10-Q

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, 2016.

Or

☐ 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: 333-158525

HOMETOWN BANKSHARES CORPORATION

(Exact name of the registrant as specified in its charter)

Virginia	26-4549960
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)
202 South Jefferson Street, Roanoke, Virginia	24011
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number: (540) 345-6000

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such 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, 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, or a smaller reporting company. See definitions of “large accelerated filer” and “smaller reporting 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	☒

Indicate by a 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’s classes of common stock, as of the latest practicable date:

As of November 10, 2016, 5,763,944 shares of common stock, par value $5.00 per share, of the issuer were outstanding.

 HOMETOWN BANKSHARES CORPORATION

Form 10-Q

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015		3
Consolidated Statements of Income for the Three and Nine months Ended September 30, 2016 and 2015 (unaudited)		4
Consolidated Statements of Comprehensive Income for the Three and Nine months Ended September 30, 2016 and 2015 (unaudited)		5
Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2016 and 2015 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
Item 4.	CONTROLS AND PROCEDURES	34
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosure	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
SIGNATURES		36

All schedules have been omitted because they are inapplicable or the required information is provided in the financial statements, including the notes thereto.

2

HomeTown Bankshares Corporation

Consolidated Balance Sheets

September 30, 2016 and December 31, 2015

Dollars In Thousands, Except Share and Per Share Data	September 30, 2016		December 31, 2015
	(Unaudited)		*
Assets
Cash and due from banks	$	21,264	$	28,745
Federal funds sold		1,033		1,329
Securities available for sale, at fair value		54,085		52,544
Restricted equity securities, at cost		2,213		2,535
Loans held for sale		294		1,643
Loans, net of allowance for loan losses of $3,544 in 2016 and $3,298 in 2015		400,371		364,060
Property and equipment, net		13,543		14,008
Other real estate owned, net of valuation allowance of $420 in 2016 and in 2015		4,274		5,237
Bank owned life insurance		7,418		6,285
Accrued income		2,076		2,057
Other assets		1,141		942
Total assets	$	507,712	$	479,385
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	88,716	$	77,268
Interest-bearing		351,278		322,278
Total deposits		439,994		399,546
Federal Home Loan Bank borrowings		9,000		22,000
Subordinated notes		7,217		7,194
Other borrowings		1,126		2,361
Accrued interest payable		598		372
Other liabilities		1,495		1,521
Total liabilities		459,430		432,994
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, no par value; Series C authorized 20,000 shares, issued and outstanding none at September 30, 2016 and 13,600 at December 31, 2015		–		12,893
Common stock, $5 par value; authorized 10,000,000 shares, issued and outstanding 5,763,944 (includes 32,342 restricted shares) at September 30, 2016 and 3,362,536 (includes 37,848 restricted shares) at December 31, 2015		28,781		16,801
Surplus		17,810		15,484
Retained earnings		657		443
Accumulated other comprehensive income		611		396
Total HomeTown Bankshares Corporation stockholders’ equity		47,859		46,017
Non-controlling interest in consolidated subsidiary		423		374
Total stockholders’ equity		48,282		46,391
Total liabilities and stockholders’ equity	$	507,712	$	479,385

*Derived from consolidated audited financial statements.

See Notes to Consolidated Financial Statements

3

HomeTown Bankshares Corporation

Consolidated Statements of Income

For the three and nine months ended September 30, 2016 and 2015

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
Dollars In Thousands, Except Share and Per Share Data	2016		2015			2016		2015
Interest and dividend income:	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Loans and fees on loans	$	4,523	$	4,173		$	13,116	$	12,119
Taxable investment securities		209		170			614		552
Nontaxable investment securities		93		100			295		303
Dividends on restricted stock		31		36			101		104
Other interest income		34		10			79		28
Total interest and dividend income		4,890		4,489			14,205		13,106
Interest expense:
Deposits		588		490			1,629		1,403
Subordinated notes		134		–			402		–
Other borrowed funds		54		100			221		294
Total interest expense		776		590			2,252		1,697
Net interest income		4,114		3,899			11,953		11,409
Provision for loan losses		111		–			979		–
Net interest income after provision for loan losses		4,003		3,899			10,974		11,409
Noninterest income:
Service charges on deposit accounts		178		128			496		362
ATM and interchange income		176		148			491		416
Mortgage banking		251		161			607		539
Gains on sales of investment securities, net		43		12			257		52
Other income		187		232			468		542
Total noninterest income		835		681			2,319		1,911
Noninterest expense:
Salaries and employee benefits		1,772		1,641			5,095		4,801
Occupancy and equipment expense		439		441			1,317		1,325
Data processing expense		237		215			679		632
Advertising and marketing expense		127		198			345		607
Professional fees		135		80			352		303
Bank franchise taxes		92		66			275		197
FDIC insurance expense		89		80			247		239
Losses on sales and writedowns of other real estate owned, net		–		140			91		140
Other real estate owned expense		25		35			72		105
Directors’ fees		98		55			307		166
Other expense		472		386			1,333		1,153
Total noninterest expense		3,486		3,337			10,113		9,668
Net income before income taxes		1,352		1,243			3,180		3,652
Income tax expense		416		381			1,203		1,108
Net income		936		862			1,977		2,544
Less net income attributable to non-controlling interest		33		7			49		50
Net income attributable to HomeTown Bankshares Corporation		903		855			1,928		2,494
Effective dividends on preferred stock		-		210			408		630
Net income available to common stockholders	$	903	$	645		$	1,520	$	1,864
Basic earnings per common share	$	0.16	$	0.19	*	$	0.36	$	0.54	*
Diluted earnings per common share	$	0.16	$	0.15	*	$	0.26	$	0.43	*
Weighted average common shares outstanding		5,763,944		3,428,085	*		4,279,821		3,426,467	*
Diluted weighted average common shares outstanding		5,774,086		5,757,685	*		5,776,632		5,756,067	*

*Restated for the 4% stock dividend distributed July 11, 2016

See Notes to Consolidated Financial Statements

4

HomeTown Bankshares Corporation

Consolidated Statements of Comprehensive Income

For the three and nine months ended September 30, 2016 and 2015

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Dollars In Thousands	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net income	$	936		$	862		$	1,977		$	2,544
Other comprehensive income (loss):
Net unrealized holding gains (losses) on securities available for sale during the period		(149	)		275			583			20
Deferred income tax (expense) benefit on unrealized holding gains (losses) on securities available for sale		50			(93	)		(198	)		(7	)
Reclassification adjustment for gains on sales of investment securities included in net income		(43	)		(12	)		(257	)		(52	)
Tax expense related to realized gains on securities sold		15			4			87			18
Total other comprehensive income (loss)		(127	)		174			215			(21	)
Comprehensive income		809			1,036			2,192			2,523
Less: Comprehensive income attributable to the non-controlling interest		33			7			49			50
Comprehensive income attributable to HomeTown Bankshares Corporation	$	776		$	1,029		$	2,143		$	2,473

See Notes to Consolidated Financial Statements

5

HomeTown Bankshares Corporation

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2016 and 2015

	For the Nine Months Ended September 30,
Dollars in Thousands	2016			2015
Cash flows from operating activities:	(Unaudited)			(Unaudited)
Net income	$	1,977		$	2,544
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		568			571
Provision for loan losses		979			–
Amortization of premium on securities, net		448			440
Amortization of discount on subordinated notes		23			–
Gains on sales of loans held for sale		(435	)		(407	)
Losses on sales and writedowns of other real estate, net		91			140
Gains on sales of investment securities, net		(257	)		(52	)
Increase in value of life insurance contracts		(133	)		(120	)
Stock compensation expense		111			102
Originations of loans held for sale		(17,443	)		(18,136	)
Proceeds from sales of loans held for sale		19,227			18,391
Changes in assets and liabilities:
Accrued income		(19	)		51
Other assets		(199	)		(154	)
Deferred taxes, net		163			11
Accrued interest payable		226			167
Other liabilities		(300	)		(686	)
Net cash flows provided by operating activities		5,027			2,862
Cash flows from investing activities:
Net (increase) decrease in federal funds sold		296			(1,026	)
Purchases of available for sale securities		(14,087	)		(5,997	)
Sales, maturities, and calls of available for sale securities		12,682			9,494
(Purchase) redemption of restricted equity securities, net		322			(218	)
Net increase in loans		(37,771	)		(28,500	)
Proceeds from sales of other real estate		1,353			138
Purchases of bank owned life insurance		(1,000	)		(2,500	)
Purchases of property and equipment		(103	)		(329	)
Net cash flows used in investing activities		(38,308	)		(28,938	)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits		11,448			30,224
Net increase in interest-bearing deposits		29,000			7,408
Net increase (decrease) in FHLB borrowings		(13,000	)		4,900
Net increase (decrease) in other borrowings		(1,235	)		439
Net increase in equity of non-controlling interest		–			317
Preferred stock dividend payment		(408	)		(630	)
Cash in lieu of fractional shares		(5	)		–
Net cash flows provided by financing activities		25,800			42,658
Net increase (decrease) in cash and cash equivalents		(7,481	)		16,582
Cash and cash equivalents, beginning		28,745			13,795
Cash and cash equivalents, ending	$	21,264		$	30,377
Supplemental disclosure of cash flow information:
Cash payments for interest	$	2,026		$	1,530
Cash payments for income taxes	$	1,253		$	1,676
Supplemental disclosure of noncash investing and financing activities:
Change in unrealized gains (loss) on available for sale securities	$	326		$	(32	)
Transfer from loans to other real estate	$	481		$	–
Conversion of Preferred Stock to Common Stock	$	12,893		$	–

See Notes to Consolidated Financial Statements

6

Notes to Consolidated Financial Statements

Note 1. Organization and Summary of Significant Accounting Policies

Organization

On September 4, 2009, Hometown Bankshares Corporation (the “Company”) acquired all outstanding stock of HomeTown Bank (the “Bank”) in an exchange for shares of the Company on a one-for-one basis to become a single-bank holding company with the Bank becoming a wholly-owned subsidiary. The Bank was organized and incorporated under the laws of the State of Virginia on November 9, 2004 and commenced operations on November 14, 2005. The Bank currently serves Roanoke City, Virginia, the County of Roanoke, Virginia, the City of Salem, Virginia, Christiansburg, Virginia, and surrounding areas. As a state chartered bank which is a member of the Federal Reserve System, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Board.

