HMTA Hometown Bankshares Corp.

Q3 Earnings Up 45% and 65% YTD

NASDAQ ListingHomeTown Bankshares Corporation is listed with the NASDAQ Capital Markets under the trading symbol “HMTA”. During Q3 of 2018, the stock closed as high as $16.50 with an average close of $13.40 and most recent closing price of $14.68 on October 30, 2018.

Operating Performance Highlights

• Core Revenues were up over 9% in Q3 and 6% thru September 30, 2018
• Net Interest Income was up 7% in Q3 2018 and 7% for the first nine months ended September 30, 2018 vs. 2017
• Net Interest Margin increased 10 basis points in Q3 to 3.56% at September 30, 2018 from 3.46% at September 30, 2017, and up 7 basis points YTD at September 30, 2018 to 3.55% from 3.48% in 2017
• Excluding non-recurring income, noninterest income for Q3 2018 was up 3% while YTD non-interest income for the first nine months of 2018 was down 8% due primarily to a YTD reduction in mortgage revenue
• During the nine months ended September 30, 2018, non-recurring income from BOLI insurance proceeds of $642,000 was offset by a similar increase in certain non-recurring expenses.
• Net Income Available to Shareholders was up 45% to $1.3 million in Q3 2018 and up 65% to $3.5 million for the first nine months of 2018 from $917,000 and $2.1 million, respectively, in 2017
• Fully diluted Earnings per Share were up accordingly to $0.23 for the third quarter and $0.60 for the nine months of 2018 from $0.16 and $0.37, respectively, in 2017

Continued Strong Loan and Stable Deposits

• Total Assets were $559 million at September 30, 2018, an $8 million increase or 2% for the nine months
• Total Loans were $466 million at September 30, 2018, up $32 million or 7% in Q3 2018 vs. Q3 2017
• Total Loans were up $22 million or 7% on an annualized basis since December 31, 2017
• Core Deposits increased 1.4% in Q3 2018 over 2017 and up 3% annualized since December 31, 2017

Credit Quality Remains Sound

• YTD net charge-offs were $182,000 or 0.05% of average loans and with net recoveries of $6,000 or (0.01)% for Q3 2018 vs. net charge-offs of $505,000 YTD or 0.16% of average loans and $34,000 or 0.03% for Q3 2017
• Nonperforming assets were 0.83% of total assets at September 30, 2018 vs. 0.77% in 2017
• Including performing, restructured loans, nonperforming assets amounted to 1.51% of assets at September 30, 2018 vs. 1.49% in Q3 2017
• Nonaccrual loans remained low at 0.31% of total loans at September 30, 2018 vs. 0.16% of total loans at September 30, 2017

The Board of Directors declared a cash dividend of $0.04 per common share, payable November 30, 2018, to shareholders of record as of November 15, 2018.HomeTown Bankshares Corporation, (NASDAQ: HMTA), the parent company of HomeTown Bank, reported strong growth in net income available to common shareholders of $1.3 million for the third quarter ended September 30, 2018 and $3.5 million for the nine months ended September 30, 2018 vs. $917,000 and $2.1 million for comparable periods in 2017.  Total assets were up slightly in Q3 2018 from the prior quarter to $559 million and up $7.3 million over the prior year from $551 million at September 30, 2017 with continued solid growth in loans and core deposits.  Earnings per share on a fully diluted basis were $0.23 for the third quarter and $0.60 per share for the first nine months of 2018, up nicely from $0.16 and $0.37 per share, respectively, for the third quarter and first nine months of 2017.

