis of loan loss experience as of and for the periods indicated:

Three Months Ended
September 30,

Nine Months Ended
September 30,

December
31,

2022

2021

2022

2021
2021

(in thousands)

Balance at beginning of period
$ 12,550 $ 12,637 $ 11,531 $ 12,443 $ 12,443

Loans charged-off:

Real estate
43 18 527 159 2,332
Commercial
6 — 31 19 19
Consumer
37 7 122 58 131
Agriculture
— — — 44 44
Other
— — — — —
Total charge-offs
86 25 680 280 2,526

Recoveries

Real estate
1,759 37 2,083 85 228
Commercial
28 10 37 20 172
Consumer
30 7 65 41 49
Agriculture
— 7 45 14 15
Other
— — — — —
Total recoveries
1,817 61 2,230 160 464
Net charge-offs (recoveries)
(1,731
)
(36
)
(1,550
)
120 2,062
Provision (negative provision) for loan losses
(1,250
)
300 (50
)
650 1,150
Balance at end of period
$ 13,031 $ 12,973 $ 13,031 $ 12,973 $ 11,531

Allowance for loan losses to period-end loans
1.16
%
1.34
%
1.16
%
1.34
%
1.15
%
Net charge-offs to average loans
(0.63
)%
(0.01
)%
(0.20
)%
0.02
%
0.22
%
Allowance for loan losses to non-performing loans
1,085.92
%
592.92
%
1,085.92
%
592.92
%
332.88
%
42
Table of Contents
The allowance for loan losses ~~is based on management’s continuing review and evaluation of individual~~to total loans loss experience, current economic conditions, risk characteristics of various categories of loans and such other factors that, in management’s judgment, require current recognition in estimating loan losses.
~~Management has established loan grading procedures that re~~sult in specific allowance allocations for any estimated inherent risk of loss. For loans not individually evaluated, a general allowance allocation is computed using factors developed over time based on actual loss experience. Prior to June 30, 2017, the look-back period for historical losses was 12 quarters, weighted 40% for the most recent eight quarters and 20% for previous four-quarter period. Effective June 30, 2017, the Company extended the look-back period to 16 quarters on a prospective basis, weighted 40% to the most recent four quarters, and then declining one-tenth for each of the remaining annual periods. Management determined the four-year look-back period was appropriate as the four-year period more appropriately correlates to the period in which the current portfolio was underwritten and originated. The specific and general allocations plus consideration of qualitative factors represent management’s estimate of probable losses contained in the loan portfolio1.16% at ~~the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses.~~
~~An analysis of changes in the allowance for loan losses and selected ratios for the three~~ ~~and nine-month periods ended~~ September 30, ~~2017 and 2016, and for the year ended December 31, 2016 follows:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

Year Ended
December 31,

2017

2016

2017

2016
2016

(in thousands)

Balance at beginning of period
$ 8,885 $ 10,104 $ 8,967 $ 12,041 $ 12,041

Loans charged-off:

Real estate
57 363 570 1,658 2,157
Commercial
5 15 5 276 276
Consumer
5 21 30 56 178
Agriculture
— 5 95 13 18
Other
— 1 — 79 —
Total charge-offs
67 405 700 2,082 2,629

Recoveries

Real estate
112 381 561 894 1,189
Commercial
3 102 44 169 334
Consumer
25 23 69 216 368
Agriculture
16 1 25 86 114
Other
3 33 11 65 —
Total recoveries
159 540 710 1,430 2,005
Net charge-offs (recoveries)
(92
)
(135
)
(10
)
652 624
Provision (negative provision) for loan losses
— (750
)
— (1,900
)
(2,450
)
Balance at end of period
$ 8,977 $ 9,489 $ 8,977 $ 9,489 $ 8,967

Allowance for loan losses to period-end loans
1.32
%
1.53
%
1.32
%
1.53
%
1.40
%
Net charge-offs (recoveries) to average loans
(0.05

)%
(0.09 )% 0.00
%
0.14
%
0.10
%
Allowance for loan losses to non-performing loans
155.61
%
93.96
%
155.61
%
93.96
%
97.30
%

Allowance for loan losses for loans individually evaluated for impairment
$ 425 $ 339 $ 425 $ 339 $ 399
Loans individually evaluated for impairment
7,509 16,214 7,509 16,214 15,131
Allowance for loan losses to loans individually evaluated for impairment
5.66
%
2.09
%
5.66
%
2.09
%
2.64
%

Allowance for loan losses for loans collectively evaluated for impairment
$ 8,552 $ 9,150 $ 8,552 $ 9,150 $ 8,568
Loans collectively evaluated for impairment
675,002 605,483 675,002 605,483 624,105
Allowance for loan losses to loans collectively evaluated for impairment
1.27
%
1.51
%
1.27
%
1.51
%
1.37
%
~~Our loan loss reserve, as a percentage of total loans at~~ ~~September 30, 2017, decreased~~2022, compared to ~~1.32% from 1.40%~~1.15% at December 31, ~~2016~~2021, and ~~from 1.53%~~1.34% at September 30, ~~2016.~~2021. The change in our loan loss reserve as a percentage of total loans between periods is attributable to growth in the portfolio, historical loss experience, qualitative factors, fewer loans migrating downward in risk grade classifications and improved charge-off levels. Our allowance for loan losses to non-performing loans was ~~155.61%~~1,085.92% at September 30, ~~2017,~~2022, compared with ~~97.30%~~332.88% at December 31, ~~2016,~~2021, and ~~93.96%~~592.92% at September 30, ~~2016. Net recoveries for the first nine months of 2017 totaled $10,000 compared to net charge-offs of $652,000 for the first nine months of 2016.~~

~~The following table sets forth the net charge-offs (recoveries) for the periods indicated:~~

Nine Months
Ended
September 30,
2017

Year Ended
December 31,
2016

Year Ended
December 31,
2015

(in thousands)

Commercial
$ (39
)
$ (58
)
$ (27
)
Commercial Real Estate
(335
)
(339
)
1,225
Residential Real Estate
344 1,307 1,487
Consumer
(39
)
(200
)
37
Agriculture
70 (96
)
110
Other
(11
)
10 (9
)
Total net charge-offs (recoveries)
$ (10
)
$ 624 $ 2,823
~~The majority of our nonperforming loans are secured by real estate collateral~~, and the underlying collateral coverage for nonperforming loans supports the likelihood of collection of our principal. We have 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. Our allowance for non-performing loans to non-performing loans was 4.99% at September 30, 2017 compared with 2.62% at December 31, 2016, and 2.88% at September 30, 2016. The increase in this ratio from December 31, 2016 to September 30, 2017 was primarily attributable to an allocated allowance for an individually evaluated loan.2021.