Basis of Presentation

The consolidated financial statements as of September 30, 2016 and for the periods ended September 30, 2016 and 2015 included herein, have been prepared by HomeTown Bankshares Corporation, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

Management believes that all interim adjustments for the periods ended September 30, 2016 are of a normal recurring nature. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for such interim periods. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto as of December 31, 2015, included in the Company’s Form 10-K for the year ended December 31, 2015. Interim financial performance is not necessarily indicative of performance for the full year.

The accounting and reporting policies of the Company follow generally accepted accounting principles and general practices within the financial services industry.

The consolidated financial statements of HomeTown Bankshares Corporation include the accounts of its wholly-owned subsidiary HomeTown Bank and the accounts of its subsidiary, HomeTown Residential Mortgage LLC. HomeTown Bank owns a 49% interest in HomeTown Residential Mortgage LLC which originates and sells mortgages secured by personal residences. Due to the marketing support and direction provided by HomeTown Bank to HomeTown Residential Mortgage LLC, along with guarantees of warehouse lines of credit used in its operation, the Company is deemed to exercise control of this entity. The ownership interest in HomeTown Residential Mortgage LLC not owned by the Company is reported as Non-Controlling Interest in a Consolidated Subsidiary. All significant intercompany balances andtransactions have been eliminated in consolidation.

The Company elected the early adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting. The tax effect of the expiration of nonqualified stock options was recognized in the second quarter as a discrete item when the expiration occurred and increased income tax expense by $236 thousand. The Company elected an accounting policy to account for forfeitures when they occur and reverse compensation cost previously recognized, in the period the award is forfeited before the completion of the requisite service period. The Company’s other accounting policies and basic principles have not changed since the summary disclosure of these in our Annual Report on Form 10-K. Please refer to Form 10-K for these policies.

Note 2. Investment Securities

The amortized cost and fair value of available-for-sale securities as of September 30, 2016 and December 31, 2015, are as follows:

(Dollars In Thousands)	September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	12,806	$	250	$	(51	)	$	13,005
Mortgage-backed securities and CMO’s		20,900		159		(48	)		21,011
Corporate securities		3,750		62		–			3,812
Municipal securities		15,703		575		(21	)		16,257
	$	53,159	$	1,046	$	(120	)	$	54,085

7

(Dollars In Thousands)	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	16,899	$	227	$	(107	)	$	17,019
Mortgage-backed securities and CMO’s		18,289		75		(174	)		18,190
Municipal securities		16,756		594		(15	)		17,335
	$	51,944	$	896	$	(296	)	$	52,544

U. S. Government and agency securities: The unrealized losses on twelve of the Company’s investments in obligations of the U. S. government were caused by increases in market interest rates over the yields available at the time the securities were purchased.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2016.

Mortgage-backed securities and CMO’s: The unrealized losses on fourteen of the Company’s investments in government-sponsored entity mortgage-backed securities and collateralized mortgage obligations (“CMOs”) were caused by increases in market interest rates over the yields available at the time the securities were purchased. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2016.

Corporate securities: The Company had no investments with unrealized losses in corporate securities at September 30, 2016.

Municipal securities: The unrealized losses on nine of the Company’s investments in municipal securities were caused by increases in market interest rates over the yields available at the time the securities were purchased. All municipal securities are investment grade. Because the decline in market value is attributable to changes in interest rates, credit spreads, and not credit quality, and because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2016.

The following tables demonstrate the unrealized loss position of available-for-sale securities at September 30, 2016 and December 31, 2015. This information summarizes the amount of time individual securities have been in a continuous, unrealized loss position.

	September 30, 2016
	Less than 12 months					12 months or more					Total
(Dollars In Thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U. S. Government agency securities	$	888	$	(1	)	$	3,596	$	(50	)	$	4,484	$	(51	)
Mortgage-backed securities and CMO’s		3,831		(18	)		1,588		(30	)		5,419		(48	)
Municipal securities		3,552		(20	)		267		(1	)		3,819		(21	)
	$	8,271	$	(39	)	$	5,451	$	(81	)	$	13,722	$	(120	)

	December 31, 2015
	Less than 12 months					12 months or more					Total
(Dollars In Thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government agency securities	$	1,999	$	(24	)	$	4,924	$	(83	)	$	6,923	$	(107	)
Mortgage-backed securities and CMO’s		10,326		(114	)		3,069		(60	)		13,395		(174	)
Municipal securities		805		(10	)		526		(5	)		1,331		(15	)
	$	13,130	$	(148	)	$	8,519	$	(148	)	$	21,649	$	(296	)

There are thirty-five debt securities with fair values totaling $13.7 million considered temporarily impaired at September 30, 2016.  As of September 30, 2016, the Company does not consider any bond in an unrealized loss position to be other-than-temporarily impaired.

The Company realized gains of $262 thousand and $5 thousand of losses on sales of securities in the first nine months of 2016. The Company realized gains of $67 thousand and $15 thousand of losses during the same period last year.

8

The amortized cost and fair values of investment securities available for sale at September 30, 2016, by contractual maturity are as follows:

(Dollars In Thousands)	Amortized Cost		Fair Value
One year or less	$	120	$	121
Over one through five years		1,395		1,420
Over five through ten years		13,782		14,000
Greater than 10 years		37,862		38,544
	$	53,159	$	54,085

 Note 3. Loans Receivable

The major classifications of loans in the consolidated balance sheets at September 30, 2016 and December 31, 2015 were as follows:

(Dollars In Thousands)	September 30, 2016			December 31, 2015
Construction loans:
Residential	$	12,630		$	11,779
Land acquisition, development & commercial		25,157			27,440
Real estate:
Residential		110,965			100,268
Commercial		162,330			140,952
Commercial, industrial & agricultural		55,857			53,012
Equity lines		29,253			26,376
Consumer		7,723			7,531
Total		403,915			367,358
Less allowance for loan losses		(3,544	)		(3,298	)
Loans, net	$	400,371		$	364,060

The past due and nonaccrual status of loans as of September 30, 2016 was as follows:

(Dollars In Thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Nonaccrual Loans
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	12,630	$	12,630	$	−
Land acquisition, development & commercial		−		−		−		−		25,157		25,157		−
Real estate:
Residential		103		−		802		905		110,060		110,965		577
Commercial		−		−		−		−		162,330		162,330		347
Commercial, industrial & agricultural		−		−		−		−		55,857		55,857		11
Equity lines		50		106		−		156		29,097		29,253		−
Consumer		5		3		−		8		7,715		7,723		−
Total	$	158	$	109	$	802	$	1,069	$	402,846	$	403,915	$	935

9

The past-due and nonaccrual status of loans as of December 31, 2015 was as follows:

(Dollars In Thousands)	30-59 Days Past-Due		60-89 Days Past-Due		90 Days or More Past- Due		Total Past- Due		Current		Total Loans		Nonaccrual Loans
Construction:
Residential	$	−	$	−	$	−	$	−	$	11,779	$	11,779	$	−
Land acquisition, development & commercial		−		−		11		11		27,429		27,440		11
Real Estate:
Residential		297		−		50		347		99,921		100,268		−
Commercial		44		−		792		836		140,116		140,952		368
Commercial, industrial & agricultural		52		84		35		171		52,841		53,012		47
Equity lines		105		−		−		105		26,271		26,376		−
Consumer		−		−		−		−		7,531		7,531		−
Total	$	498	$	84	$	888	$	1,470	$	365,888	$	367,358	$	426

There was one loan, in the amount of $225 thousand, that was past due ninety days or more and still accruing interest as of September 30, 2016. There were two loans, totaling $842 thousand, which were past due ninety days or more and still accruing interest at December 31, 2015.