"We are very pleased with our continued, strong earnings growth during the third quarter and for the first nine months of 2018. Solid growth in loans and core deposits, increases in interest rates, an improved net interest margin, and a reduction in the provision for loan losses contributed to a 45% increase in net income for the quarter. Non-recurring income and an improvement in the corporate tax rate for both quarters, contributed to a 65% increase in net income for the first nine months of 2018," said Susan K. Still, President and CEO.  "With continued strength in the economy, strong credit quality, and control of non-interest expenses, we would anticipate a favorable lending environment and successful access to core deposits for the remainder of the year," she continued. Revenue Core revenues increased 9% during third quarter of 2018 and 6% for the first nine months of 2018 due to solid loan growth and rising interest rates. Core revenue amounted to $6.5 million during the third quarter and $18.9 million for the first nine months of 2018, before non-recurring income of $702,000, which compared to $6.0 million and $17.8 million, respectively, in 2017. Higher core revenues were generated predominantly from commercial lines and loans, commercial real estate loans, personal lines and loans, private banking loans as well as non-interest income from credit and debit card interchange, treasury, and merchant services. Year to date mortgage revenue of $587,000 trailed 2017 mortgage revenue by 19% due to the significant drop in refinancing mortgages due to a rising rate environment over the past year.  Net Interest IncomeNet interest income increased 7% or $331,000 for the third quarter while year-to-date in 2018 grew $879,000 to $14.0 million at September 30, 2018. Higher loan volume and an increase in interest rates, offset by a smaller increase in deposit costs, also resulted in a 10 basis point increase in the Net Interest Margin for the third quarter of 2018 over 2017 and a 7 basis point improvement for the first nine months of 2018 over 2017. Net interest income should continue to grow with higher loan volume and increasing interest rates along with the growth in lower-cost core deposits and controlled mix of deposits, resulting in continued improvement in the net interest margin. Noninterest Income  Total noninterest income amounted to $764,000 in Q3 2018 vs. $757,000 for the same period in 2017 due primarily to higher ATM and interchange income slightly offset by lower mortgage income.  Year-to-date noninterest income amounted to $2.9 million at September 30, 2018, up from $2.5 million for a comparable period in 2017 due primarily to non-recurring income from the recognition of a gain on bank owned life insurance. New account growth, ATM and interchange income as well as credit card and merchant service income were the primary contributors to non-interest income for the first nine months of 2018. Noninterest ExpenseNoninterest expense during the nine months increased 3% over 2017 due primarily to an increase in OREO related expenses, and higher data processing costs. We also experienced increased personnel costs with the transition of a new Chief Credit Officer due to the retirement of our former Chief Credit Officer as well as the addition to staff of a new Chief Risk Officer. Non-interest expense increases slowed to 1% during the third quarter of 2018 with strong improvement in our efficiency ratio to 69.7% at September 30, 2018 vs. 73.2% in 2017. A return to normalized overhead and core operating costs are anticipated for the remainder of 2018 following our core conversion and related expenses in 2017. Net Income Net Income was up $415,000 to $1.3 million or 45% for the third quarter and up $1.4 million or 65% to $3.5 million for the nine months ended September 30, 2018.  Return on average assets amounted to 0.94% and return on average shareholders' equity was 10.04% for the third quarter of 2018, compared to 0.84% and 9.03% for the nine months ended September 30, 2018. Improved profitability was due to a combination of increased loan volume at higher interest rates, controlled deposit mix and non-interest expenses as well as a lower provision for loan losses through the third quarter.  Core earnings were up $385,000 or 28% for the third quarter and up $302,000 or 7% for the first nine months over similar periods in 2017.  Core earnings consist of pre-tax earnings less non-recurring income plus non-recurring expenses. LoansTotal loans were $466 million at September 30, 2018, up $32 million or 7% from the third quarter of 2017 and up $22 million or 7% on an annualized basis for the nine months since December 31, 2017.  Loan growth was driven by commercial real estate, commercial and industrial lines and term loans, consumer lines and loans as well as private client loans. Deposits Core deposit growth for the first nine months ended September 30, 2018 was up 2% and 3% on an annualized basis since September 30, 2017.  Total deposits were $483 million, up $4.6 million over Q3 2017. Stable core deposits maintained thus far in 2018 were supported by continued growth in new banking relationships and a 14% increase in non-interest bearing deposits since 2017.  In addition, liquidity from stable core deposit growth resulted in a continued year over year reduction in our wholesale funding to less than 1% of total deposits. Significantly lower interest expense associated with wholesale funding will continue to reduce the costs of growing core deposits. 