~~The following table presents the unpaid principal balance, recorded investment and~~ ~~allocated allowance related to loans individually evaluated for impairment in the commercial real estate and residential real estate portfolios as of September 30, 2017 and December 31, 2016.~~

September 30, 2017

December 31, 2016

Commercial
Real Estate

Residential
Real Estate

Commercial
Real Estate

Residential
Real Estate

(in thousands)

Unpaid principal balance
$ 4,849 $ 5,041 $ 10,985 $ 10,439
Prior charge-offs
(2,100
)
(949
)
(5,131
)
(1,818
)

Recorded investment
2,749 4,092 5,854 8,621
Allocated allowance
(26
)
(386
)
(35
)
(350
)

Recorded investment, less allocated allowance
$ 2,723 $ 3,706 $ 5,819 $ 8,271

Recorded investment, less allocated allowance/ Unpaid principal balance
56.16
%
73.52
%
52.97
%
79.23
%
~~Based on prior~~ charge-offs, our current recorded investment in the commercial real estate and residential real estate segments is significantly below the unpaid principal balance for these loans. The recorded investment net of the allocated allowance was 56.16% and 73.52% of the unpaid principal balance in the commercial real estate and residential real estate segments of the portfolio, respectively, at September 30, 2017.

~~The following table illustrates recent trends in loans collectively evaluated for impairment and the related allowance for loan losses by portfolio segment (dollars in thousands):~~

September 30, 2017

December 31, 2016

Loans

Allowance

% to
Total

Loans

Allowance

% to
Total

Commercial
$ 107,008 $ 900 0.84
%
$ 97,166 $ 462 0.48
%
Commercial real estate
288,533 4,412 1.53 251,529 4,859 1.93
Residential real estate
224,805 2,830 1.26 227,668 3,076 1.35
Consumer
8,474 42 0.50 9,817 8 0.08
Agriculture
45,615 366 0.80 37,448 161 0.43
Other
567 2 0.35 477 2 0.42
Total
$ 675,002 $ 8,552 1.27
%
$ 624,105 $ 8,568 1.37
%
~~Our allowance for loan losses for loans collectively~~ evaluated for impairment declined to 1.27% at September 30, 2017 from 1.51% at September 30, 2016 and 1.37% at December 31, 2016. This decline was driven primarily by declining historical loss trends and an improving loan risk category classification mix and volume which are key factors for estimating general reserves. Other factors include the consideration of growth, composition and diversification of our loan portfolio, current delinquency levels, the results of recent regulatory communications and general economic conditions.
Liabilities
~~Provision for Loan Losses~~–No provision for loan losses was recorded for the first nine months of 2017, compared to a negative provision for loan losses of $1.9 million for the first nine months of 2016. No provision expense was recorded for the first nine months of 2017 due to declining historical loss rates, improvements in asset quality, growth in the portfolio, and management’s assessment of risk within the portfolio. Since December 31, 2016, the pass category increased approximately $46.8 million, the watch category increased approximately $4.7 million, the special mention category increased approximately $101,000, and the substandard category declined approximately $8.3 million. Net recoveries were $10,000 for the nine months ended September 30, 2017, compared with net charge-offs of $652,000 for the nine months ended September 30, 2016. We consider the size and volume of our portfolio as well as the credit quality of our loan portfolio based upon risk category classification when determining the loan loss provision for each period and the allowance for loan losses at period end.
~~Foreclosed Properties~~ – Foreclosed properties at September 30, 2017 were $6.3 million compared with $6.8 million at December 31, 2016. See “Note 4 - Other Real Estate Owned,” of the notes to the financial statements. During the first nine months of 2017, we acquired $270,000 of OREO properties, and sold properties totaling approximately $738,000. We value foreclosed properties at fair value less estimated costs to sell when acquired and expect to liquidate these properties to recover our investment in the due course of business.
~~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 f~~or loan losses. Subsequent reductions in fair value are recorded as non-interest expense. When OREO is acquired, we obtain a new appraisal of the subject property or have staff in our special assets group evaluate the latest in-file appraisal. We typically obtain updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent.
~~Net gain (loss) on sales, write-downs, and operating expenses for OREO~~ totaled $92,000 for the nine months ended September 30, 2017, compared to net expenses of $1.3 million in the same period of 2016. During the nine months ended September 30, 2017, fair value write-downs of $98,000 were recorded to reflect declines in fair value driven by reductions in listing prices and new appraisals compared with $970,000 for the nine months ended September 30, 2016.

–~~Liabilities~~ – Total liabilities at September 30, ~~2017~~2022 were ~~$922.9 million~~$1.37 billion compared with ~~$912.4 million~~$1.28 billion at December 31, ~~2016,~~2021, an increase of ~~$10.5~~$80.6 million, or ~~1.1%~~6.3%. This increase was primarily attributable to an increase in ~~total deposits of $16.9 million and the issuance of $10.0 million in senior debt, offset by a decrease in~~ FHLB advances of ~~$5.6~~$60.0 million and ~~a decrease~~$19.9 million in ~~accrued interest payable and other liabilities of $10.2 million due to payment of a litigation settlement.~~deposits.