Impaired loans, which include TDR’s of $6.5 million, and the related allowance at September 30, 2016, were as follows:

September 30, 2016 With no related allowance: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real estate:
Residential		770		770		−		582		(14	)
Commercial		6,463		6,639		−		6,559		191
Commercial, industrial & agricultural		11		11		−		12		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with no allowance	$	7,244	$	7,420	$	−	$	7,153	$	177

September 30, 2016 With an allowance recorded: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real estate:
Residential		−		−		−		−		−
Commercial		119		119		17		123		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	119	$	119	$	17	$	123	$	−

10

Impaired loans, which include TDRs of $6.7 million, and the related allowance at December 31, 2015, were as follows:

December 31, 2015 With no related allowance: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction:
Residential	$	−	$	−	$	–	$	−	$	−
Land acquisition, development & commercial		−		−		–		−		−
Real Estate:
Residential		247		247		–		255		13
Commercial		7,451		7,627		–		7,623		291
Commercial, industrial & agricultural		12		12		–		12		−
Equity lines		−		−		–		−		−
Consumer		−		−		–		−		−
Total loans with no allowance	$	7,710	$	7,886	$	–	$	7,890	$	304

December 31, 2015 With an allowance recorded: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real Estate:
Residential		−		−		−		−		−
Commercial		127		127		17		135		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	127	$	127	$	17	$	135	$	−

Troubled Debt Restructurings

Troubled debt restructurings (“TDR’s”) were comprised of six loans totaling $6.5 million at September 30, 2016.  This compares with $6.7 million in total restructured loans at December 31, 2015. Four of the six loans totaling $6.2 million were not on nonaccrual status at September 30, 2016. The other two loans totaling $238 thousand were on nonaccrual status at the end of the third quarter of 2016.  All TDR’s were current with their restructured terms at September 30, 2016.

No loans were modified in a TDR during the first nine months of 2016.

The following table presents by class of loan, information related to the loan modified in a TDR during 2015:

	Loans modified as TDR's For the nine months ended September 30, 2015
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
			(Dollars in Thousands)
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:
Residential		—		—		—
Commercial		1		260		255
Commercial, industrial, agricultural		—		—		12
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		1	$	260	$	267

The loan identified above in the table restructured into two TDR’s during the nine months ended September 30, 2015. It was included in substandard nonaccrual loans and impaired loans at the end of 2014.

11

Management considers troubled debt restructurings and subsequent defaults in restructured loans in the determination of the adequacy of the Company’s allowance for loan losses. When identified as a TDR, a loan is evaluated for potential loss based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs if the loan is collateral dependent. Loans identified as TDRs frequently are on non-accrual status at the time of the restructuring and, in some cases, partial charge-offs may have already been taken against the loan and a specific allowance may have already been established for the loan. As a result of any modification as a TDR, if a specific reserve is associated with the loan it may be increased. Additionally, loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future defaults. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. As a result, any specific allowance may be increased, adjustments may be made in the allocation of the total allowance balance, or partial charge-offs may be taken to further write-down the carrying value of the loan. Management exercises significant judgment in developing estimates for potential losses associated with TDRs.

12

Note 4. Allowance for Loan Losses

The following table presents, as of September 30, 2016, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

September 30, 2016             

	Allowance for loan losses																Loans
Class of Loan (Dollars in Thousands)	Beginning balance		Charge- offs			Recoveries		Provisions			Ending Balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
Construction loans:
Residential	$	83	$	−		$	−	$	2		$	85	$	−	$	85	$	12,630	$	−	$	12,630
Land acquisition, development & commercial		187		(2	)		−		(20	)		165		−		165		25,157		−		25,157
Real estate:
Residential		1,047		−			45		(164	)		928		−		928		110,965		770		110,195
Commercial		1,001		(606	)		−		1,064			1,459		17		1,442		162,330		6,582		155,748
Commercial, industrial & agricultural		531		(34	)		−		(73	)		424		−		424		55,857		11		55,846
Equity lines		277		(99	)		10		164			352		−		352		29,253		−		29,253
Consumer		85		(65	)		18		56			94		−		94		7,723		−		7,723
Unallocated		87		−			−		(50	)		37		−		37		−		−		−
Total	$	3,298	$	(806	)	$	73	$	979		$	3,544	$	17	$	3,527	$	403,915	$	7,363	$	396,552

The following table presents, as of December 31, 2015, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

December 31, 2015              

	Allowance for loan losses																Loans
Class of Loan (Dollars in Thousands)	Beginning balance		Charge- offs			Recoveries		Provisions			Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
Construction loans:
Residential	$	43	$	−		$	−	$	40		$	83	$	−	$	83	$	11,779	$	−	$	11,779
Land acquisition, development & commercial		453		−			−		(266	)		187		−		187		27,440		−		27,440
Real estate:
Residential		833		−			1		213			1,047		−		1,047		100,268		247		100,021
Commercial		1,012		−			−		(11	)		1,001		17		984		140,952		7,578		133,374
Commercial, industrial & agricultural		319		−			10		202			531		−		531		53,012		12		53,000
Equity lines		423		−			1		(147	)		277		−		277		26,376		−		26,376
Consumer		65		(80	)		34		66			85		−		85		7,531		−		7,531
Unallocated		184		−			−		(97	)		87		−		87		−		−		−
Total	$	3,332	$	(80	)	$	46	$	−		$	3,298	$	17	$	3,281	$	367,358	$	7,837	$	359,521

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Loans by credit quality indicators as of September 30, 2016 were as follows:

(Dollars In Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	12,630	$	−	$	−	$	−	$	12,630
Land acquisition, development & commercial		25,157		−		−		−		25,157
Real estate loans:
Residential		110,195		−		193		577		110,965
Commercial		161,429		−		554		347		162,330
Commercial, industrial, agricultural		55,246		−		600		11		55,857
Equity lines		29,253		−		−		−		29,253
Consumer		7,642		79		2		−		7,723
Total Loans	$	401,552	$	79	$	1,349	$	935	$	403,915

Loans by credit quality indicators as of December 31, 2015 were as follows:

(Dollars In Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	11,779	$	−	$	−	$	−	$	11,779
Land acquisition, development & commercial		27,429		−		−		11		27,440
Real estate loans:
Residential		95,809		4,212		247		−		100,268
Commercial		138,034		1,155		1,395		368		140,952
Commercial, industrial, agricultural		51,801		1,164		−		47		53,012
Equity lines		26,376		−		−		−		26,376
Consumer		7,523		−		8		−		7,531
Total Loans	$	358,751	$	6,531	$	1,650	$	426	$	367,358

At September 30, 2016 and December 31, 2015, the Company had no loans classified as Doubtful or Loss.

Note 5. Foreclosed Properties

Changes in foreclosed properties for the nine months ended September 30, 2016 were as follows:

(Dollars In Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	5,657		$	(420	)	$	5,237
Additions		481			—			481
Writedowns		—			—			—
Sales		(1,444	)		—			(1,444	)
Balance at the end of the period	$	4,694		$	(420	)	$	4,274

Changes in foreclosed properties for the nine months ended September 30, 2015 were as follows:

(Dollars In Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	7,408		$	(422	)	$	6,986
Additions		—			—			—
Writedowns		—			(140	)		(140	)
Sales		(138	)		—			(138	)
Balance at the end of the period	$	7,270		$	(562	)	$	6,708

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The major classifications of other real estate owned in the consolidated balance sheets at September 30, 2016 and December 31, 2015 were as follows:

(Dollars In Thousands)	September 30, 2016		December 31, 2015
Residential lots	$	2,409	$	2,520
Residential development		423		423
Commercial lots		90		90
Commercial buildings		1,352		2,204
Total Other Real Estate Owned	$	4,274	$	5,237

There were no residential real estate loans in the process of foreclosure at September 30, 2016 or December 31, 2015.

Other real estate owned related expenses in the consolidated statements of income for the three and nine months ended September 30, 2016 and September 30, 2015 include:

(Dollars In Thousands)	Three months Ended September 30, 2016		Three months Ended September 30, 2015		Nine months Ended September 30, 2016		Nine months Ended September 30, 2015
Net loss on sales	$	—	$	—	$	91	$	—
Provision for unrealized losses		—		140		—		140
Operating expenses		25		35		72		105
Total Other Real Estate Owned	$	25	$	175	$	163	$	245

Note 6. Stock Based Compensation

The Company recorded stock based compensation expense of $111 thousand and $102 thousand for the years to date September 30, 2016 and 2015, respectively.

The Company has a 2005 Stock Option Plan (the Plan) pursuant to which the Board of Directors may grant stock options to directors, officers and employees. Under the fair value recognition provisions of relevant accounting guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The fair value of the stock based payment awards is affected by the price of our stock and a number of financial assumptions and variables. These variables include the risk free interest rate, expected dividend rate, expected stock price volatility and the expected life of the options.  On December 18, 2014, the Board of Directors granted 165 thousand shares which will vest over a five year period. Financial assumptions and variables used to determine the fair value of these stock options are; risk free interest rate of 2.01%, an expected term of 7.5 years, an expected stock price volatility of 26% and a dividend rate of 0%. The fair value of the options was determined to be $2.29 per option. Compensation expense will be charged to income ratably over the vesting period and was $58 thousand year to date September 30, 2016 and $56 thousand year to date September 30, 2015. As of September 30, 2016 there was $229 thousand of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost will be recognized over the next 3.25 years. No options were granted during the nine months ended September 30, 2016. All previously issued options were fully vested at the end of 2012. At the discretion of the Board of Directors, the stock option plan was not modified for the 4% stock dividend distributed on July 11, 2016.