Capital Capital levels remained sound during Q3 2018 with total stockholders’ equity increasing $2.3 million through September 30, 2018 over the same period in 2017.  HomeTown Bank common equity tier 1 capital, total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios were 11.7%, 12.5%, 11.7% and 10.9%, respectively. All ratios continue to exceed the current regulatory standards for well-capitalized institutions.  Fully diluted book value per common share amounted to $8.98 at September 30, 2018 vs. $8.66 at September 30, 2017. Credit Quality

Credit quality improved and remained sound through September 30, 2018 with a lower provision for loan losses of $371,000 thru Q3 2018 vs. $575,000 through Q3 2017. The reduced provision was a result of continued improvement in loan quality and a reduction in charge-offs. Nonperforming Assets

OREO balances decreased $366,000 or 10% from Q3 2017. Non-performing assets, excluding performing restructured loans, amounted to 0.83% of total assets at September 30, 2018 vs. 0.77% at September 30, 2017.  Non-performing assets, including performing restructured loans, amounted to 1.51% of total assets at September 30, 2017 vs. 1.49% at September 30, 2018.    Past Due and Nonaccrual Loans

Past due accruing loans amounted to 0.41% at September 30, 2018 vs. 0.70% of total loans at Q3 2017. Nonaccruals were 0.31% of total loans at September 30, 2018 compared to 0.16% of total loans at September 30, 2017.  Allowance for Loan Losses

The allowance for loan losses totaled $3.95 million at September 30, 2018 compared to $3.71 million at September 30, 2017.  Provision for credit losses was $24,000 for the Q3 2018 quarter vs. $40,000 for Q3 2017 with an improvement in overall credit quality and lower charge-offs during the fiscal year.  Charge-offs amounted to a net recovery of $6,000 in Q3 of 2018 vs. net charge-offs of $34,000 in Q3 2017 with net charge-offs of $182,000 for the nine months ended September 30, 2018, down from $505,000 in 2017.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, and 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 ended September 30, 2018)

HomeTown Bankshares Corporation
Consolidated Condensed Balance Sheets
September 30, 2018; December 31, 2017; and September 30, 2017
		September 30,					December 31,						September 30,
In Thousands		2018					2017						2017
Assets		(Unaudited)											(Unaudited)
Cash and due from banks	$	18,126			$		21,714					$	34,755
Federal funds sold		193					180						132
Securities available for sale, at fair value		45,704					55,344						53,594
Restricted equity securities, at cost		2,359					2,371						2,371
Loans held for sale		1,378					1,587						1,013
Total loans		466,343					444,195						434,810
Allowance for loan losses		(3,947	)				(3,758			)			(3,706				)
Net loans		462,396					440,437						431,104
Property and equipment, net		13,096					12,937						13,098
Other real estate owned, net		3,196					3,249						3,562
Other assets		12,293					12,434						11,818
Total assets	$	558,741			$		550,253					$	551,447
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	121,598			$		106,956					$	110,249
Interest-bearing		361,899					370,364						368,695
Total deposits		483,497					477,320						478,944
Federal Home Loan Bank borrowings		10,728					11,028						11,361
Subordinated notes		7,277					7,254						7,247
Other borrowings		1,348					1,558						992
Other liabilities		2,921					2,201						2,225
Total liabilities		505,771					499,361						500,769
Stockholders’ Equity:
Common stock		28,836					28,777						28,776
Surplus		18,151					17,980						17,942
Retained surplus		6,798					3,767						3,363
Accumulated other comprehensive (loss) income		(1,158	)				(141			)			107
Total HomeTown Bankshares Corporation stockholders’ equity		52,627					50,383						50,188
Noncontrolling interest in consolidated subsidiary		343					509						490
Total stockholders’ equity		52,970					50,892						50,678
Total liabilities and stockholders’ equity	$	558,741			$		550,253					$	551,447

