8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report: August 1, 2016

HOMETOWN BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

Virginia	333-158525	26-4549960
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)
202 S. Jefferson Street Roanoke, Virginia		24011
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (540) 345-6000

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

HomeTown Bankshares Corporation (the “Company”), the parent company for Roanoke, Virginia based HomeTown Bank, announced on August 1, 2016 its financial results for the three months and six months ended June 30, 2016. The financial results are detailed in the Company’s Press Release dated August 1, 2016, which is attached as Exhibit 99.1 to this Form 8-K.

The information in this Item 2.02, including Exhibit 99.1 to this Current Report, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained in this Item 2.02 and in the accompanying Exhibit 99.1 shall not be incorporated by reference into any registration statement or other document filed by the Company with the Securities and Exchange Commission, whether made before or after the date of this Current Report, regardless of any general incorporation language in such filing (or any reference to this Current Report generally), except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits

Exhibit No.	Description
99.1	Press Release

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HOMETOWN BANKSHARES CORPORATION
Date: August 1, 2016	By:	/s/ Charles W. Maness, Jr.
		Charles W. Maness, Jr.,
		Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release

EX-99.1

Exhibit 99.1

 

Monday, August 1, 2016

HomeTown Bankshares Corporation Reports

Solid Growth on Lower Earnings

 YTD Core Revenue up 8% Over 2015

● Continued Strong Loan and Core Deposit Growth

o Total assets topped $500 million at June 30, 2016

o Loans were $394 Million at June 30, 2016

■ Up $26.3 million or 14% on an annualized basis for the first half of 2016, and

■ Up $39.6 million or 11% since June 30, 2015

o Core Deposits were $382 Million at June 30, 2016

■ Increased $26.6 million or 15% annualized for the first half of 2016

■ Increased $50.2 million or 15% since June 30, 2015

● Operating Performance Highlights

o Q2 core revenue of $5.4 million, up 6% or $343,000 over 2015

o YTD core revenue of $10.6 million, an increase of $751,000 or 8% over 2015

o Net Income of $224,000 for second quarter of 2016 vs. $863,000 for second quarter of 2015

o YTD Earnings of $1.03 million vs. $1.64 million in 2015

o Q2 and YTD Earnings lower due to 1) $600,000 provision for specific loan loss identified in Q2; and 2) $240,000 in additional tax expense incurred due to expiration of stock options during the second quarter of 2016

o EPS on a fully diluted basis of $0.00 for the second quarter of 2016 and $0.11 YTD vs. $0.15 and $0.28, respectively, in 2015

● Credit Quality Remains Sound

o Non-performing assets improved to 1.30% of total assets at June 30, 2016 vs. 1.62% at June 30, 2015

o OREO balances improved $2.6 million or 37% since June 30, 2015, and $1.4 million or 24% during the second quarter of 2016

o Past due accruing loans improved to 0.24% of total loans at June 30, 2016 vs. 0.38% at June 30, 2015

o Provision for specific loan loss mentioned above contributed to following:

■ Q2 net charge-offs increased to .74% of average total loans vs. .02% of average total loans for 2015; YTD net charge-offs thru June 30, 2016 were 0.38% vs. 0.01% for 2015

■ Q2 nonaccrual loans increased to .57% of total loans at June 30, 2016 from .11% of total loans at June 30, 2015

● Well Capitalized with Solid Capital Ratios

o Preferred Stock converted to common stock on June 29, 2016, eliminating dividends payable of approximately $200,000 per quarter beginning July 1, 2016

o Common Equity Tier 1 Capital amounted to 12.2% at June 30, 2016

o Total Risk-Based Capital amounted to 13.0% at June 30, 2016

o Tier 1 Risk-Based Capital amounted to 12.2% at June 30, 2016

o Tier 1 Leverage Ratio for HomeTown Bank increased to 10.6% at June 30, 2016 vs. 9.9% at June 30, 2015

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News Release                              

FOR IMMEDIATE RELEASE

For more information contact:

Susan K. Still, President and CEO, 540-278-1705

Charles W. Maness, Jr. Executive Vice President and CFO, 540-278-1702

HomeTown Bankshares Reports Strong Growth on Lower Earnings for Second Quarter

YTD Revenue up 8% over 2015

ROANOKE, Va., August 1, 2016 - HomeTown Bankshares Corporation (the "Company"), the parent company of HomeTown Bank, topped $500 million in assets with strong growth in both loans and core deposits. The Company reported net income of $224,000 for the second quarter ended June 30, 2016 vs. $863,000 in net income for the comparative period in 2015. Net Income for the first six months of 2016 was $1.03 million vs. $1.64 million for the first six months of 2015. Earnings per share on a fully diluted basis were $0.00 for the second quarter of 2016 and $0.11 per share for the six months ended June 30, 2016 vs. $0.15 and $0.28 per share, respectively, for similar periods in 2015.