Deposits are ~~our~~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 Nine Months

For the Year

Ended September 30,

Ended December 31,

2017

2016

Average

Average

Average

Average

Balance

Rate

Balance

Rate

(dollars in thousands)

Demand
$ 125,932 $ 119,736
Interest checking
102,744 0.13
%
96,294 0.13
%
Money market
141,777 0.55 136,423 0.58
Savings
35,650 0.17 34,257 0.18
Certificates of deposit
458,732 0.92 466,007 0.88
Total deposits
$ 864,835 0.60
%
$ 852,717 0.60
%
~~The following table sets forth the average daily balances and weighted average rates paid for our certificates of deposit for the periods indicated:~~

For the Nine Months

For the Year

Ended September 30,

Ended December 31,

2017

2016

Average

Average

Average

Average

Balance

Rate

Balance

Rate

(dollars in thousands)

Less than $250,000
$ 425,828 0.91
%
$ 437,955 0.88
%
$250,000 or more
32,904 0.99
%
28,052 0.97
%
Total
$ 458,732 0.92
%
$ 466,007 0.88
%

For the Nine Months

For the Year

Ended September 30,

Ended December 31,

2022

2021

Average

Average

Average

Average

Balance

Rate

Balance

Rate

(dollars in thousands)

Demand
$ 276,829 $ 271,994
Interest checking
283,494 0.39
%
233,844 0.27
%
Money market
216,074 0.39 190,094 0.34
Savings
162,864 0.26 157,283 0.28
Certificates of deposit
256,320 0.52 311,140 0.57
Total deposits
$ 1,195,581 0.31
%
$ 1,164,355 0.30
%

The following table shows at September 30, ~~2017~~2022 the amount of ~~our~~ time deposits of $250,000 or more by time remaining until maturity (in thousands):

Maturity Period
Maturity Period

Maturity Period

Three months or less
$ 5,227 $ 11,971
Three months through six months
5,264 10,659
Six months through twelve months
3,026 32,883
Over twelve months
19,567 9,770
Total
$ 33,084 $ 65,283
Capital
Stockholders’ equity decreased $2.6 million to $128.4 million at September 30, 2022, compared with $131.0 million at December 31, 2021 due primarily to the other comprehensive loss for the period of $15.3 million attributable to the fair value decline in the available for sale investment portfolio and $1.1 million in dividends paid to common shareholders, offset by current year net income of $13.4 million.
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 for the Bank as of September 30, 2022:

Regulatory
Minimums

Well-Capitalized
Minimums

Basel III Plus
Conservation
Buffer

Limestone Bank

Tier 1 Capital
6.0 % 8.0 % 7.0 % 12.6 %
Common equity Tier 1 capital
4.5 6.5 8.5 12.6
Total risk-based capital
8.0 10.0 10.5 13.5
Tier 1 leverage ratio
4.0 5.0 — 11.6
Failure to meet minimum capital requirements could result in discretionary actions by regulators that, if taken, could have a materially adverse effect on the Company’s financial condition.
The Basel III rules require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum Basel III 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.
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Table of Contents

Liquidity and Capital Resource Management

Liquidity risk arises from the possibility we 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 ~~we meet~~the Company meets the cash flow requirements of depositors and borrowers, as well as ~~our~~ operating cash needs, taking into account all on- and off-balance sheet funding demands. Liquidity risk management also involves ensuring that ~~we meet our~~ cash flow needs are met at a reasonable cost. ~~We maintain~~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. ~~Our~~The Asset Liability Committee regularly monitors and reviews ~~our~~the Company’s liquidity position.

Funds are available to the Bank from ~~several~~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.

WeThe Bank also ~~borrow~~borrows from the FHLB to supplement ~~our~~ funding requirements. At September 30, ~~2017, we~~2022, the Bank had an unused borrowing capacity with the FHLB of ~~$74.8~~$71.5 million. Advances are collateralized by commercial real estate and first mortgage residential ~~loans and borrowing~~loans. Borrowing capacity is based on the underlying book value of eligible pledged loans.

WeThe Bank also ~~have~~has available on an un~~secured~~unsecured basis federal funds borrowing lines from a correspondent bank totaling $5.0 million. Management believes ~~our~~the sources of liquidity are adequate to meet expected cash needs for the foreseeable future. ~~However,~~Historically, the ~~availability of these lines could be affected by our financial position.~~

~~Historically, we have~~Bank has also utilized brokered and wholesale deposits to supplement ~~our~~its funding strategy. At September 30, ~~2017, we~~2022, the Bank had $29.0 million in brokered deposits. The Bank had no brokered ~~deposits.~~
~~Capital~~
~~Stockholders’ equity increased $7.3 million to $40.1 million at September 30, 2017, compared with $32.7 million~~deposits at December 31, ~~2016 primarily due to current year net income of $5.1 million and an increase in the fair value of our available for sale securities portfolio of $1.9 million.~~2021.

The ~~following table shows~~Company uses cash on hand to service the ~~ratios~~subordinated capital notes, junior subordinated debentures, and to provide for operating cash flow needs. The Company’s primary source of ~~Tier 1 capital,~~funding to meet its obligations is dividends from the Bank. At September 30, 2022, the Bank was eligible to pay $19.6 million in dividends. The Bank paid the Company $2.4 million in dividends during the nine months ended September 30, 2022.
Additionally, the Company also may issue common equity, ~~Tier 1 capital,~~preferred equity and ~~total capital~~debt to ~~risk-adjusted assets~~support cash flow needs and ~~the leverage ratios for the Bank at the dates indicated. Regulatory minimums and well-capitalized minimums are prompt corrective action standards.~~

Regulatory Minimums

Well-Capitalized
Minimums

September 30, 2017

December 31, 2016

Tier 1 Capital
6.0 % 8.0 % 9.66 % 8.28 %
Common equity Tier 1 capital
4.5 6.5 9.66 8.28
Total risk-based capital
8.0 10.0 11.10 9.88
Tier 1 leverage ratio
4.0 5.0 7.73 6.24
liquidity requirements.

~~Failure~~Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in historical dollars without considering changes in the relative purchasing power of money over time due to ~~meet minimum capital~~ ~~requirements could~~inflation.
The Bank has an asset and liability structure that is essentially monetary in nature. As a result, ~~in additional discretionary actions by regulators that, if taken, could~~interest rates have a ~~materially adverse effect~~more significant impact on ~~our financial condition.~~
~~Each~~performance than the effects of general levels of inflation. Periods of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by relatively lower interest rates. As market interest rates rise or fall in relation to the ~~federal bank regulatory agencies~~rates earned on loans and investments, the value of these assets decreases or increases respectively. Inflation has ~~established risk-based capital requirements for banking organizations.~~ ~~The Basel III regulatory capital reforms became effective for~~and is expected to continue to impact core non-interest expenses associated with delivering the Company and Bank on January 1, 2015, and include new minimum risk-based capital and leverage ratios. These rules refine the definition of what constitutes “capital” for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital. The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank opted out of this requirement. The rules also establish a “capital conservation buffer” of 2.5%, to be phased in over three years, above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, 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 capital to total risk-weighted assets (“total risk-based capital ratio”) of 10.5%. The phase-in of the capital conservation buffer requirement began in January 2016 at 0.625% of risk-weighted assets and increases to 1.25% in 2017, 1.875% in 2018, and 2.5% in 2019. 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.Bank’s services.