HomeTown Bankshares Corporation
Consolidated Condensed Statements of Income
For the Three and Nine Months Ended September 30, 2018 and 2017
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
In Thousands, Except Share and Per Share Data	2018			2017			2018			2017
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Interest income:
Loans and fees on loans	$	5,344		$	4,797		$	15,374		$	14,123
Taxable investment securities		262			244			824			744
Nontaxable investment securities		56			75			172			239
Other interest income		86			101			249			258
Total interest income		5,748			5,217			16,619			15,364
Interest expense:
Deposits		761			588			1,998			1,694
Subordinated notes		134			134			402			402
Other borrowed funds		85			58			243			171
Total interest expense		980			780			2,643			2,267
Net interest income		4,768			4,437			13,976			13,097
Provision for loan losses		24			40			371			575
Net interest income after provision for loan losses		4,744			4,397			13,605			12,522
Noninterest income:
Service charges on deposit accounts		139			120			419			415
ATM and interchange income		265			206			754			612
Mortgage banking		195			263			587			725
Gains on sales of investment securities		-			18			60			60
Income from life insurance benefit		-			-			642			-
Other income		165			150			478			675
Total noninterest income		764			757			2,940			2,487
Noninterest expense:
Salaries and employee benefits		2,113			2,099			6,465			6,153
Occupancy and equipment expense		416			391			1,253			1,245
Advertising and marketing expense		136			112			491			383
Professional fees		76			89			350			454
Losses on sales, write-downs of other real estate owned, net		2			-			160			380
Other real estate owned expense		44			28			249			66
Merger-related expense		65			-			65			-
Other expense		1,006			1,085			3,292			3,228
Total noninterest expense		3,858			3,804			12,325			11,909
Net income before income taxes		1,650			1,350			4,220			3,100
Income tax expense		308			413			687			930
Net income		1,342			937			3,533			2,170
Less net income attributable to non-controlling interest		10			20			38			54
Net income available to common stockholders	$	1,332		$	917		$	3,495		$	2,116
Basic earnings per common share	$	0.23		$	0.16		$	0.60		$	0.37
Diluted earnings per common share	$	0.23		$	0.16		$	0.60		$	0.37
Weighted average common shares outstanding		5,810,618			5,770,175			5,804,251			5,767,602
Diluted average common shares outstanding		5,861,082			5,794,777			5,854,715			5,792,204

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
				2018				2017				2018					2017
PER SHARE INFORMATION				(Unaudited)				(Unaudited)				(Unaudited)					(Unaudited)
	Book value per share, basic		$	9.06			$	8.70			$	9.06			$		8.70
	Book value per share, diluted		$	8.98			$	8.66			$	8.98			$		8.66
	Earnings per share, basic		$	0.23			$	0.16			$	0.60			$		0.37
	Earnings per share, diluted		$	0.23			$	0.16			$	0.60			$		0.37
PROFITABILITY
	Return on average assets			0.94				0.67				0.84	%				0.53	%
	Return on average shareholders' equity			10.04	%			7.25	%			9.03	%				5.73	%
	Net interest margin			3.56	%			3.46	%			3.55	%				3.48	%
	Efficiency			69.74	%			73.24				72.86	%				76.41	%
BALANCE SHEET RATIOS
	Total loans to deposits			96.5	%			90.8	%			96.5	%				90.8	%
	Securities to total assets			8.60	%			10.15	%			8.60	%				10.15	%
	Common equity tier 1 ratio BANK ONLY			11.7	%			11.8	%			11.7	%				11.8	%
	Tier 1 capital ratio BANK ONLY			11.7	%			11.8	%			11.7	%				11.8	%
	Total capital ratio BANK ONLY			12.5	%			12.5	%			12.5	%				12.5	%
	Tier 1 leverage ratio BANK ONLY			10.9	%			10.6	%			10.9	%				10.6	%
ASSET QUALITY
	Nonperforming assets to total assets			0.83	%			0.77	%			0.83	%				0.77	%
	Nonperforming assets, including restructured loans, to total assets			1.51	%			1.49	%			1.51	%				1.49	%
	Net charge-offs (recoveries) to average loans (annualized)			(0.01) %				0.03	%			0.05	%				0.16	%
Composition of risk assets: (in thousands)
	Nonperforming assets:
		Nonaccrual loans	$	1,454			$	700			$	1,454				$	700
		Other real estate owned		3,196				3,562				3,196					3,562
	Total nonperforming assets, excluding performing restructured loans			4,650				4,262				4,650					4,262
	Restructured loans, performing in accordance with their modified terms			3,796				3,930				3,796					3,930
	Total nonperforming assets, including performing restructured loans		$	8,446			$	8,192			$	8,446				$	8,192
Allowance for loan losses: (in thousands)
	Beginning balance		$	3,917			$	3,700			$	3,758				$	3,636
		Provision for loan losses		24				40				371					575
		Charge-offs		(23	)			(37	)			(247	)				(563	)
		Recoveries		29				3				65					58
	Ending balance		$	3,947			$	3,706			$	3,947				$	3,706

For more information contact:
Susan K. Still, President and CEO, (540) 278-1705
Vance W. Adkins, Executive Vice President and CFO, (540) 278-1702