Profitability was lower in the second quarter due predominantly to additional loan loss provision expense from the partial charge off of a loan extended in 2008 that had performed as agreed until the second quarter of 2016. The Company recorded a specific loan loss provision attributed to this aforementioned loan of $600,000 reducing net income by $400,000 after taxes. In addition, the Company incurred additional tax expense of $240,000 due to the expiration of stock options in the second quarter that were issued in 2006 and were never exercised. This charge was due to the reversal of tax benefits recorded previously that cannot be realized due to the options expiring. These were the primary contributors to the reduction in earnings thru June 30, 2016.

“During the second quarter of 2016, we continued to experience strong balance sheet growth in both loans and core deposits resulting in a solid increase in core revenues. Our double-digit growth in new business during the first half of 2016 continued to reflect solid gains in market share in both loans and deposits, especially from the recent sale of Valley Bank in 2015,” said President and CEO Susan Still. “We have also worked aggressively to resolve a non-performing loan identified during the second quarter, and we have taken a proactive stance in realizing an appropriate provision for this loan in June,” said Still.

Revenue

Total core revenue for the six months ended June 30, 2016 was $10.6 million, up $778,000 or 8% over 2015, which included $5.4 million in core revenues realized during the second quarter of 2016, 6% higher than 2015. Higher core revenues reflected increases in both net interest income and non-interest income and exclude gains on sales of investments during the first half of 2016. Growth in commercial lines and loans, commercial real estate loans, personal lines and loans, as well as in non-interest income from treasury and merchant services, title insurance, mortgage and brokerage services contributed to the increase in total revenue.

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Net Interest Income

Net interest income in the second quarter 2016 increased $81,000 to $4.0 million from the first quarter of 2016 with a $160,000 increase from $3.8 million earned for the comparative second quarter of 2015. Net interest income was up $329,000 to $7.8 million or 4% for the first half of 2016 vs. $7.5 million over a comparable period in 2015. Higher loan volume helped to offset lower interest rates on loans and increased sub-debt interest expense for the first half of 2016; however, as anticipated, the cost of our $7.5 million capital raise in December 2015, will have a near-term impact on earnings and our net interest margin while the continued growth in interest income from new loans and investments surpasses the interest expense incurred. Accordingly, a 7 basis point decline was realized in the net interest margin during the second quarter of 2016 from 3.62% in the first quarter to 3.55% at June 30, 2016 with a year-over year decline of 23 basis points from 3.82% for the first half of 2015 vs. 3.59% at June 30, 2016.

Noninterest Income

Noninterest income increased 8% to $664,000, net of securities gains, in the second quarter 2016 while noninterest income of $1.5 million was realized for the first half of 2016, up 3% from $1.2 million realized for the second half of 2015, also net of securities gains. The primary increase for 2016 was continued growth in service charges from the new deposit relationships, ATM and interchange income, title insurance, and merchant income.

Noninterest Expense

Noninterest expense increased $103,000 in the second quarter 2016 from the prior quarter due primarily to a loss of $91,000 on the sale of a foreclosed property resulting in a 24% reduction or $1.35 million in the OREO portfolio. Noninterest expense increased during the first half of 2016 over the six months ended June 30, 2016 compared to 2015 due primarily to costs increase in salaries and benefits for additions to our two new lines of business, Private Wealth and Merchant Services, in addition to increased staffing to support new account growth.

Loans

Total loans were $394 million at June 30, 2016, up $26.3 million or 14% on an annualized basis for the first half of 2016 and up $39.6 million or 11% over the prior year ended June 30, 2015. Loan growth was driven by commercial real estate, commercial and industrial lines and term loans as well as consumer lines and loans.

Deposits

Total core deposits were up $26.6 million or 15% on an annualized basis for the first half of 2016 while core deposit growth was up $50.2 million or 15% over June 30, 2015. Strong core deposit growth was achieved again in 2015 by strong growth in commercial and consumer banking relationships.