A summary of option activity under the 2005 stock option plan year to date September 30, 2016 is as follows:

	Options Outstanding			Weighted Average Exercise Price		Aggregate Intrinsic Value(1)		Weighted Average Contractual Term (years)
Balance at December 31, 2015		546,460		$	8.62
Granted		–			–
Exercised		–			–
Expired		(333,960	)		9.09
Forfeited		(6,000	)		6.90
Balance at September 30, 2016		206,500		$	7.90	$	329,700		6.59
Exercisable at September 30, 2016		82,100		$	9.41	$	68,460		4.11

15

(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 2016.

In 2009, the Board of Directors authorized 132,000 shares of common stock for issuance under the Restricted Stock Plan. On July 11, 2016, a 4% stock dividend was distributed and added 5,280 to the total number of shares authorized for issuance and currently raising the total available to 137,280. The plan provides for restricted stock awards to key employees. Restricted shares awarded to employees generally vest over a five year period and compensation expense is charged to income ratably over the vesting period and was $53 thousand and $46 thousand for the years to date September 30, 2016 and 2015, respectively. Compensation is accounted for using the fair market value of the Company’s common stock on the date the restricted shares are awarded. The Company granted 11,149* and 9,014* shares of restricted stock under the plan during the years to date September 30, 2016 and 2015, respectively. The weighted-average grant date fair value of restricted stock granted in 2016 was $9.09* compared to $7.40* in 2015.  

As of September 30, 2016, there was $183 thousand of total unrecognized compensation cost related to restricted stock granted under the Plan. The cost is expected to be recognized through 2021. A summary of the activity for restricted stock awards for the periods indicated is presented below:

	For the nine months ended September 30, 2016						For the nine months ended September 30, 2015
	Shares			Weighted- Average Grant Date Fair Value			Shares			Weighted- Average Grant Date Fair Value
Nonvested at beginning of year		39,352	*	$	6.00	*		39,227	*	$	5.35	*
Granted		11,149	*		9.09	*		9,014	*		7.40	*
Vested		(11,371	)*		5.44	*		(11,279	)*		5.34	*
Forfeited		(6,788	)*		6.99	*		–	*		–	*
Nonvested at the end of the period		32,342	*	$	7.06	*		36,962	*	$	5.85	*

The Restricted Stock Plan provides for the adjustment of the total number of shares reserved for issuance under the plan and the number of shares covered by each outstanding Award for stock dividends and stock splits.

*Restated for the 4% stock dividend distributed July 11, 2016.

Note 7. Fair Value Measurement

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 - Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level 3 - Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

16

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015:

(Dollars In Thousands)			Carrying value at September 30, 2016
Description	Balance as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government agency securities	$	13,005	$	–	$	13,005	$	–
Mortgage-backed securities and CMO’s		21,011		–		21,011		–
Corporate securities		3,812		–		3,812		–
Municipal securities		16,257		–		16,257		–

(Dollars In Thousands)			Carrying value at December 31, 2015
Description	Balance as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government agency securities	$	17,019	$	–	$	17,019	$	–
Mortgage-backed securities and CMO’s		18,190		–		18,190		–
Municipal securities		17,335		–		17,335		–

Certain assets are measured at fair value on a nonrecurring basis in accordance with generally accepted accounting principles (GAAP). Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements:

Impaired Loans: The Company does not record loans at fair value on a recurring basis. However, from time to time a loan is considered impaired and a specific reserve is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures the extent of any loss. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value, and discounted cash flow. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investment in such loans. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. If carried at market price based on appraised value less selling costs using observable market data, it is recorded as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraisal value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Loans held for sale: The carrying value of these loans approximates the fair value. These loans close in the name of the Bank’s consolidated joint venture subsidiary HomeTown Residential Mortgage, LLC, but are generally sold within a two-week period.

Other Real Estate Owned (OREO): The carrying amount of real estate owned by the Company resulting from foreclosures is estimated at the lesser of cost or the fair value of the real estate based on an observable market price or a current appraised value less selling costs. If carried at market price based on appraised value using observable market data, it is recorded as nonrecurring Level 2. When an appraised value is not available or is not current, or management determines the fair value of the real estate is further impaired below the appraised value or there is no observable market price, the Company records the real estate as nonrecurring Level 3.

17

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis as of September 30, 2016 and December 31, 2015.

(Dollars In Thousands)			Carrying value at September 30, 2016
Description	Balance as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans, net of valuation allowance	$	102	$	–	$	–	$	102
Loans held for sale		294		–		294		–
Other real estate owned		4,274		–		–		4,274

(Dollars In Thousands)			Carrying value at December 31, 2015
Description	Balance as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans, net of valuation allowance	$	110	$	–	$	–	$	110
Loans held for sale		1,643		–		1,643		–
Other real estate owned		5,237		–		1,300		3,937

At September 30, 2016 and December 31, 2015, the Company did not have any liabilities measured at fair value on a nonrecurring basis.

The following table displays quantitative information about Level 3 Fair Value Measurements for September 30, 2016:

(Dollars In Thousands)	Quantitative information about Level 3 Fair Value Measurements for September 30, 2016
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	102	Discounted cash flows	Residual cash flows discount rate	6%	-	6%	(6%)
Other real estate owned	$	1,735	Discounted appraised value	Selling cost	6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal	4%	-	4%	(4%)
	$	2,539	Internal evaluations	Internal evaluations	3%	-	38%	(19%)

The following table displays quantitative information about Level 3 Fair Value Measurements for December 31, 2015:

(Dollars In Thousands)	Quantitative information about Level 3 Fair Value Measurements for December 31, 2015
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	110	Discounted cash flows	Residual cash flows discount rate	6%	-	6%	(6%)
Other real estate owned	$	1,735	Discounted appraised value	Selling cost	6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal	4%	-	9%	(8%)
	$	2,202	Internal evaluations	Internal evaluations	4%	-	39%	(21%)

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and due from banks: The carrying amounts reported in the consolidated balance sheet for cash on hand and amounts due from correspondent banks approximate their fair values. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of contractual maturities on such time deposits.

18

Federal funds sold: Federal funds sold consist of overnight loans to other financial institutions and mature within one to three days. At September 30, 2016 and December 31, 2015, management believes the carrying value of federal funds sold approximates estimated market value.

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

Restricted equity securities: For these restricted equity securities, the carrying amount is a reasonable estimate of fair value based on the redemption provisions of the related securities.

Loans held for sale: The carrying value of these loans approximates the fair value. These loans close in the name of the Bank’s joint venture subsidiary HomeTown Residential Mortgage, LLC, but are generally sold within a two-week period.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. Their fair values are measured utilizing independent valuation techniques of similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Bank owned life insurance: The cash values of these policies are estimates using information provided by insurance carriers. The policies are carried at their cash surrender value, which approximates fair value.

Deposit liabilities: The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit and individual retirement accounts are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of contractual maturities on such time deposits.

FHLB borrowings: The fair values for FHLB borrowings are estimated using a discounted cash flow calculation that applies interest rates currently being offered on FHLB borrowings to the contractual maturities on such FHLB borrowings.

Subordinated notes: The fair values is measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

Other borrowings: The warehouse line of credit is a short term revolving credit facility used to fund mortgage loans originations until the underlying loan is sold. The warehouse line of credit, federal funds purchased, borrowings under repurchase agreements mature within 30 days and approximate their fair values.

Accrued interest: The carrying amount of accrued interest receivable and payable approximates fair value.

Off-balance sheet financial instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements. At September 30, 2016 and December 31, 2015, the fair value of loan commitments and standby letters of credit were deemed to be immaterial.

19

The carrying amounts and approximate fair values of the Company's financial instruments are as follows at September 30, 2016:

(Dollars In Thousands)			Fair value at September 30, 2016
Description	Carrying value as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Approximate Fair Values
Financial assets
Cash and due from banks	$	21,264	$	20,514	$	755	$	–	$	21,269
Federal funds sold		1,033		1,033		–		–		1,033
Securities available-for-sale		54,085		–		54,085		–		54,085
Restricted equity securities		2,213		–		2,213		–		2,213
Loans held for sale		294		–		294		–		294
Loans, net		400,371		–		–		402,625		402,625
Bank owned life insurance		7,418		–		7,418		–		7,418
Accrued income		2,076		–		2,076		–		2,076
Financial liabilities
Total deposits		439,994		–		440,207		–		440,207
FHLB borrowings		9,000		–		9,109		–		9,109
Subordinated notes		7,217		–		7,770		–		7,770
Other borrowings		1,126		–		1,126		–		1,126
Accrued interest payable		598		–		598		–		598

The carrying amounts and approximate fair values of the Company's financial instruments are as follows at December 31, 2015:

(Dollars In Thousands)			Fair value at December 31, 2015
Description	Carrying value as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Approximate Fair Values
Financial assets
Cash and due from banks	$	28,745	$	26,995	$	1,767	$	–	$	28,762
Federal funds sold		1,329		1,329		–		–		1,329
Securities available for sale		52,544		–		52,544		–		52,544
Restricted equity securities		2,535		–		2,535		–		2,535
Loans held for sale		1,643		–		1,643		–		1,643
Loans, net		364,060		–		–		362,440		362,440
Bank owned life insurance		6,285		–		6,285		–		6,285
Accrued income		2,057		–		2,057		–		2,057
Financial liabilities
Total deposits		399,546		–		400,117		–		400,117
FHLB borrowings		22,000		–		22,191		–		22,191
Subordinated notes		7,194		–		7,354		–		7,354
Other borrowings		2,361		–		2,361		–		2,361
Accrued interest payable		372		–		372		–		372

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Note 8. Reclassifications Out of Other Comprehensive Income

Items reclassified in their entirety to net income for the three and nine months ended September 30, 2016 and 2015 are as follows:

Details about Other Comprehensive Components	Amounts Reclassified from Other Comprehensive Income for the Three Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
(Dollars In Thousands)	2016		2015
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	43	$	12	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		15		4	Income tax expense
	$	28	$	8	Net income

Details about Other Comprehensive Components	Amounts Reclassified from Other Comprehensive Income for the Nine Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
(Dollars In Thousands)	2016		2015
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	257	$	52	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		87		18	Income tax expense
	$	170	$	34	Net income

Note 9. Earnings per Common Share

The following tables show the weighted average number of shares used in computing earnings per common share and the effect on weighted average number of shares of diluted potential common stock. Potential dilutive common stock had no effect on income available to common shareholders.

