HomeTown Bankshares Corporation Reports Solid Growth and Increased Earnings through the Third Quarter of 2017

HomeTown Bankshares Corporation is listed with the NASDAQ Capital Markets under the trading symbol “HMTA”. During the Q3 of 2017, the stock closed as high as $11.25 with an average close of $10.80 and most recent closing price of $11.04 on October 27, 2017.

 HomeTown Bankshares Corporation, (NASDAQ:HMTA), the parent company of HomeTown Bank generated a 10% increase in net income to $2.1 million on a 10% increase in total revenues for the first nine months of 2017. For the third quarter of 2017, net income amounted to $917,000, a 6% annualized increase on a 5% increase in total core revenues from the third quarter of 2016. Net earnings were $0.16 per diluted common share for the third quarter and $0.37 per diluted common share for the first nine months of 2017 vs. $0.16 and $0.26 per diluted share, respectively, in 2016. 

“We are very pleased with the continued solid growth in revenues and net income for the first nine months of 2017,” stated Susan Still, President and CEO. “Strong growth in low-cost core deposits and solid loan portfolio growth along with increases in our non-interest income sources contributed to the improved operations at September 30,” she continued. 

RevenueTotal core revenue for the first nine months of 2017 was up 9% to $17.8 million while total core revenue for the three months ended September 30, 2017 was up 5% to $6.0 million, from $5.7 million in the third quarter of 2016. Higher core revenues reflected increases in both interest income from the loan portfolio and non-interest income sources, excluding gains on sales of investments. Growth in commercial lines and loans, commercial real estate loans, personal lines and loans and credit cards, as well as non-interest income from treasury and merchant services as well as growth in mortgage income contributed to the increase in total revenue.

Net Interest IncomeNet interest income in the third quarter of 2017 increased 8% or $323,000 to $4.4 million over the third quarter of 2016. Net interest income was up $1.1 million to $13.1million or 10% for the first nine months of 2017 vs. $12.0 million over the same period in 2016.  Income from higher loan volume and a significant reduction in wholesale funding costs for the first nine months of 2017 contributed to the growth in net interest income. Continued competitive pressure resulted in a 3-basis point decline in the net interest margin during the third quarter of 2017 to 3.46% vs. 3.49% at September 30, 2016 with a year-over-year decline of 7 basis points to 3.48% for the first nine months of 2017 vs. 3.55% at September 30, 2016. 

Noninterest IncomeCore non-interest income increased 18% to $2.4 million for the nine months ended September 30, 2017 vs. $2.1 million during the same period of 2016.  The primary growth in non-interest income was ATM and interchange income as well as a strong increase in mortgage lending and merchant services during the third quarter and the first nine months of 2017.

Noninterest ExpenseNoninterest expense increased $318,000 in the third quarter 2017 vs. 2016 and $1.8 million year-to-date due to additional staffing costs to support increased growth as well as the successful completion of a core conversion during the third quarter of 2017. Noninterest expense also increased during the first nine months of 2017 due to increased staffing for growth and non-recurring conversion costs as well as professional fees related to outsourced internal audit activities prior to bringing the internal audit and risk management activities in-house.

Balance Sheet

Total assets grew at a 9% annualized rate to $551 million at September 30, 2017 from $517 million at December 31, 2016. The capital ratios remained well above regulatory standards for well-capitalized banks through September 30, 2017. 

LoansLoan growth increased 8% to $435 million or $31 million over the twelve months ended September 30, 2017. Annualized loan growth was 5% for the first nine months of 2017 due to strong loan growth offset somewhat by increased deleveraging by certain opportunities in the commercial sector.  Overall loan growth was driven by commercial real estate, commercial and industrial lines and term loans as well as consumer lines and loans.

DepositsTotal core deposits were up $24 million or 8% on an annualized basis for the first nine months of 2017 while core deposit growth was up $39 million or 10% over September 30, 2016. Strong core deposit growth was achieved again in 2017 by strong growth in commercial, private banking and consumer banking relationships, especially lower cost demand deposits. 

CapitalTotal stockholders’ equity increased $2.4 million through September 30, 2017 over the previous year.  HomeTown Bank’s Total capital ratio, Common equity tier 1 capital, Total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios were 11.8%, 12.5%, 11.8%, and 10.6%, respectively. All ratios continue to exceed the current regulatory standards for well-capitalized institutions.  Book value per common share amounted to $8.66 at September 30, 2017 vs. $8.30 at September 30, 2016, on a fully diluted basis.

Asset QualityLoan quality remained solid thru the first nine months ended September 30, 2017.