Capital

Capital levels remained strong in the second quarter, with total stockholders’ equity increasing $2.8 million through June 30, 2016 over the previous year. HomeTown Bank Common equity tier 1 capital, Total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios were 12.2%, 13.0%, 12.2% and 10.6%, respectively. All ratios continue to exceed the current regulatory standards for well-capitalized institutions. Book value per common share amounted to $8.36 at June 30, 2016 vs. $8.00 at June 30, 2015.

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With the conversion of HMTA Preferred Stock on June 29, 2016, capital will no longer decrease with the reduction in quarterly dividends paid of approximately $200,000 per quarter beginning July 1, 2016.

Credit Quality

Credit quality remained solid thru June 30, 2016 in spite of an addition to the provision for loan losses and nonaccrual status for a specific loan as discussed above.

Nonperforming Assets

OREO balances decreased significantly - $1.35 million or 24% during the second quarter of 2016 and $2.6 million or 37% since June 30, 2015. This resulted in a decline in non-performing assets, excluding performing restructured loans, to 1.30% of total assets at June 30, 2016 vs. 1.62% at June 30, 2015. Non-performing assets, including restructured loans, were also down from 3.08% of total assets at June 30, 2015 to 2.55% at June 30, 2016.

Past Due and Nonaccrual Loans

Past due accruing loans amounted to 0.24% of total loans at June 30, 2016 vs. 0.38% in 2015 while nonaccruals increased to .57% of total loans during the second quarter of 2016 from .11% of total loans at June 30, 2015.

Allowance for Loan Losses

The allowance for loan losses totaled $3.4 million at June 30, 2016 compared to $3.3 million at June 30, 2015. Provisions for credit losses were $868,000 for the first half of 2016 vs. $-0- for the first half of 2015 for loan growth as well as the specific loan provision incurred in the 2^nd quarter as discussed above.

* * *

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 ending June 30, 2016)

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HomeTown Bankshares Corporation 

Consolidated Condensed Balance Sheets

June 30, 2016; December 31, 2015; and June 30, 2015

	June 30,			December 31			June 30,
In Thousands	2016			2015			2015
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	28,101		$	28,745		$	15,063
Federal funds sold		954			1,329			797
Securities available for sale, at fair value		54,498			52,544			48,931
Restricted equity securities, at cost		2,479			2,535			2,695
Loans held for sale		915			1,643			382
Total loans		393,668			367,358			354,075
Allowance for loan losses		(3,449	)		(3,298	)		(3,313	)
Net loans		390,219			364,060			350,762
Property and equipment, net		13,726			14,008			14,792
Other real estate owned		4,337			5,237			6,872
Other assets		10,160			9,284			9,052
Total assets	$	505,389		$	479,385		$	449,346
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	83,414		$	77,268		$	53,730
Interest-bearing		349,861			322,278			323,487
Total deposits		433,275			399,546			377,217
Federal Home Loan Bank borrowings		14,650			22,000			25,750
Subordinated notes		7,209			7,194			-
Other borrowings		896			2,361			552
Other liabilities		1,923			1,893			1,150
Total liabilities		457,953			432,994			404,669
Stockholders’ Equity:
Preferred stock		-			12,893			13,293
Common stock		28,116			16,801			16,481
Surplus		17,774			15,484			15,335
Common stock distributable		665			-			-
Retained surplus (deficit)		(247	)		443			(1,052	)
Accumulated other comprehensive income		738			396			260
Total HomeTown Bankshares Corporation stockholders’ equity		47,046			46,017			44,317
Noncontrolling interest in consolidated subsidiary		390			374			360
Total stockholders’ equity		47,436			46,391			44,677
Total liabilities and stockholders’ equity	$	505,389		$	479,385		$	449,346

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HomeTown Bankshares Corporation 