	For the Three Months Ended September 30,
	2016						2015
Dollars In Thousands, except share and per share data	Weighted Average Common Shares Outstanding		Net Income Available to Common Shareholders		Per Share Amount		Weighted Average Common Shares Outstanding			Net Income Available to Common Shareholders		Per Share Amount
Earnings per common share, basic		5,763,944	$	903	$	0.16		3,428,085	*	$	645	$	0.19	*
Series C Preferred Stock Dividends				−							210
Effect of dilutive securities:
Convertible preferred stock		−		−		−		2,369,600	*		−		(0.04	)*
Dilutive stock options		10,142		−		−		−			−		−
Earnings per common share, diluted		5,774,086	$	903	$	0.16		5,757,685	*	$	855	$	0.15	*

*Restated for 4% common stock dividend distributed July 11, 2016.

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	For the Nine Months Ended September 30,
	2016							2015
Dollars In Thousands, except share and per share data	Weighted Average Common Shares Outstanding		Net Income Available to Common Shareholders		Per Share Amount			Weighted Average Common Shares Outstanding			Net Income Available to Common Shareholders		Per Share Amount
Earnings per common share, basic		4,279,821	$	1,520	$	0.36			3,426,467	*	$	1,864	$	0.54	*
Series C Preferred Stock Dividends				−								630
Effect of dilutive securities:
Convertible preferred stock		1,486,669		−		(0.10	)		2,329,600	*		−		(0.11	)*
Dilutive stock options		10,142		−		−			−			−		−
Earnings per common share, diluted		5,776,632	$	1,520	$	0.26			5,756,067	*	$	2,494	$	0.43	*

*Restated for 4% common stock dividend distributed July 11, 2016.

Nonvested restricted shares were included in weighted average common shares outstanding for computing basic earnings per share, as the holder has voting rights and would share in a stock or cash dividend during the vesting period.

Note 10. Subsequent Events

There were no reportable subsequent events.

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ITEM 2.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-looking Statements

HomeTown Bankshares makes forward-looking statements in this report. These forward-looking statements may include: statements of goals, intentions, earnings expectations, and other expectations; estimates of risks and of future costs and benefits; assessments of probable loan and lease losses; assessments of market risk; and statements of the ability to achieve financial and other goals. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. The Company does not assume any duty and does not undertake to update its forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that the Company anticipated in its forward-looking statements; and future results could differ materially from historical performance.

The Company’s forward-looking statements are subject to the following principal risks and uncertainties: general economic conditions and trends, either nationally or locally; conditions in the securities markets; changes in interest rates; changes in deposit flows, and in the demand for deposit, loan, and investment products and other financial services; changes in real estate values; changes in the quality or composition of the Company’s loan or investment portfolios; changes in competitive pressures among financial institutions or from non-financial institutions; the Company’s ability to retain key members of management; changes in legislation, regulation, and policies; and a variety of other matters which, by their nature, are subject to significant uncertainties. The Company provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2015. The Company’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this report or in its other filings with the SEC.

Our Business

HomeTown Bankshares provides a full complement of consumer and commercial banking services to its primary service area which includes the Roanoke Valley, the New River Valley and Smith Mountain Lake. The Company serves these markets through a network of six branches, seven ATM’s, HomeTown Mortgage and HomeTown Investments. A high level of responsive and personal service coupled with local decision-making are the hallmarks of the Company’s customer oriented strategy. The Company offers a broad range of commercial and retail banking products and services including checking, savings and time deposits, individual retirement accounts, residential and commercial mortgages, home equity loans, consumer installment loans, commercial loans, and lines and letters of credit. In addition to its main office, the Company has offices in Franklin County, Virginia at Westlake; in the town of Christiansburg, Virginia at 2950 Market Street; in Roanoke County, Virginia at the intersection of Colonial Avenue and Virginia Route 419; in the City of Roanoke, Virginia at 3521 Franklin Road; and in the City of Salem, Virginia at 852 West Main Street. HomeTown Bank, with a 49% interest in the joint venture HomeTown Residential Mortgage, LLC, operates a dedicated mortgage office on Colonial Ave., next to the existing branch. The Company has a secure Operations Center at 4633 Brambleton Avenue in Roanoke.

HomeTown Investments provides diverse investment products and financial advisory services to existing and prospective customers. These products and services provide another source of revenue for the Company. Investment and insurance products and services are offered through an unaffiliated entity LPL Financial, Member FINRA/SIPC. HomeTown Investments is a subsidiary of the Bank. Products and services made available through LPL Financial are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.

The Private Wealth Group offers personalized, banking solutions to work with customers to clarify financial goals and bring together professionals to satisfy their investment, trust, credit and other financial needs. Revenue from wealth management activities is comprised mostly of fees based upon the market value of the accounts under administration as well as commissions on investment transactions.

The following is a discussion of factors that significantly affected the financial condition and results of operations of HomeTown Bankshares Corporation. This discussion should be read in connection with the financial statements presented herein.

Critical Accounting Policies

The Company’s significant accounting policies are set forth in Note 1 of the Notes to Financial Statements in the Annual Report for the year ended December 31, 2015. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses.

The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) that losses be accrued when they are probable of occurring and are capable of estimation and (ii) that losses on impaired loans be accrued based on the differences between the value of collateral less cost to sell, present value of future cash flows or values that are observable in the secondary market and the loan balance. The allowance for loan losses is maintained at a level, which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio.

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The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions, and other risks inherent in the portfolio. Management reviews the past due reports and risk-rated loans and discusses individually the loans on these reports with the responsible loan officers. Management uses these tools and provides a detailed quarterly analysis of the allowance based on the Company’s historical loan loss experience, risk-rated loans, past dues, concentrations of credit, unsecured loans, loan exceptions, and economic trends. These are generally grouped by homogeneous loan pools. Allowances for impaired loans are generally determined based on collateral values less cost to sell, or the present value of estimated cash flows. This allowance, then, is designated as a specific reserve. Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Past due status is determined based on contractual terms.

Discussion of Operations

Executive Summary

HomeTown Bankshares Corporation financial results for the third quarter of 2016 rebounded to more normal levels following lower results last quarter. The Company reported net income attributable to HomeTown Bankshares Corporation of $903 thousand for the third quarter compared to $224 thousand for the second quarter and $801 thousand for the first quarter. Profitability was lower in the second quarter due predominantly to additional loan loss provision expense related to one loan and the reversal of tax benefits that could not be realized.

Three Months Ended September 30, 2016

Net income attributable to HomeTown Bankshares was $903 thousand for the third quarter of 2016, and was $48 thousand or 5.6% higher than the same quarter last year. Higher net interest income and noninterest income was partially negated by increased noninterest expense.

Net interest income for the three months ended September 30, 2016 totaled $4.1 million, and was $215 thousand or 5.5% greater than the third quarter of 2015. The expansion of earning assets by $60.3 million provided $517 thousand in additional interest income, while lower loan yields negatively impacted net interest income by $113 thousand. Average loans for the quarter were $398 million, $41.6 million or 11.7% more than the third quarter of 2015. Excess funds from increased liquidity were placed in interest bearing bank accounts until needed to fund further loan growth and the expansion of the investment portfolio. Average interest bearing deposits with banks were $15.4 million greater for the third quarter of 2016 than for the same quarter in 2015.

Deposits and proceeds from the subordinated notes issued in December 2015 funded the expansion of earning assets. Proceeds from the issuance of subordinated notes in the fourth quarter of 2015 partially funded the growth of earning assets at a cost of $134 thousand for the third quarter of 2016. The average interest bearing and non-interest bearing deposits for the third quarter of 2016 totaled $442 million, an increase of $56.6 million over the average for the same quarter in 2015. Average subordinated debt for the three months ended September 30, 2016 was $7.2 million compared to none for the three months ended September 30, 2015.

The net interest margin was 3.49%, 3.55%, and 3.77% for the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, respectively. While deposits were the major source of funds, their levels fluctuate. The subordinated notes were issued at the end of 2015 to provide a more stable source of liquidity to fund earning asset growth. The cost of the subordinated notes accounted for 11 basis points of the 28 basis points drop for the third quarter of 2016 compared to the same quarter last year. The remainder of the decrease in the net interest margin was due to spread compression as the yield on earning assets declined while the cost of funds rose. The downward pressure on rates stemming from competition in the market-place coupled with maturing seasoned loans at higher interest rates contributed to lower loan yields.