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Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Given an instantaneous 100 basis point increase in interest rates, ~~sustained for one year, our~~the base net interest income would ~~increase~~decrease by an estimated ~~0.11%~~0.5% at September 30, ~~2017,~~2022, compared with a decrease of ~~2.5%~~1.3% at December 31, ~~2016, and is within the risk tolerance parameters of our risk management policy.~~2021. Given a 200 basis point increase in interest rates, ~~sustained for one year,~~ base net interest income would ~~increase~~decrease by an estimated ~~0.10%~~1.2% at September 30, ~~2017,~~2022, compared with a decrease of ~~5.1%~~2.0% at December 31, ~~2016, and is within the risk tolerance parameters of our risk management policy.~~2021.

The following table indicates the estimated impact on net interest income under various interest rate scenarios for the twelve months following September 30, ~~2017,~~2022, as calculated using the static shock model approach:

Change in Future
Net Interest Income

Change in Future
Net Interest Income

Dollar
Change

Percentage
Change

Dollar Change

Percentage
Change

(dollars in thousands)

(dollars in thousands)

+ 200 basis points
$ 30 0.10
%
$ (661
)
(1.20
)%
+ 100 basis points
35 0.11 (259
)
(0.47
)
- 100 basis points
(1,290
)
(4.16
)
- 200 basis points
(2,184
)
(7.03
)
- 100 basis points
(299
)
(0.54
)
- 200 basis points
(2,181
)
(3.95
)

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~~’sCompany’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~~’sCompany’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.

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Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

WeIn 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 ~~subject to claims and lawsuits that arise primarily~~ in the ~~ordinary course~~early stages, the Company cannot predict with certainty the loss or range of ~~business.  Litigation is subject~~loss, if any, related to ~~inherent uncertainties~~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 ~~unfavorable outcomes could occur. See Footnote 13, “Off Balance Sheet Risks, Commitments, and Contingent Liabilities” in~~after consultation with counsel, that the ~~Notes to our~~outcome of such pending matters will not have a material adverse effect on the consolidated financial ~~statements~~condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for ~~additional detail regarding our involvement~~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 ~~legal proceedings.~~any material litigation.

