HMTA Hometown Bankshares Corp.

Core Revenue Up 7% on Solid Growth in Loans and Core Deposits

HomeTown Bankshares Corporation, (NASDAQ:HMTA), the parent company of HomeTown Bank, grew assets $17 million in Q1 2018 over prior year to $551 million at March 31, 2018 with continued solid growth in both loans and core deposits.  The Company reported net income available to common shareholders of $1.2 million for the first quarter ended March 31, 2018 vs. $765,000 for the first quarter of 2017.  Net Income available to common shareholders included $630,000 in non-recurring income for 2018. The non-recurring income during Q1 2018 was recognition of a gain on bank owned life insurance. Earnings per share on a fully diluted basis were $0.20 for the first quarter of 2018 and $0.13 per share for the first quarter of 2017.

"We are pleased with our continued solid growth in both loans and core deposits, increasing our net interest income and our net interest margin accordingly," said Susan K. Still, President and CEO.  "We look forward to continuing to capitalize on the competitive changes in our market(s) with solid market share growth and asset quality," she continued.

Revenue

Core revenues increased 7% due to solid loan and core deposit growth system-wide. Core revenue amounted to $6.1 million during the first quarter, before non-recurring income of $630,000, which compared to $5.0 million for the first quarter of 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 treasury and merchant services, mortgages and brokerage services.

Net Interest Income

For the first quarter 2018, net interest income increased $272,000 to $4.6 million from the first quarter of 2017. Higher loan volume and an increase in interest rates, offset by only a slight increase in deposit costs, resulted in a 1 basis point increase in the Net Interest Margin in Q1 2018. Net interest income should continue to grow with higher loan volume and increasing interest rates along with the growth in low-cost core deposits to support the loan growth while continuing to improve the net interest margin.

Noninterest Income

Total noninterest income amounted to $1.4 million in Q1 2018 vs. $697,000 for the same period in 2017; noninterest income, net of non-recurring income in 2018, amounted to $757,000 during Q1 2018 vs. $697,000 in the first quarter of 2017. The non-recurring income during Q1 2018 was the recognition of the gain on bank owned life insurance.

The primary increase for non-interest income, net of the non-recurring income, for Q1 2018 was continued new account growth with the related ATM and interchange income, merchant services income, and investment income.

Noninterest Expense

Noninterest expense increased in the first quarter 2018 vs. Q1 of 2017 due to increased staffing associated with new account openings and production costs, including FDIC expenses. In addition, there was an increase in OREO write-downs and expenses. 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.  We continue to anticipate a return to normalized overhead and a favorable comparison to peers and core operating costs during 2018 following our core conversion in 2017.

Loans

Total loans were $456 million at March 31, 2018, up $28 million or 6% from the first quarter of 2017 and up $11 million or 10% on an annualized basis over the prior year ended 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 Q1 2018 was up 4% over a similar period in 2017.  Total deposits were $476 million and 3% over Q1 2017. Solid core deposit growth was achieved thus far in 2018 by continued growth in new banking relationships as well as growth in existing commercial and consumer accounts.  Conversely, increased liquidity from strong core deposit growth resulted in a 45% reduction in wholesale funding and the associated interest expense.

Capital

Capital levels remained sound during Q1 2018 with total stockholders’ equity increasing $2.5 million through March 31, 2018.  HomeTown Bank common equity tier 1 capital, total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios were 11.6%, 12.4%, 11.6% and 10.7%, respectively. All ratios continue to exceed the current regulatory standards for well-capitalized institutions.  Book value per common share amounted to $8.79 at March 31, 2018 vs. $8.72 at December 31, 2017 and $8.43 at March 31, 2017.

Credit Quality

Credit quality remained sound thru March 31, 2018 with an increase in the provision for loan losses of $237,000 in Q1 2018 vs. $70,000 in Q1 2017. The increased provision was a result of increased loan production and an increase in charge-offs.

Nonperforming AssetsOREO balances increased during Q1 2018 by $477,000 over Q1 2017. Non-performing assets, excluding performing restructured loans, increased to 0.93% of total assets at March 31, 2018 vs. 0.76% at March 31, 2017.  Non-performing assets, including restructured loans, also increased slightly from 1.51% of total assets at March 31, 2017 to 1.63% at March 31, 2018.

Past Due and Nonaccrual LoansPast due accruing loans improved from 0.33% in Q1 2017 to 0.21% of total loans in Q1 2018. Nonaccruals amounted to 0.32% of total loans at March 31, 2018 vs. 0.22% of total loans at March 31, 2017. 

Allowance for Loan LossesThe allowance for loan losses totaled $3.86 million at March 31, 2018 compared to $3.73 million at March 31, 2017.  Provisions for credit losses were $237,000 for the Q1 2018 quarter vs. $70,000 for Q1 2017 due to solid loan growth as well as charge-offs during the fiscal year.