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	For the Three Months Ended September 30, 2016								For the Three Months Ended September 30, 2015
(Dollars in thousands)	Average Balance			Interest Income/ Expense		Yield/ Rate			Average Balance			Interest Income/ Expense		Yield/ Rate
Assets:
Federal funds sold	$	998		$	1		0.32	%	$	1,206		$	—		0.12	%
Deposits in banks		20,325			33		0.65			4,936			10		0.83
Securities, taxable		39,215			209		2.13			35,142			170		2.02
Securities, nontaxable (1)		14,222			93		3.97			14,516			100		4.11
Restricted equity securities		2,236			31		5.44			2,694			36		5.32
Loans held for sale		575			5		3.70			444			5		4.15
Loans (1)		398,451			4,518		4.52			356,814			4,168		4.63
Total earnings assets		476,022			4,890		4.13			415,752			4,489		4.33
Less: Allowance for loan losses		(3,484	)							(3,315	)
Total non-earning assets		37,881								45,873
Total Assets	$	510,419							$	458,310
Liabilities and shareholders’ equity
Interest bearing deposits:
Checking	$	81,898		$	36		0.17	%	$	78,534		$	28		0.14	%
Money market savings		71,281			44		0.24			66,496			40		0.24
Regular savings		42,741			39		0.36			36,351			36		0.39
Time Deposits		159,393			469		1.17			142,134			386		1.07
FHLB borrowings		9,442			45		1.88			25,092			94		1.46
Subordinated notes		7,212			134		7.40			—			—		—
Other borrowings		1,935			9		1.80			1,273			6		1.67
Total interest bearing liabilities		373,902			776		0.82			349,880			590		0.66
Non-interest bearing liabilities:
Demand deposits		86,408								61,595
Other liabilities		2,088								1,532
Total liabilities		462,398								413,007
Total HomeTown Bankshares Corporation stockholders’ equity		47,626								44,939
Non-controlling interest in consolidated subsidiary		395			—					364			—
Total Liabilities and Stockholders’ Equity	$	510,419			776				$	458,310			590
Net interest income				$	4,114							$	3,899
Interest rate spread							3.31								3.67
Interest expense to average earning assets							0.64								0.56
Net interest margin							3.49	%							3.77	%

(1) Yields are reported on a tax equivalent basis assuming a federal income tax rate of 34 percent.

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	Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
	Increase			Change Due To:
(Dollars in thousands)	(Decrease)			Rate			Volume
Interest income:
Federal funds sold	$	1		$	1		$	—
Deposits in banks		23			(3	)		26
Securities, taxable		39			4			35
Securities, nontaxable		(7	)		(5	)		(2	)
Restricted equity securities		(5	)		1			(6	)
Loans held for sale		—			(1	)		1
Loans		350			(113	)		463
Total interest income		401			(116	)		517
Interest expense:
Interest bearing liabilities:
Checking		8			6			2
Money market savings		4			—			4
Regular savings		3			(3	)		6
Time Deposits		83			29			54
FHLB borrowings		(49	)		21			(70	)
Subordinated notes		134			—			134
Other borrowings		3			—			3
Total interest expense		186			53			133
Net interest income	$	215		$	(169	)	$	384

A provision for loan losses of $111 thousand was recorded for the three months ended September 30, 2016 to provide coverage for the growth in loans, compared to none being recorded in any quarter of the prior year. See discussion under Allowance for Loan Losses for additional information.

Noninterest income for the third quarter of 2016 was $835 thousand, and was $154 thousand more than the same period last year. Service charges on deposit accounts, and ATM and interchange income were up $78 thousand for 2016 compared to 2015 due to deposit growth and changes late in the third quarter of 2015 in the fee structure to be more in line with industry norms. Mortgage banking income was $90 thousand more than the prior year due to a higher dollar volume of mortgages processed and sold.  

For the three months ended September 30, 2016, noninterest expense was $3.5 million, $149 thousand or 4.5% more than the $3.3 million recorded in the same quarter last year. Salaries and employee benefits for the three months ended September 30, 2016 were $131 thousand or 8.0% more than the same three months of 2015. Increases in salaries from the addition of new employees and annual raises were partially offset by increased deferrals of salaries related to loan origination costs and the reduction of bonuses in the wake of the weak second quarter earnings. The Bank took advantage of the opportunity to hire two former Valley Bank employees at the beginning of the current year and start a Private Wealth division that has contributed to loan and deposit growth. Advertising and marketing expense for the third quarter of 2016 varied favorably from the prior year by $71 thousand. Efforts were accelerated in the first part of 2015 to take advantage of competitive opportunities in the local banking market created by the acquisition of Valley Bank by a North Carolina headquartered financial institution. HomeTown Bank is now the largest community bank headquartered in the Roanoke Valley. Professional fees were $55 thousand more for the third quarter of 2016 compared to the third quarter of 2015 due primarily to investor related costs of the stock dividend distributed on July 11, 2016 and conversion of the remaining preferred stock to common shares at the end of June 2016. Bank Franchise Tax was $26 thousand more for the third quarter of 2016 than the same quarter last year. The increase in the Bank’s equity from retained earnings, the capital infusion of $6.0 million from the proceeds of the subordinated notes issued at the end of 2015, and the reduction in real estate taxes paid on foreclosed properties which are deducted from capital on the Bank Franchise return, were all factors contributing to the increase in the Bank Franchise Tax in 2016. The third quarter of 2015 included writedowns of foreclosed properties of $140 thousand compared to none in the third quarter of the current year. The Board of Directors fees were raised in 2016 in recognition of the Company’s growth in asset size and were $43 thousand more quarter over quarter.

Nine months Ended September 30, 2016

Net income attributable to HomeTown Bankshares for the year through September 30, 2016 was $1.9 million, $566 thousand less than the earnings for the same period in 2015. Profitability was lower in 2016 due predominantly to additional loan loss provision expense to replenish the reserve for the partial charge off of $606 thousand of a loan extended in 2008. The loan had performed as agreed until the second quarter of 2016. The specific loan loss provision attributed to this loan reduced net income by $400 thousand after taxes. In addition, the Company incurred additional tax expense of $236 thousand 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 through September 30, 2016. Net interest income and noninterest income varied favorably from the prior year, and were partially negated by higher noninterest expense.

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Net interest income was up $544 thousand or 4.8% to $12.0 million for the first nine months of 2016 over the same period last year. The impact of the higher loan volume surpassed the effect of lower interest rates on loans and increased interest income for the first nine months of 2016. As anticipated, the cost of the $7.5 million capital raise in December 2015 had a near-term impact on earnings and accounted for 12 basis points of the total 25 basis point decline in the net interest margin year over year. CD promotions in August 2016 to retain maturing CDs and in June 2015 to provide additional liquidity contributed to higher costs of time deposits for the first nine months of 2016 compared to the first nine months of last year. Management decreased the average level of Federal Home Loan Bank borrowings by $9.3 million. Federal Home Loan Bank borrowings are generally more expensive than interest bearing deposits, and reducing reliance on them as a funding source favorably impacted the funding mix.

The low interest rate environment is expected to continue to put pressure on the margin. The Federal Open Market Committee in its November 2, 2016 press release continued to state that “…the Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” The Company currently expects one rate increase later this year and two next year. Many economists felt the Federal Reserve signaled after its September meeting that it would raise rates relatively soon, as long as economic growth continued.

	For the Nine Months Ended September 30, 2016								For the Nine Months Ended September 30, 2015
(Dollars in thousands)	Average Balance			Interest Income/ Expense		Yield/ Rate			Average Balance			Interest Income/ Expense		Yield/ Rate
Assets:
Federal funds sold	$	1,320		$	4		0.37	%	$	1,125		$	1		0.13	%
Deposits in banks		13,212			75		0.76			5,282			27		0.69
Securities, taxable		38,450			614		2.13			35,959			552		2.10
Securities, nontaxable (1)		14,705			295		4.05			14,628			303		4.13
Restricted equity securities		2,464			101		5.45			2,715			104		5.12
Loans held for sale		472			13		3.79			485			15		4.04
Loans (1)		384,957			13,103		4.55			346,347			12,104		4.67
Total earnings assets		455,580			14,205		4.21			406,541			13,106		4.36
Less: Allowance for loan losses		(3,393	)							(3,323	)
Total non-earning assets		45,552								42,594
Total Assets	$	497,739							$	445,812
Liabilities and shareholders’ equity
Interest bearing deposits:
Checking	$	77,818		$	89		0.15	%	$	80,326		$	92		0.15	%
Money market savings		70,769			128		0.24			62,934			122		0.26
Regular savings		41,145			113		0.37			35,430			107		0.40
Time Deposits		149,030			1,299		1.17			138,620			1,082		1.04
FHLB borrowings		16,163			200		1.63			25,452			278		1.44
Subordinated notes		7,204			402		7.46			—			—		—
Other borrowings		1,565			21		1.78			1,322			16		1.62
Total interest bearing liabilities		363,694			2,252		0.82			344,084			1,697		0.66
Non-interest bearing liabilities:
Demand deposits		84,363								55,215
Other liabilities		2,082								1,894
Total liabilities		450,139								401,193
Total HomeTown Bankshares Corporation stockholders’ equity		47,213								44,380
Non-controlling interest in consolidated subsidiary		387			—					239			—
Total Liabilities and Stockholders’ Equity	$	497,739			2,252				$	445,812			1,697
Net interest income				$	11,953							$	11,409
Interest rate spread							3.39								3.70
Interest expense to average earning assets							0.66								0.56
Net interest margin							3.55	%							3.80	%

(1) Yields are reported on a tax equivalent basis assuming a federal income tax rate of 34 percent.