Item 1A. Risk Factors

We ~~refer you~~Refer to the detailed cautionary statements and discussion of risks that affect ~~our~~the Company and its business in “Item 1A – Risk Factors” of ~~our~~the Annual Report on Form 10-K, for the year ended December 31, ~~2016. There~~2021. The following risk factors supplement the "Item 1A - Risk Factors" section of the Annual Report on Form 10-K for the year ended December 31, 2021.
Risks Related to the Company’s Pending Merger Transaction
Failure to complete the Company’s proposed Merger with Peoples could negatively impact the Company’s business, financial results and stock price.
If the Merger is not completed for any reason, the Company’s ongoing business may be adversely affected, and, without realizing any of the benefits of having completed the Merger, the Company will be subject to a number of risks, including the following:
●
the Company may experience negative reactions from the financial markets, including negative impacts on its stock price;
●
the market price of the Company’s common stock could decline to the extent that the current market prices reflect a market assumption that the Merger will be completed;
●
the Company may experience negative reactions from the Company’s customers, vendors and team members;
●
the Company will have incurred substantial expenses and will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as legal, accounting, investment banking and advisory and printing fees;
●
the Merger Agreement places certain restrictions on the conduct of the Company’s business prior to completion of the Merger, such restrictions, the waiver of which is subject to the consent of Peoples, may adversely affect the Company’s ability to execute certain of its business strategies; and
●
matters relating to the Merger may require substantial commitments of time and resources by the Company’s management (including integration planning), which could otherwise have been devoted to other opportunities that may have been beneficial to the Company, as an independent company.
In addition to the above risks, if the Merger Agreement is terminated and the Company’s Board of Directors seeks another merger or business combination, the market price of the Company’s common stock could decline, which could make it more difficult to find a party willing to offer equivalent or more attractive consideration than the consideration Peoples has agreed to provide. If the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a termination fee of $8.3 million to Peoples, which may adversely affect the price of the Company’s common stock. Any of the above risks could materially affect the Company’s business, financial results and stock price.
Because the market price of Peoples common stock may fluctuate, the Company’s shareholders cannot be certain of the precise value of the Merger consideration they may receive in the Merger.
At the time the Merger is completed, each issued and outstanding share of the Company’s common stock will be converted into the right to receive 0.90 of a share of Peoples common stock.
The market value of Peoples common stock may fluctuate prior to closing of the Merger as a result of a variety of factors, including general market and economic conditions, changes in Peoples’ businesses, operations and prospects, and regulatory considerations. Many of these factors are outside of the Company’s and Peoples’ control. Consequently, while the Merger Agreement includes a termination right designed to protect against a greater than 17.5% decline in the market price of Peoples common stock prior to the closing that exceeds the change in the Nasdaq Bank Index plus 17.5%, the Company’s shareholders will not know in advance the actual market value of the shares of Peoples common stock that they are to receive in the Merger. The actual market value of the shares of Peoples common stock received by the Company’s shareholders will depend on the market value of shares of Peoples common stock at the time the Merger is completed. This market value may be less or more than the value used to determine the exchange ratio stated in the Merger Agreement.
The Company faces risks and uncertainties related to its proposed Merger with Peoples.
Uncertainty about the effect of the Merger on the Company’s team members and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is consummated and for a period of time thereafter, and could cause customers and others that deal with the Company to seek to change their existing business relationships with the Company. Team member retention may be particularly challenging during the pendency of the Merger, as team members may experience uncertainty about their roles with the surviving corporation following the Merger.
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Table of Contents
In addition, the Merger Agreement contains provisions that restrict the Company’s ability to, among other things, solicit, knowingly encourage or facilitate inquiries or proposals or enter into any agreement with respect to, or initiate or participate in any negotiations or discussions with any person concerning any alternative business combination proposals, subject to a limited exception when required by the Company’s Board of Directors’ exercise of its fiduciary duties in response to an unsolicited acquisition proposal that is, or is reasonably capable of becoming, a superior proposal. These provisions, which include a $8.3 million termination fee payable under certain circumstances, might discourage a potential competing acquirer that might have an interest in engaging in a superior transaction from considering or proposing that acquisition, or might result in lower value received by the Company’s shareholders than would have otherwise been received.
The Company and Peoples have operated and, until the completion of the Merger, will continue to operate, independently. The success of the Merger, including anticipated benefits and cost savings among other things, will depend, in part, on the Company’s and Peoples’ ability to successfully combine and integrate the Company’s and Peoples’ businesses in a manner that facilitates growth opportunities and realizes cost savings. It is possible that the integration process could result in the loss of key employees, the loss of customers, the disruption of either company’s or both companies’ ongoing business, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. If the combined companies experience difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.
The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.
The Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the Merger. Those conditions include: the approval of the Merger by the Company’s shareholders; the effectiveness of the registration statement on Form S-4 for the shares of Peoples common stock to be issued in the Merger; the receipt of authorization for listing on Nasdaq of the shares of Peoples common stock to be issued in the Merger; the receipt of all required regulatory approvals; the absence of any order, decree or injunction enjoining or prohibiting the Merger; the receipt of a fairness opinion by the Company’s financial advisor; subject to certain exceptions, the accuracy of representations and warranties under the Merger Agreement; the Company’s and Peoples’ performance of the Company’s and their respective obligations under the Merger Agreement in all material respects; the absence of a material adverse effect on the Company or Peoples while the transaction is pending; and the Company’s receipt of a tax opinion to the effect that the Merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. These conditions to the closing of the Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may be delayed or may not be completed.
The Company and Peoples may elect to terminate the Merger Agreement under certain circumstances. Among other situations, if the Merger is not completed by July 31, 2023, either the Company or Peoples may choose not to proceed with the Merger, subject to certain exceptions. The Company and Peoples can also mutually decide to terminate the Merger Agreement at any time. If the Merger Agreement is terminated, under certain limited circumstances, the Company may be required to pay a termination fee of $8.3 million to Peoples.
The Company’s ability to complete the Merger is subject to the receipt of approval from various regulatory agencies, which may impose conditions that could adversely affect the Company or cause the Merger to be abandoned.
Before the transactions contemplated in the Merger Agreement can be completed, the Company and Peoples must obtain various regulatory approvals. The terms and conditions of the approvals that are granted may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the Merger Agreement. Although the Company and Peoples do not currently expect that any such conditions or changes would be imposed, there can be no assurance that the regulators will not impose any such conditions, obligations or restrictions, and that such conditions, limitations, obligations or restrictions will not have the effect of delaying or preventing completion of any of the transactions contemplated by the Merger Agreement, imposing additional material ~~changes~~costs on or materially limiting the revenues of the combined company following the Merger or otherwise reduce the anticipated benefits of the Merger if the Merger were consummated successfully within the expected timeframe, any of which might have an adverse effect on the combined company following the Merger. Neither Peoples nor the Company will be required to complete the Merger if Peoples determines any required regulatory approval contains an unduly burdensome provision.
Shareholder litigation could prevent or delay the closing of the proposed Merger or otherwise negatively impact the Company’s business and operations.
In connection with the Merger, lawsuits may be filed against the Company, Peoples, or the directors and officers of either company in connection with the Merger. Litigation filed against the Company, the Company’s Board of Directors or Peoples and its Board of Directors could prevent or delay the completion of the Merger or result in the payment of damages following completion of the Merger. The defense or settlement of any lawsuit or claim that remains unresolved at the Effective Time of the Merger may adversely affect the combined company’s business, financial condition, results of operations, cash flows and market price.
Global Economic and Geopolitical Instability and Inflationary Risks
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on the Company’s results of operations and financial condition. The macroeconomic environment in the United States is susceptible to global events and volatility in financial markets. For example, global demand for products continues to exceed supply during the economic recovery from the ~~risk factors previously discussed~~COVID-19 pandemic, creating significant inflationary pressures which, in ~~those reports.~~turn, may adversely impact regional and global economic conditions, as well as the Company’s financial condition and results of operations.
The risks described above and in our 2021 Form 10-K are not the only risks that we encounter. Additional risks and uncertainties not currently known to us or that we currently do not deem to be material to the Company also may materially adversely affect our business, results of operations, financial condition and/or liquidity.

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

~~Not applicable.~~On October 20, 2021, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to $3.0 million of the Company’s Common Shares over time in the open market or in privately negotiated transactions. The repurchase program may be modified, terminated, or suspended at any time at the Company’s discretion and will expire on December 31, 2022. To date, no shares have been repurchased under the plan. The Company’s Merger Agreement with Peoples prohibits the Company from repurchasing any of its shares while the Merger transaction is pending.
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Table of Contents

Item 3. Default Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not ~~applicable~~applicable.

Item 6. Exhibits

(a)
Exhibits
~~(a)~~           ~~Exhibits~~
The following exhibits are filed or furnished as part of this report:

Exhibit Number
Description of Exhibit
2.1* Agreement and Plan of Merger by and between Peoples Bancorp, Inc. and Limestone Bancorp, Inc. dated October 24, 2022. Exhibit 2.1 to Form 8-K filed October 25, 2022 is incorporated by reference.
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 July 30, 2021 and incorporated by reference.
3.2
Amended and Restated Bylaws of Limestone Bancorp, Inc. dated June 18, 2018. Exhibit 3.2 to Form 8-K filed June 18, 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 4.1 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 5, 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
Amendment No. 4 to the Limestone Bancorp, Inc. Tax Benefits Preservation Plan, dated May 19, 2021. Exhibit 4 to the Form 8-K filed May 19, 2021 is incorporated by reference.
4.6 Amendment No. 5 to the Limestone Bancorp, Inc. Tax Benefits Preservation Plan, dated October 24, 2022. Exhibit 4.6 to the Form 8-K filed October 25, 2022 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~~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~~’sCompany’s Quarterly Report on Form ~~10Q~~10-Q for the quarter ended September 30, ~~2017,~~2022, 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).
* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K but Limestone Bancorp, Inc. will provide them to the Securities and Exchange Commission upon request.
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.

48
Table of Contents

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.

~~PORTER~~LIMESTONE BANCORP, INC.