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 and year ending March 31, 2018)

HomeTown Bankshares Corporation
Consolidated Condensed Balance Sheets
March 31, 2018; December 31, 2017; and March 31, 2017
	March 31,				December 31,				March 31,
In Thousands	2018				2017				2017
Assets	(Unaudited)								(Unaudited)
Cash and due from banks	$	16,906			$	21,714			$	28,005
Federal funds sold		187				180				51
Securities available for sale, at fair value		49,571				55,344				52,159
Restricted equity securities, at cost		2,447				2,371				2,290
Loans held for sale		592				1,587				123
Total loans		455,590				444,195				428,043
Allowance for loan losses		(3,860	)			(3,758	)			(3,726	)
Net loans		451,730				440,437				424,317
Property and equipment, net		12,808				12,937				13,274
Other real estate owned, net		3,625				3,249				3,148
Other assets		13,341				12,434				10,946
Total assets	$	551,207			$	550,253			$	534,313
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	109,682			$	106,956			$	106,585
Interest-bearing		366,626				370,364				358,060
Total deposits		476,308				477,320				464,645
Federal Home Loan Bank borrowings		12,794				11,028				9,917
Subordinated notes		7,262				7,254				7,232
Other borrowings		580				1,558				1,121
Other liabilities		2,683				2,201				2,335
Total liabilities		499,627				499,361				485,250
Stockholders’ Equity:
Common stock		28,820				28,777				28,756
Surplus		18,063				17,980				17,861
Retained surplus		4,957				3,767				2,012
Accumulated other comprehensive (loss) income		(781	)			(141	)			(14	)
Total HomeTown Bankshares Corporation stockholders’ equity		51,059				50,383				48,615
Noncontrolling interest in consolidated subsidiary		521				509				448
Total stockholders’ equity		51,580				50,892				49,063
Total liabilities and stockholders’ equity	$	551,207			$	550,253			$	534,313

HomeTown Bankshares Corporation
Consolidated Condensed Statements of Income
For the Three Months Ended March 31, 2018 and 2017
		For the Three Months
		Ended March 31,
In Thousands, Except Share and Per Share Data		2018			2017
		(Unaudited)			(Unaudited)
Interest income:
Loans and fees on loans		$	4,904		$	4,624
Taxable investment securities			291			240
Nontaxable investment securities			59			87
Other interest income			85			74
Total interest income			5,339			5,025
Interest expense:
Deposits			577			554
Subordinated notes			134			134
Other borrowed funds			72			53
Total interest expense			783			741
Net interest income			4,556			4,284
Provision for loan losses			237			70
Net interest income after provision for loan losses			4,319			4,214
Noninterest income:
Service charges on deposit accounts			133			149
ATM and interchange income			227			178
Mortgage banking			195			207
Gains on sales of investment securities			60			13
Gain on bank owned life insurance			630			-
Other income			142			150
Total noninterest income			1,387			697
Noninterest expense:
Salaries and employee benefits			2,219			1,989
Occupancy and equipment expense			430			415
Advertising and marketing expense			181			130
Professional fees			109			233
Losses on sales, and writedowns of other real estate owned, net			158			-
Other real estate owned expense			141			13
Other expense			1,119			1,012
Total noninterest expense			4,357			3,792
Net income before income taxes			1,349			1,119
Income tax expense			147			342
Net income			1,202			777
Less net income attributable to non-controlling interest			12			12
Net income attributable to HomeTown Bankshares Corporation			1,190			765
Effective dividends on common stock			-			-
Net income available to common stockholders		$	1,190		$	765
Basic earnings per common share		$	0.21		$	0.13
Diluted earnings per common share		$	0.20		$	0.13
Weighted average common shares outstanding			5,795,005			5,763,383
Diluted average common shares outstanding			5,840,667			5,783,573

HomeTown Bankshares Corporation			Three					Three
Financial Highlights			Months					Months
In Thousands, Except Share and Per Share Data			Ended					Ended
			Mar 31					Mar 31
			2018					2017
PER SHARE INFORMATION			(Unaudited)					(Unaudited)
	Book value per share, basic		$	8.79			$		8.43
	Book value per share, diluted		$	8.72			$		8.43
	Earnings (loss) per share, basic		$	0.21			$		0.13
	Earnings (loss) per share, diluted		$	0.20			$		0.13
PROFITABILITY
	Return on average assets			0.88	%				0.59	%
	Return on average shareholders' equity			9.49	%				6.40	%
	Net interest margin			3.55	%				3.54	%
	Efficiency			68.98	%				76.06	%
BALANCE SHEET RATIOS
	Total loans to deposits			95.65	%				92.12	%
	Securities to total assets			9.44	%				10.19	%
	Common equity tier 1 ratio BANK ONLY			11.6	%				11.7	%
	Tier 1 capital ratio BANK ONLY			11.6	%				11.7	%
	Total capital ratio BANK ONLY			12.4	%				12.5	%
	Tier 1 leverage ratio BANK ONLY			10.7	%				10.5	%
ASSET QUALITY
	Nonperforming assets to total assets			0.93	%				0.76	%
	Nonperforming assets, including restructured loans, to total assets			1.63	%				1.51	%
	Net charge-offs (recoveries) to average loans (annualized)			0.12	%				(0.02	)%
Composition of risk assets: (in thousands)
	Nonperforming assets:
		Nonaccrual loans	$	1,478				$	936
		Other real estate owned		3,625					3,148
	Total nonperforming assets, excluding performing restructured loans			5,103					4,084
	Restructured loans, performing in accordance with their modified terms			3,861					3,980
	Total nonperforming assets, including performing restructured loans		$	8,964				$	8,064
Allowance for loan losses: (in thousands)
	Beginning balance		$	3,758				$	3,636
		Provision for loan losses		237					70
		Charge-offs		(148	)				(16	)
		Recoveries		13					36
	Ending balance		$	3,860				$	3,726

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