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	Nine months Ended September 30, 2016 Compared to Nine months Ended September 30, 2015
	Increase			Change Due To:
(Dollars in thousands)	(Decrease)			Rate			Volume
Interest income:
Federal funds sold	$	3		$	2		$	1
Deposits in banks		48			3			45
Securities, taxable		62			30			32
Securities, nontaxable		(8	)		(12	)		4
Restricted equity securities		(3	)		7			(10	)
Loans held for sale		(2	)		(1	)		(1	)
Loans		999			(262	)		1,261
Total interest income		1,099			(233	)		1,332
Interest expense:
Interest bearing liabilities:
Checking		(3	)		1			(4	)
Money market savings		6			(9	)		15
Regular savings		6			(9	)		15
Time Deposits		217			91			126
FHLB borrowings		(78	)		34			(112	)
Subordinated notes		402			—			402
Other borrowings		5			2			3
Total interest expense		555			110			445
Net interest income	$	544		$	(343	)	$	887

The year to date provision for loan losses totaled $979 thousand for the nine months ended September 30, 2016 compared to none for the same period in 2015. One loan that originated in 2008 and had performed as agreed until the second quarter of 2016 was partially charged off in the amount of $606 thousand. Additional loan loss provision expense was required to replenish the reserve for the partial charge off. Further, in 2016, additional provision for loan losses has been required to cover loan growth. See discussion under Allowance for Loan Losses for additional information.

For the year to date through September 30, 2016, noninterest income totaled $2.3 million, an increase of $408 thousand or 21.4% over the same period last year. Securities gains of $257 thousand were recorded in the first nine months of 2016 versus $52 thousand in 2015. Volatility created by the Brexit referendum led to a surge in trading activity creating opportunities to realize gains in the bond markets. Proceeds were reinvested in higher yielding corporate bonds. Excluding gains on the sales of securities, noninterest income increased $203 thousand or 10.9% from the same period last year. Service charges on deposit accounts, and ATM and interchange income were up $209 thousand for the first nine months of 2016 compared to 2015 due to deposit growth and changes late in the third quarter last year in the fee structure to be more in line with industry norms. Mortgage banking varied favorably from the prior year by $68 thousand or 12.6% due to increased number of closings and median loan amount. Other income was $74 thousand lower for the nine months ended September 30, 2016 compared to the same period last year. Favorable variances from the continued growth of merchant processing income, and a vendor signing incentive, partially offset the loss of $115 thousand in rental income from the sale of a building adjacent to a branch for a gain in the last quarter of 2015.

For the nine months ended September 30, 2016, noninterest expense was $10.1 million, $445 thousand or 4.6% more than the $9.7 million recorded in the first nine months of last year. Salaries and employee benefits through September 2016 were $294 thousand or 6.1% more than the same period last year. The numbers of full time equivalent employees were 99 and 91 at September 30, 2016 and September 30, 2015, respectively. The increase was due to several factors including the addition of Private Wealth which contributed to loan and deposit growth in 2016. Other factors included unfilled open positions in the prior year, and new positions to accommodate growth, as well as annual merit raises. Higher wages were partially offset by the deferral of more loan origination costs, in accordance with ASC 310-20 due to a higher volume of new loans and renewals. Advertising and marketing expense through September 2016 varied favorably by $262 thousand with the prior year. As discussed in the quarter to quarter comparison, the marketing effort was more intense in 2015 in the wake of Valley Bank’s acquisition by a North Carolina financial institution. Bank Franchise Taxes were up in correlation with increased equity and a reduction in real estate taxes on foreclosed properties.

Net income before taxes for the first nine months of 2016 was $472 thousand less than last year; however, income tax expense was $95 thousand more than the same nine month period in 2015. The Company incurred additional tax expense of $236 thousand in 2016 due to the expiration of stock options in the second quarter of 2016 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.

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Financial Condition

The Company’s management, under the direction of the Asset/Liability Committee (ALCO) of the Board of Directors, reviews the mix of monetary assets and liabilities to ensure the Company maintains an adequate level of liquidity while maximizing interest rate spreads.

Assets surpassed the half million threshold last quarter and increased to $508 million at September 30, 2016. The balance at September 30 was $28.3 million or 5.9% more than at year end 2015.  The continuing expansion of the loan portfolio by $36.3 million during the nine months since December 31, 2015, accounted for most of the asset growth.

The Company’s liabilities at September 30, 2016 totaled $459 million compared to $433 million at December 31, 2015, an increase of $26.4 million or 6.1%.  Total deposits rose $40.4 million during the same period to $440 million at September 30, 2016. Core deposits, which exclude brokered deposits and retail CD’s over $250 thousand, totaled $398 million at the end of the third quarter and was $42.7 million more than at year end 2015.

At September 30, 2016 and December 31, 2015, the stockholders’ equity of HomeTown Bankshares was $47.9 million and $46.0 million, respectively, an increase of $1.8 million or 4.0%. The change in stockholders’ equity in the first nine months of 2016 was mainly the result of net income.  

 Non-performing Assets

 Non-performing assets consist of nonaccrual loans, restructured loans, and repossessed and foreclosed assets.

(Dollars in thousands)	September 30, 2016		December 31, 2015
Real Estate:
Construction and land development	$	—	$	11
Residential 1-4 families		577		—
Commercial real estate		347		368
Commercial loans		11		47
Equity lines		—		—
Loans to individuals		—		—
Total nonperforming loans		935		426
Other real estate owned		4,274		5,237
Total nonperforming assets, excluding performing restructured loans		5,209		5,663
Performing restructured loans		6,237		6,398
Total nonperforming assets, including restructured loans	$	11,446	$	12,061

Nonaccrual loans totaled $935 thousand at September 30, 2016 compared to $426 thousand at December 31, 2015. A loan with a balance of $577 thousand was placed on nonaccrual status, when the number of days past due exceeded 90 days. The other two borrowers with nonaccrual loans totaling $358 thousand were making payments and were not past due at the end of the quarter; however, they are remaining on nonaccrual until performance warrants return to accrual status.

The loan that was partially charged down $606 thousand to $1.3 million was placed on nonaccrual in June 2016. This loan was collateralized by a hotel, and the sale of the underlying collateral was completed in August 2016. The proceeds paid off the $1.3 million nonaccrual balance.

During the nine months ended September 30, 2016 the Bank sold $1.4 million of foreclosed properties. One property on the books at $1.3 million was sold for a loss of $91 thousand after being held by the bank for almost two years. Through September 2016, the Bank added $481 thousand to other real estate owned, of which one property comprised $473 thousand of the total added. At December 31, 2015, the related loan for this addition was included in “Current” in Note 3 and “Pass” in Note 4. The borrower was an independent church and the membership voted to disband in the first quarter of 2016, prompting the Bank to negotiate a deed-in-lieu of foreclosure. Additional collateral in the form of an assigned note receivable was received and subsequently collected as part of the negotiation. No loss was recognized when the loan was transferred to other real estate. Writedowns of $140 thousand on other real estate were recorded in the first nine months of 2015.

Troubled debt restructurings (“TDR’s”) were comprised of six loans totaling $6.5 million at September 30, 2016.  Four of the six loans totaling $6.2 million were accruing interest at the end of the third quarter. All six loans were performing in accordance with their restructured terms at September 30, 2016. For the nine months ended September 30, 2016, no loans were modified in a TDR compared to one loan modified into two restructured loans for the same period in 2015. See Note 3 for more information.

The major classifications of other real estate owned in the consolidated balance sheets at September 30, 2016 and December 31, 2015 are included in Note 5, and the activity in other real estate owned for the first nine months of 2016 and 2015 is also included in Note 5.

29

Allowance for Loan Losses

The allowance for loan losses is increased by charges to income and decreased by charge-offs, net of recoveries. The allowance consists of three components: specific, general, and unallocated. Their adequacy is evaluated separately. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. Based on the Company’s allowance for loan losses calculation and analysis at the end of the first nine months of 2016, a provision of $979 thousand was recorded. As alluded to previously in this document, one loan that originated in 2008 and had performed as agreed until the second quarter of 2016 was partially charged off in the amount of $606 thousand. Total net charge offs for the year through September 30, 2016 were $733 thousand. The increase in net charge offs was the main reason behind the higher provision for loan losses in 2016. Loan growth absorbed much of the remaining available unallocated and contributed to the need for a higher provision in 2016.