(Registrant)

~~November 2, 2017~~October 28, 2022
By:
/s/ John T. Taylor

John T. Taylor

Chief Executive Officer

~~November 2, 2017~~October 28, 2022
By:
/s/ Phillip W. Barnhouse
Phillip W. Barnhouse

~~Phillip W. Barnhouse~~ Chief Financial Officer

~~Chief Financial Officer~~

52
49

		Page
PART I –	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	~~MANAGEMENT~~’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS~~OPERATIONS	3431
ITEM 3.	QUANTITATIVE AND QUALITATIVE ~~DISCLOSURES~~DISCLOSURES ABOUT MARKET RISK	5045
ITEM 4.	CONTROLS AND PROCEDURES	5045

PART II –	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	~~LEGAL PROCEEDINGS~~	5146
ITEM 1A.	RISK FACTORS	5146
ITEM 2.	~~UNREGISTERED~~UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF PROCEEDS	5147
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5148
ITEM 4.	MINE SAFETY DISCLOSURES	5148
ITEM 5.	OTHER INFORMATION	5148
ITEM 6.	EXHIBITS	5148

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Interest income
Loans, including fees	$	8,021	$	7,699		$	23,493		$	23,036
Taxable securities		1,088		956			3,370			2,895
Tax exempt securities		143		153			432			475
Federal funds sold and other		194		123			510			415
		9,446		8,931			27,805			26,821
Interest expense
Deposits		1,324		1,262			3,877			3,850
Federal Home Loan Bank advances		13		17			64			54
Subordinated capital note		32		35			98			112
Senior Debt		97		—			97
Junior subordinated debentures		193		159			553			500
		1,659		1,473			4,689			4,516
Net interest income		7,787		7,458			23,116			22,305
Negative provision for loan losses		—		(750	)		—			(1,900	)
Net interest income after negative provision for loan losses		7,787		8,208			23,116			24,205

Non-interest income
Service charges on deposit accounts		568		520			1,617			1,422
Bank card interchange fees		245		214			713			637
Other real estate owned rental income		—		46			—			451
Income from bank owned life insurance		103		101			309			316
Net gain (loss) on sales and calls of investment securities		—		(16	)		(5	)		187
Other		266		240			723			635
		1,182		1,105			3,357			3,648
Non-interest expense
Salaries and employee benefits		3,683		3,945			11,433			11,624
Occupancy and equipment		836		842			2,501			2,504
Professional fees		232		374			776			1,251
Marketing expense		364		289			880			706
FDIC Insurance		356		442			1,055			1,458
Data processing expense		321		295			931			887
State franchise and deposit tax		225		255			675			765
Other real estate owned expense		111		322			92			1,284
Litigation and loan collection expense		78		222			121			575
Other		969		934			2,826			2,893
		7,175		7,920			21,290			23,947
Income before income taxes		1,794		1,393			5,183			3,906
Income tax expense		—		—			—			21
Net income		1,794		1,393			5,183			3,885
Less:
Earnings allocated to participating securities		45		46			133			129
Net income available to common shareholders	$	1,749	$	1,347		$	5,050		$	3,756
Basic and diluted income per common share	$	0.29	$	0.22		$	0.83		$	0.66

	Shares												Amount
	Common								Preferred						Preferred				Common
	Common			Non-Voting Common		Total Common			Series E		Series F		Common and Non-Voting Common		Series E		Series F		Additional Paid-In Capital		Retained Deficit			Accumulated Other Compre- hensive Income (Loss)			Total

Balances, January 1, 2017		4,632,933			1,591,600		6,224,533			6,198		4,304	$	125,729	$	1,644	$	1,127	$	24,097	$	(113,561	)	$	(6,303	)	$	32,733
Issuance of unvested stock		37,865			—		37,865			—		—		—		—		—		—		—			—			—
Forfeited unvested stock		(1,316	)		—		(1,316	)		—		—		—		—		—		—		—			—			—
Reverse stock split rounding shares		(1,218	)		—		(1,218	)		—		—		—		—		—		—		—			—			—
Stock-based compensation expense		—			—		—			—		—		—		—		—		271		—			—			271
Net income		—			—		—			—		—		—		—		—		—		5,183			—			5,183
Net change in accumulated other comprehensive income, net of taxes		—			—		—			—		—		—		—		—		—		—			1,881			1,881
Balances, September 30, 2017		4,668,264			1,591,600		6,259,864			6,198		4,304	$	125,729	$	1,644	$	1,127	$	24,368	$	(108,378	)	$	(4,422	)	$	40,068

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Held to maturity
State and municipal	$	41,424	$	1,973	$	—	$	43,397
Total held to maturity	$	41,424	$	1,973	$	—	$	43,397

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2016
Available for sale
U.S. Government and federal agency	$	34,757	$	50	$	(708	)	$	34,099
Agency mortgage-backed: residential		103,390		455		(1,492	)		102,353
Collateralized loan obligations		11,203		—		—			11,203
State and municipal		2,028		25		(8	)		2,045
Corporate bonds		3,069		24		(3	)		3,090
Total available for sale	$	154,447	$	554	$	(2,211	)	$	152,790

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	41,818	$	1,272	$	(18	)	$	43,072
Total held to maturity	$	41,818	$	1,272	$	(18	)	$	43,072

	As of December 31, 2016						Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016
	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	$	707	$	495	$	—	$	659	$	—	$	824	$	1
Commercial real estate:
Construction		—		—		—		129		3		195		9
Farmland		5,566		3,742		—		4,404		79		4,299		87
Nonfarm nonresidential		4,502		1,219		—		4,023		2		5,569		308
Residential real estate:
Multi-family		4,100		4,100		—		3,254		179		2,235		237
1-4 Family		4,663		2,910		—		3,523		14		6,159		85
Consumer		41		1		—		4		—		8		8
Agriculture		—		—		—		69		—		92		—
Other		—		—		—		—		—		—		—
Subtotal		19,579		12,467		—		16,065		277		19,381		735
With A Related Allowance Recorded:
Commercial		100		100		13		—		—		—		—
Commercial real estate:
Construction		—		—		—		—		—		—		—
Farmland		614		590		5		600		—		300		—
Nonfarm nonresidential		303		303		30		405		6		421		18
Residential real estate:
Multi-family		—		—		—		2,080		—		3,133		101
1-4 Family		1,676		1,611		350		1,656		20		1,671		74
Consumer		—		—		—		—		—		—		—
Agriculture		78		60		1		68		—		34		—
Other		—		—		—		—		—		—		—
Subtotal		2,771		2,664		399		4,809		26		5,559		193
Total	$	22,350	$	15,131	$	399	$	20,874	$	303	$	24,940	$	928