Nonperforming AssetsOREO balances decreased $232,000 or 6% during the first nine months 2017 and $712,000 or 17% since September 30, 2016.  This resulted in a decline in non-performing assets, excluding performing restructured loans, to 0.77% of total assets at September 30, 2017 vs. 1.03% at September 30, 2016.  Non-performing assets, including restructured loans, were also down from 2.25% of total assets at September 30, 2016 to 1.49% at September 30, 2017. 

Past Due and Nonaccrual LoansNonperforming loans, excluding performing, restructured loans, of $700,000 were 0.16% of total loans at September 30, 2017 vs. $935,000 or 0.23% of total loans at September 30, 2016. Past due accruing loans amounted to 0.70% of total loans at September 30, 2017 vs. 0.12% in 2016 while nonaccruals decreased to 0.16% of total loans during the third quarter of 2017 from 0.23% of total loans at September 30, 2016. Net charge-offs to average loans outstanding at September 30, 2017 were 0.03% for the quarter and 0.16% for the first nine months of 2017 vs. 0.02% and 0.25% in 2016. 

Allowance for Loan LossesThe Company’s Allowance for Loan Losses amounted to $3.71 million or 0.85% of total loans at September 30, 2017 vs. $3.64 million and 0.87% of total loans at December 31, 2016.

“The level of bank owned real estate was reduced significantly during the first nine months of 2017 and over the past year,” stated Still.  “Our ongoing focus will remain on maintaining low levels of non-performing loans and past dues and continuing to reduce the level of bank owned real estate prudently,” she said.

Forward-Looking Statements:

Certain statements in this press release may be “forward-looking statements.”  Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results that are not statements of historical fact and that involve significant risks and uncertainties.  Although the Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results will not differ materially from any future results implied by the forward-looking statements.  Actual results may be materially different from past or anticipated results because of many factors, some of which may include changes in economic conditions, the interest rate environment, legislative and regulatory requirements, new products, competition, changes in the stock and bond markets and technology.  The Company does not update any forward-looking statements that it may make.

(See Attached Financial Statements for quarter ending September 30, 2017)

HomeTown Bankshares Corporation
Consolidated Condensed Balance Sheets
September 30, 2017; December 31, 2016; and September 30, 2016
											September 30			December 31			September 30
In Thousands											2017			2016			2016
Assets											(Unaudited)						(Unaudited)
Cash and due from banks											$	34,755		$	18,229		$	21,264
Federal funds sold												132			42			1,033
Securities available for sale, at fair value												53,594			52,975			54,085
Restricted equity securities, at cost												2,371			2,213			2,213
Loans held for sale												1,013			678			294
Total loans												434,810			418,991			403,915
Allowance for loan losses												(3,706)			(3,636)			(3,544)
Net loans												431,104			415,355			400,371
Property and equipment, net												13,098			13,371			13,543
Other real estate owned												3,562			3,794			4,274
Other assets												11,818			10,633			10,635
Total assets											$	551,447		$	517,290		$	507,712
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing											$	110,249		$	91,354		$	88,716
Interest-bearing												368,695			359,494			351,278
Total deposits												478,944			450,848			439,994
Federal Home Loan Bank borrowings												11,361			8,000			9,000
Subordinated notes												7,247			7,224			7,217
Other borrowings												992			1,117			1,126
Other liabilities												2,225			1,876			2,093
Total liabilities												500,769			469,065			459,430
Stockholders’ Equity:
Common stock												28,776			28,765			28,781
Surplus												17,942			17,833			17,810
Retained surplus												3,363			1,247			657
Accumulated other comprehensive income												107			(56)			611
Total HomeTown Bankshares Corporation stockholders’ equity												50,188			47,789			47,859
Noncontrolling interest in consolidated subsidiary												490			436			423
Total stockholders’ equity												50,678			48,225			48,282
Total liabilities and stockholders’ equity											$	551,447		$	517,290		$	507,712