Consolidated Condensed Statements of Income

For the Three and Six Months Ended June 30, 2016 and 2015

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
In Thousands, Except Share and Per Share Data	2016		2015		2016		2015
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest income:
Loans and fees on loans	$	4,337	$	4,047	$	8,593	$	7,946
Taxable investment securities		201		176		405		382
Nontaxable investment securities		101		100		202		203
Other interest income		62		44		115		86
Total interest income		4,701		4,367		9,315		8,617
Interest expense:
Deposits		537		465		1,041		913
Other borrowed funds		204		102		435		194
Total interest expense		741		567		1,476		1,107
Net interest income		3,960		3,800		7,839		7,510
Provision for loan losses		808		-		868		-
Net interest income after provision for loan losses		3,152		3,800		6,971		7,510
Noninterest income:
Service charges on deposit accounts		164		124		318		234
ATM and interchange income		168		146		315		268
Mortgage banking		181		258		356		378
Gains on sales of investment securities		209		-		214		40
Other income		151		167		281		310
Total noninterest income		873		695		1,484		1,230
Noninterest expense:
Salaries and employee benefits		1,597		1,619		3,323		3,160
Occupancy and equipment expense		444		439		878		884
Advertising and marketing expense		124		167		218		409
Professional fees		116		111		217		223
(Gains), losses on sales, writedowns of other real estate owned, net		91		-		91		-
Other real estate owned expense		25		40		47		70
Other expense		968		846		1,853		1,585
Total noninterest expense		3,365		3,222		6,627		6,331
Net income before income taxes		660		1,273		1,828		2,409
Income tax expense		434		381		787		727
Net income		226		892		1,041		1,682
Less net income attributable to non-controlling interest		2		29		16		43
Net income attributable to HomeTown Bankshares Corporation		224		863		1,025		1,639
Effective dividends on preferred stock		204		210		408		420
Net income available to common stockholders	$	20	$	653	$	617	$	1,219
Basic earnings per common share	$	0.00	$	0.19*	$	0.17	$	0.36*
Diluted earnings per common share	$	0.00	$	0.15*	$	0.11	$	0.28*
Weighted average common shares outstanding		3,557,763		3,428,085*		3,529,605		3,425,644*
Diluted average common shares outstanding		5,780,120		5,757,685*		5,776,832		5,755,244*
*Restated for the 4% stock dividend distributed July 11, 2016

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HomeTown Bankshares Corporation	Three			Three			Six			Six
Financial Highlights	Months			Months			Months			Months
In Thousands, Except Share and Per Share Data	Ended			Ended			Ended			Ended
	Jun 30			Jun 30			Jun 30			Jun 30
	2016			2015			2016			2015
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
PER SHARE INFORMATION
Book value per share, basic	$	8.36		$	9.41		$	8.36		$	9.41
Book value per share, diluted	$	8.36		$	8.00		$	8.36		$	8.00
Earnings (loss) per share, basic	$	0.00		$	0.19	*	$	0.17		$	0.36	*
Earnings (loss) per share, diluted	$	0.00		$	0.15	*	$	0.11		$	0.28	*
* Restated for the 4% stock dividend distributed July 11, 2016
PROFITABILITY
Return on average assets		0.18	%		0.78	%		0.42	%		0.75	%
Return on average shareholders' equity		1.91	%		7.80	%		4.39	%		7.50	%
Net interest margin		3.55	%		3.80	%		3.59	%		3.82	%
Efficiency		70.28	%		70.78	%		71.24	%		71.97	%
BALANCE SHEET RATIOS
Total loans to deposits		90.86	%		93.87	%		90.86	%		93.87	%
Securities to total assets		11.27	%		11.49	%		11.27	%		11.49	%
Tier 1 leverage ratio BANK ONLY		10.6	%		9.9	%		10.6	%		9.9	%
ASSET QUALITY
Nonperforming assets to total assets		1.30	%		1.62	%		1.30	%		1.62	%
Nonperforming assets, including restructured loans, to total assets		2.55	%		3.08	%		2.55	%		3.08	%
Net charge-offs to average loans (annualized)		0.74	%		0.02	%		0.38	%		0.01	%
Composition of risk assets: (in thousands)
Nonperforming assets:
Nonaccrual loans	$	2,248		$	398		$	2,248		$	398
Other real estate owned		4,337			6,872			4,337			6,872
Total nonperforming assets, excluding performing restructured loans		6,585			7,270			6,585			7,270
Restructured loans, performing in accordance with their modified terms		6,315			6,553			6,315			6,553
Total nonperforming assets, including performing restructured loans	$	12,900		$	13,823		$	12,900		$	13,823
Allowance for loan losses: (in thousands)
Beginning balance	$	3,347		$	3,329		$	3,298		$	3,332
Provision for loan losses		808			-			868			-
Charge-offs		(771	)		(17	)		(785	)		(33	)
Recoveries		65			1			68			14
Ending balance	$	3,449		$	3,313		$	3,449		$	3,313

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