	Nonaccrual				Loans Past Due 90 Days And Over Still Accruing
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
	(in thousands)

Commercial	$	508	$	495	$	—	$	—
Commercial Real Estate:
Construction		—		—		—		—
Farmland		2,155		4,332		—		—
Nonfarm nonresidential		105		1,016		—		—
Residential Real Estate:
Multi-family		—		—		—		—
1-4 Family		2,941		3,312		—		—
Consumer		—		1		—		—
Agriculture		60		60		—		—
Other		—		—		—		—
Total	$	5,769	$	9,216	$	—	$	—

	September 30, 2017		December 31, 2016
	(in thousands)
Commercial Real Estate:
Construction, land development, and other land	$	6,200	$	6,571
Farmland		74		—
Residential Real Estate:
1-4 Family		56		250
	$	6,330	$	6,821

	September 30,		December 31,
	2017		2016
	(in thousands)
Advances with fixed rates from 0.00% to 5.24% and maturities ranging from 2017 through 2033, averaging 1.24% at September 30, 2017 and 0.85% at December 31, 2016	$	16,847	$	22,458

	Advances
Year 1	$	15,203
Year 2		182
Year 3		492
Year 4		739
Year 5		108
Thereafter		123
	$	16,847

October 2017 – December 2017	$	129
2018		258
2019		99
2020 & thereafter		25

	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 September 30, 2017:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	76,402		10.05	%	$	60,833		8.00	%		N/A		N/A
Bank		84,299		11.10			60,761		8.00		$	75,951		10.00	%
Total common equity Tier 1 risk-based capital (to risk-weighted assets)
Consolidated		41,719		5.49			34,219		4.50			N/A		N/A
Bank		73,387		9.66			34,178		4.50			49,368		6.50
Tier 1 capital (to risk-weighted assets)
Consolidated		55,613		7.31			45,625		6.00			N/A		N/A
Bank		73,387		9.66			45,571		6.00			60,761		8.00
Tier 1 capital (to average assets)
Consolidated		55,613		5.85			38,056		4.00			N/A		N/A
Bank		73,387		7.73			37,986		4.00			47,482		5.00

	September 30, 2017				December 31, 2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(in thousands)
Commitments to make loans	$	32,645	$	30,764	$	19,445	$	18,347
Unused lines of credit		7,252		58,107		7,935		51,407
Standby letters of credit		527		372		582		360

	As of September 30,					As of December 31,
	2017					2016
	Amount		Percent			Amount		Percent
			(dollars in thousands)

Commercial	$	107,616		15.77	%	$	97,761		15.29	%
Commercial Real Estate
Construction		44,956		6.59			36,330		5.68
Farmland		88,370		12.95			71,507		11.19
Nonfarm nonresidential		157,956		23.14			149,546		23.39
Residential Real Estate
Multi-family		55,684		8.16			48,197		7.54
1-4 Family		173,213		25.38			188,092		29.42
Consumer		8,474		1.24			9,818		1.54
Agriculture		45,675		6.69			37,508		5.87
Other		567		0.08			477		0.08
Total loans	$	682,511		100.00	%	$	639,236		100.00	%

	As of September 30,					As of December 31,
	2022					2021
	Amount		Percent			Amount		Percent
			(dollars in thousands)

Commercial (1)	$	240,182		21.29	%	$	220,826		22.04	%
Commercial Real Estate
Construction		127,302		11.29			74,806		7.47
Farmland		66,820		5.92			68,388		6.83
Nonfarm nonresidential		399,958		35.46			345,893		34.53
Residential Real Estate
Multi-family		45,903		4.07			50,224		5.01
1-4 Family		166,715		14.78			168,873		16.86
Consumer		33,894		3.00			36,440		3.64
Agriculture		46,689		4.14			35,924		3.59
Other		482		0.05			466		0.03
Total loans	$	1,127,945		100.00	%	$	1,001,840		100.00	%

	September 30, 2017					December 31, 2016					September 30, 2022					December 31, 2021
	Loans		% to Total			Loans		% to Total			Loans		% to Total			Loans		% to Total
	(dollars in thousands)										(dollars in thousands)

Pass	$	633,203		92.8	%	$	586,430		91.7	%	$	1,116,009		98.9	%	$	977,962		97.6	%
Watch		35,167		5.1			30,431		4.8			3,177		0.3			7,856		0.8
Special Mention		598		0.1			497		0.1			—		—			—		—
Substandard		13,543		2.0			21,878		3.4			8,759		0.8			16,022		1.6
Doubtful		—		—			—		—			—		—			—		—
Total	$	682,511		100.0	%	$	639,236		100.0	%	$	1,127,945		100.0	%	$	1,001,840		100.00	%

	September 30, 2017		December 31, 2016		September 30, 2022		December 31, 2021
	(in thousands)				(in thousands)
Past Due Loans:
30-59 Days	$	872	$	2,302	$	300	$	556
60-89 Days		612		315		57		210
90 Days and Over		—		—		—		—
Total Loans Past Due 30-90+ Days		1,484		2,617		357		766

Nonaccrual Loans		5,769		9,216		1,054		3,124
Total Past Due and Nonaccrual Loans	$	7,253	$	11,833	$	1,411	$	3,890

	September 30, 2017			December 31, 2016
	(dollars in thousands)

Loans past due 90 days or more still on accrual	$	—		$	—
Loans on nonaccrual status		5,769			9,216
Total non-performing loans		5,769			9,216
Real estate acquired through foreclosure		6,330			6,821
Other repossessed assets		—			—
Total non-performing assets	$	12,099		$	16,037

Non-performing loans to total loans		0.85	%		1.44	%
Non-performing assets to total assets		1.26	%		1.70	%
Allowance for non-performing loans	$	288		$	241
Allowance for non-performing loans to non-performing loans		4.99	%		2.62	%

	Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
	2017			2016			2017			2016			2016
	(in thousands)
Balance at beginning of period	$	8,885		$	10,104		$	8,967		$	12,041		$	12,041

Loans charged-off:
Real estate		57			363			570			1,658			2,157
Commercial		5			15			5			276			276
Consumer		5			21			30			56			178
Agriculture		—			5			95			13			18
Other		—			1			—			79			—
Total charge-offs		67			405			700			2,082			2,629