HomeTown Bankshares Corporation
Consolidated Condensed Statements of Income
For the Three and Nine Months Ended September 30, 2017 and 2016
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
In Thousands, Except Share and Per Share Data	2017			2016			2017			2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Interest income:
Loans and fees on loans	$	4,797		$	4,523		$	14,123		$	13,116
Taxable investment securities		244			209			744			614
Nontaxable investment securities		75			93			239			295
Other interest income		101			65			258			180
Total interest income		5,217			4,890			15,364			14,205
Interest expense:
Deposits		588			588			1,694			1,629
Subordinated notes		134			134			402			402
Other borrowed funds		58			54			171			221
Total interest expense		780			776			2,267			2,252
Net interest income		4,437			4,114			13,097			11,953
Provision for loan losses		40			111			575			979
Net interest income after provision for loan losses		4,397			4,003			12,522			10,974
Noninterest income:
Service charges on deposit accounts		120			178			415			496
ATM and interchange income		206			176			612			491
Mortgage banking		263			251			725			607
Gains on sales of investment securities		18			43			60			257
Other income		150			187			675			468
Total noninterest income		757			835			2,487			2,319
Noninterest expense:
Salaries and employee benefits		2,099			1,772			6,153			5,095
Occupancy and equipment expense		391			439			1,245			1,317
Advertising and marketing expense		112			127			383			345
Professional fees		89			135			454			352
Losses on sales, write-downs of other real estate owned, net		-			-			380			91
Other real estate owned expense		28			25			66			72
Other expense		1,085			988			3,228			2,841
Total noninterest expense		3,804			3,486			11,909			10,113
Net income before income taxes		1,350			1,352			3,100			3,180
Income tax expense		413			416			930			1,203
Net income		937			936			2,170			1,977
Less net income attributable to non-controlling interest		20			33			54			49
Net income attributable to HomeTown Bankshares Corporation		917			903			2,116			1,928
Effective dividends on preferred stock		-			-			-			408
Net income available to common stockholders	$	917		$	903		$	2,116		$	1,520
Basic earnings per common share	$	0.16		$	0.16		$	0.37		$	0.36
Diluted earnings per common share	$	0.16		$	0.16		$	0.37		$	0.26
Weighted average common shares outstanding		5,770,175			5,763,944			5,762,602			4,279,821
Diluted average common shares outstanding		5,794,777			5,774,086			5,792,204			5,776,632

HomeTown Bankshares Corporation			Three				Three				Nine					Nine
Financial Highlights			Months				Months				Months					Months
In Thousands, Except Share and Per Share Data			Ended				Ended				Ended					Ended
			Sep 30				Sep 30				Sep 30					Sep 30
			2017				2016				2017					2016
PER SHARE INFORMATION			(Unaudited)				(Unaudited)				(Unaudited)					(Unaudited)
	Book value per share, basic		$	8.70			$	8.30			$	8.70			$		8.30
	Book value per share, diluted		$	8.66			$	8.30			$	8.66			$		8.30
	Earnings (loss) per share, basic		$	0.16			$	0.16			$	0.37			$		0.36
	Earnings (loss) per share, diluted		$	0.16			$	0.16			$	0.37			$		0.26
PROFITABILITY
	Return on average assets			0.67	%			0.70	%			0.53	%				0.52	%
	Return on average shareholders' equity			7.25	%			7.54	%			5.73	%				5.45	%
	Net interest margin			3.46	%			3.49	%			3.48	%				3.55	%
	Efficiency			72.95	%			70.54	%			73.84	%				71.00	%
BALANCE SHEET RATIOS
	Total loans to deposits			90.79	%			91.80	%			90.79	%				91.80	%
	Securities to total assets			10.15	%			11.09	%			10.15	%				11.09	%
	Common equity tier 1 ratio BANK ONLY			11.8	%			12.1	%			11.8	%				12.1	%
	Tier 1 capital ratio BANK ONLY			11.8	%			12.1	%			11.8	%				12.1	%
	Total capital ratio BANK ONLY			12.5	%			12.9	%			12.5	%				12.1	%
	Tier 1 leverage ratio BANK ONLY			10.6	%			10.6	%			10.6	%				10.6	%
ASSET QUALITY
	Nonperforming assets to total assets			0.77	%			1.03	%			0.77	%				1.03	%
	Nonperforming assets, including restructured loans, to total assets			1.49	%			2.25	%			1.49	%				2.25	%
	Net charge-offs to average loans (annualized)			0.03	%			0.02	%			0.16	%				0.25	%
Composition of risk assets: (in thousands)
	Nonperforming assets:
		Nonaccrual loans	$	700			$	935			$	700				$	935
		Other real estate owned		3,562				4,274				3,562					4,274
	Total nonperforming assets, excluding performing restructured loans			4,262				5,209				4,262					5,209
	Restructured loans, performing in accordance with their modified terms			3,930				6,237				3,930					6,237
	Total nonperforming assets, including performing restructured loans		$	8,192			$	11,446			$	8,192				$	11,446
Allowance for loan losses: (in thousands)
	Beginning balance		$	3,700			$	3,449			$	3,636				$	3,298
		Provision for loan losses		40				111				575					979
		Charge-offs		(37	)			(21	)			(563	)				(806	)
		Recoveries		3				5				58					73
	Ending balance		$	3,706			$	3,544			$	3,706				$	3,544

For more information contact:
Susan K. Still, President and CEO, [phone]
Vance W. Adkins, Executive Vice President & CFO, [phone]