Recoveries
Real estate		112			381			561			894			1,189
Commercial		3			102			44			169			334
Consumer		25			23			69			216			368
Agriculture		16			1			25			86			114
Other		3			33			11			65			—
Total recoveries		159			540			710			1,430			2,005
Net charge-offs (recoveries)		(92	)		(135	)		(10	)		652			624
Provision (negative provision) for loan losses		—			(750	)		—			(1,900	)		(2,450	)
Balance at end of period	$	8,977		$	9,489		$	8,977		$	9,489		$	8,967

Allowance for loan losses to period-end loans		1.32	%		1.53	%		1.32	%		1.53	%		1.40	%
Net charge-offs (recoveries) to average loans		(0.05	)%		(0.09	)%		0.00	%		0.14	%		0.10	%
Allowance for loan losses to non-performing loans		155.61	%		93.96	%		155.61	%		93.96	%		97.30	%

Allowance for loan losses for loans individually evaluated for impairment	$	425		$	339		$	425		$	339		$	399
Loans individually evaluated for impairment		7,509			16,214			7,509			16,214			15,131
Allowance for loan losses to loans individually evaluated for impairment		5.66	%		2.09	%		5.66	%		2.09	%		2.64	%

Allowance for loan losses for loans collectively evaluated for impairment	$	8,552		$	9,150		$	8,552		$	9,150		$	8,568
Loans collectively evaluated for impairment		675,002			605,483			675,002			605,483			624,105
Allowance for loan losses to loans collectively evaluated for impairment		1.27	%		1.51	%		1.27	%		1.51	%		1.37	%

	Nine Months Ended September 30, 2017			Year Ended December 31, 2016			Year Ended December 31, 2015
	(in thousands)
Commercial	$	(39	)	$	(58	)	$	(27	)
Commercial Real Estate		(335	)		(339	)		1,225
Residential Real Estate		344			1,307			1,487
Consumer		(39	)		(200	)		37
Agriculture		70			(96	)		110
Other		(11	)		10			(9	)
Total net charge-offs (recoveries)	$	(10	)	$	624		$	2,823

	September 30, 2017							December 31, 2016
	Loans		Allowance		% to Total			Loans		Allowance		% to Total

Commercial	$	107,008	$	900		0.84	%	$	97,166	$	462		0.48	%
Commercial real estate		288,533		4,412		1.53			251,529		4,859		1.93
Residential real estate		224,805		2,830		1.26			227,668		3,076		1.35
Consumer		8,474		42		0.50			9,817		8		0.08
Agriculture		45,615		366		0.80			37,448		161		0.43
Other		567		2		0.35			477		2		0.42
Total	$	675,002	$	8,552		1.27	%	$	624,105	$	8,568		1.37	%

	For the Nine Months					For the Year
	Ended September 30,					Ended December 31,
	2017					2016
	Average		Average			Average		Average
	Balance		Rate			Balance		Rate
	(dollars in thousands)
Demand	$	125,932				$	119,736
Interest checking		102,744		0.13	%		96,294		0.13	%
Money market		141,777		0.55			136,423		0.58
Savings		35,650		0.17			34,257		0.18
Certificates of deposit		458,732		0.92			466,007		0.88
Total deposits	$	864,835		0.60	%	$	852,717		0.60	%

Maturity Period	Maturity Period			Maturity Period

Three months or less		$	5,227		$	11,971
Three months through six months			5,264			10,659
Six months through twelve months			3,026			32,883
Over twelve months			19,567			9,770
Total		$	33,084		$	65,283

	Regulatory Minimums			Well-Capitalized Minimums			Basel III Plus Conservation Buffer			Limestone Bank

Tier 1 Capital		6.0	%		8.0	%		7.0	%		12.6	%
Common equity Tier 1 capital		4.5			6.5			8.5			12.6
Total risk-based capital		8.0			10.0			10.5			13.5
Tier 1 leverage ratio		4.0			5.0			—			11.6

	Regulatory Minimums			Well-Capitalized Minimums			September 30, 2017			December 31, 2016

Tier 1 Capital		6.0	%		8.0	%		9.66	%		8.28	%
Common equity Tier 1 capital		4.5			6.5			9.66			8.28
Total risk-based capital		8.0			10.0			11.10			9.88
Tier 1 leverage ratio		4.0			5.0			7.73			6.24

	Change in Future Net Interest Income						Change in Future Net Interest Income
	Dollar Change			Percentage Change			Dollar Change			Percentage Change
	(dollars in thousands)						(dollars in thousands)
+ 200 basis points	$	30			0.10	%	$	(661	)		(1.20	)%
+ 100 basis points		35			0.11			(259	)		(0.47	)
- 100 basis points		(1,290	)		(4.16	)
- 200 basis points		(2,184	)		(7.03	)
- 100 basis points								(299	)		(0.54	)
- 200 basis points								(2,181	)		(3.95	)

Exhibit Number		Description of Exhibit

2.1*	Agreement and Plan of Merger by and between Peoples Bancorp, Inc. and Limestone Bancorp, Inc. dated October 24, 2022. Exhibit 2.1 to Form 8-K filed October 25, 2022 is incorporated by reference.

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 July 30, 2021 and incorporated by reference.

3.2	Amended and Restated Bylaws of Limestone Bancorp, Inc. dated June 18, 2018. Exhibit 3.2 to Form 8-K filed June 18, 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 4.1 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 5, 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	Amendment No. 4 to the Limestone Bancorp, Inc. Tax Benefits Preservation Plan, dated May 19, 2021. Exhibit 4 to the Form 8-K filed May 19, 2021 is incorporated by reference.

4.6	Amendment No. 5 to the Limestone Bancorp, Inc. Tax Benefits Preservation Plan, dated October 24, 2022. Exhibit 4.6 to the Form 8-K filed October 25, 2022 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~~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~~’sCompany’s Quarterly Report on Form ~~10Q~~10-Q for the quarter ended September 30, ~~2017,~~2022, 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).

*	Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K but Limestone Bancorp, Inc. will provide them to the Securities and Exchange Commission upon request.

	~~PORTER~~LIMESTONE BANCORP, INC.
	(Registrant)

~~November 2, 2017~~October 28, 2022	By:	/s/ John T. Taylor
		John T. Taylor
		Chief Executive Officer

~~November 2, 2017~~October 28, 2022	By:	/s/ Phillip W. Barnhouse
		Phillip W. Barnhouse
		~~Phillip W. Barnhouse~~ Chief Financial Officer
		~~Chief Financial Officer~~