Specific reserves are determined on a loan by loan basis and relate to loans classified as impaired. Management classifies loans as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.   Included in potentially impaired loan category are current “watch list” credits plus any additional credits which have been past due three or more times within the past 12-month period. Management individually reviews these potentially impaired loans based on generally accepted accounting principles (GAAP) related to receivables and makes a determination if the loan in fact is impaired. Management does not consider a loan impaired during a period of delay in payment if management expects the ultimate collection of all amounts due. If a loan is found to be impaired, an allowance is established when the collateral value less estimated cost to dispose, discounted cash flows, or observable market price of the impaired loan is lower than the carrying value of that loan. Specific reserves for loans individually evaluated for impairment totaled $17 thousand at September 30, 2016 and December 31, 2015.  Impaired loans totaled $7.4 million at September 30, 2016, and were $474 thousand less than the balance at year end 2015.  One borrower with loans totaling $871 thousand at December 31, 2015 was upgraded and is no longer classified as impaired at September 30, 2016. The loan with a balance of $577 thousand that was placed on nonaccrual status was also added to impaired loans. The remaining decrease was the result of the receipt of loan payments.

The percentage of the allowance for loan losses to total loans was 0.88% and 0.90% at September 30, 2016, and December 31, 2015, respectively.  Unallocated reserves were $37 thousand at September 30, 2016 and $87 thousand at December 31, 2015. Some surplus or unallocated reserve is desirable given the inherent weakness in this type of predictive analysis. Net charges offs as a percent of average loans were 0.25% through September 30, 2016. Nonperforming loans were 0.23% and 0.12% of total loans at September 30, 2016 and December 31, 2015, respectively. The allowance for loan losses to nonaccrual loans was 379% at September 30, 2016 and 775% at December 31, 2015.

Liquidity

Liquidity is identified as the ability to generate or acquire sufficient amounts of cash when needed and at a reasonable cost to accommodate

withdrawals, payments of debt, and increased loan demand. Liquid assets include cash, federal funds sold, securities classified as available for sale as well as loans and securities maturing within one year. As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

The Company’s management, under the direction of the Asset/Liability Committee of the Board of Directors, reviews the mix of monetary assets and liabilities to ensure the Company maintains an adequate level of liquidity at all times. This ensures that the Company’s sources of funds, primarily net fluctuations in customer deposits, investment securities and correspondent banking relationships, must be balanced with the Company’s obligations, commitments, and operational requirements, to maintain overall liquidity in conjunction with the maximization of interest rate spreads.

The Company’s asset based liquidity position, cash and due from bank balances, federal funds sold, loans held for sale, securities available for sale, net of securities pledged and cash balance requirements totaled $65.1 million at September 30, 2016, compared to $73.0 million at December 31, 2015, and $72.8 million at September 30, 2015.   Higher levels of commercial noninterest bearing deposits contributed to higher levels of liquidity at the end of the third quarter 2015. Commercial deposits are by their nature highly volatile, and withdrawals may result in less liquidity in the future. To provide a more stable source of liquidity, at the end of the fourth quarter 2015, the Company issued $7.5 million in subordinated notes. Liquidity has trended downward as the funds from the debt issuance have been invested in earning assets and used for general operating purposes. Surges and declines in commercial deposits will continue to impact liquidity in an unpredictable manner. Commercial noninterest bearing deposits were $9.6 million higher at September 30, 2016 than at December 31, 2015, and $3.9 million higher than one year ago.

The Company’s primary source of funding is its retail deposit base. The Company aggressively markets in its trade area and seeks demand deposits through service-related tactics and savings and time deposits through competitive pricing tactics. If this funding source is not attractive either for reasons of maturity or pricing, alternative funding sources include Federal Home Loan Bank (FHLB) advances, brokered deposits, fed funds purchased and lines of credit. The Company is approved to borrow 25% of total assets from the FHLB subject to providing qualifying collateral.  At September 30, 2016, the Company had borrowed $9.0 million of the $27.1 million of lendable collateral value, leaving $18.1 million of unused credit immediately available. The Company had $36.5 million of fed funds lines of credit available at September 30, 2016. At the end of the third quarter of 2016, there were no advances on the fed funds or guidance lines.

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Capital

To enable future growth of the Company, there must be an adequate level of capital. Management reviews the Company’s capital to ensure that the amount, composition and quality of the Company’s assets and liabilities satisfy regulatory requirements, meet or exceed industry standards, and support projected Company growth. The Company’s stock is traded on the NASDAQ Capital Market under the symbol “HMTA.”

At September 30, 2016 and December 31, 2015, the Company had stockholders’ equity of $48.3 million and $46.4 million, respectively, an increase of $1.9 million or 4.1%. The 4% common stock dividend declared by the Board of Directors on May 10, 2016 to holders of record June 9, 2016 was distributed on July 11, 2016. The stock dividend increased the number of shares issued and outstanding by 134,177 to a total of 5,763,944 on July 11, 2016. The stock dividend shifted $1.3 million from retained earnings to common stock and surplus.

The remaining preferred shares were converted to common stock in June, 2016 eliminating the dividend of 6% per year in future quarters. Each share of Series C preferred stock converted into 166.4 shares of common stock, which was comprised of the conversion factor of 160 plus the benefit of the 4% stock dividend of 6.4 additional shares. 

The ability to pay cash dividends to common stockholders is limited by regulatory restrictions and the need to maintain sufficient capital in the Company and in our subsidiaries. The Company must consider different factors to ensure that any future cash dividends to common stockholders would be prudent relative to the organization’s financial position and not based on overly optimistic earnings scenarios. The Company had $657 thousand of retained earnings at September 30, 2016. No cash dividends were paid to common stockholders in the first nine months of 2016.

The Basel III capital framework represents the most comprehensive overhaul of the U.S. banking capital framework in over two decades. This new capital framework and related changes to the standardized calculations of risk-weighted assets are complex and create additional compliance burdens. Basel III rules became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule. The Basel III Capital Rules require significantly more capital and adopted more demanding regulatory capital risk weightings and calculations. As a result of the Basel III Capital Rules, many community banks could be forced to limit banking operations and activities, and growth of loan portfolios, in order to focus on retention of earnings to improve capital levels. The Company believes that it maintains sufficient levels of Tier 1 and Common Equity Tier 1 capital to comply with the Basel III Final Rules. However, increased capital requirements imposed by the Basel III Capital Rules may require the Company to limit its banking operations, retain net income to improve regulatory capital levels, which could negatively affect our business, financial condition and results of operations.

The table presents the Bank’s capital amounts and ratios calculated using the Basel III rules in effect at September 30, 2016 and December 31, 2015.

Risk Based Capital Analysis

Capital Analysis

HomeTown Bank
(Dollars in thousands)	September 30, 2016		December 31, 2015
Common Equity Tier 1 Capital:
Common Stock	$	14,697	$	14,697
Surplus		32,042		31,930
Retained Earnings		7,266		4,929
Common Equity Tier 1 Capital		54,005		51,556
Tier 1 Capital:
Tier 1 Minority Interest		12		36
Tier 1 Capital		54,017		51,592
Total Capital:
Allowance for Loan Losses (allowable portion)		3,544		3,298
Total Capital	$	57,561	$	54,890

The Bank’s total capital increased $2.7 million from December 31, 2015 to September 30, 2016, primarily as the result of retaining the $2.4 million of the year to date September 30, 2016 net income attributable to the bank and noncontrolling interest.

The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement issued in February 2015, and is no longer obligated to report consolidated regulatory capital. In July 2013, the Federal Reserve Bank issued revised final rules that made technical changes to its market risk capital rules to align it with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The final new capital rules required the Bank to comply with the following new minimum capital ratios, effective January 1, 2015: (1) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6% of risk-weighted assets (increased from the previous requirement of 4%); (3) a total capital ratio of 8% of risk-weighted assets (unchanged from current requirement); and, (4) a leverage ratio of 4% of total assets.  Beginning January 1, 2016, a capital conservation buffer of .625% became effective. The capital conservation buffer will be gradually increased through January 1, 2019 to 2.5%. Banks will be required to maintain capital levels that meet the required minimum plus the capital conservation buffer in order to make distributions or discretionary bonus payments.

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The Bank’s actual capital amounts and ratios are also presented in the following tables:

HomeTown Bank September 30, 2016	Actual					Minimum Capital Requirement including Capital Conservation Buffer for 2016					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(in thousands except for percentages)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)	$	57,561		12.88	%	$	38,558		8.625	%	$	44,705		10.00	%
Tier I Common Equity (to Risk-Weighted Assets)	$	54,005		12.08	%	$	22,911		5.125	%	$	29,058		6.50	%
Tier I Capital (to Risk-Weighted Assets)	$	54,017		12.08	%	$	29,617		6.625	%	$	35,764		8.00	%
Tier I Leverage (to Average Assets)	$	54,017		10.58	%	$	20,417		4.00	%	$	25,521		5.00	%

HomeTown Bank December 31, 2015	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(in thousands except for percentages)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)	$	54,890		13.80	%	$	31,822		8.00	%	$	39,778		10.00	%
Tier I Common Equity (to Risk-Weighted Assets)	$	51,556		12.96	%	$	17,900		4.50	%	$	25,855		6.50	%
Tier I Capital (to Risk-Weighted Assets)	$	51,592		12.97	%	$	23,867		6.00	%	$	31,822		8.00	%
Tier I Capital (to Average Assets)	$	51,592		10.83	%	$	19,053		4.00	%	$	23,816		5.00	%

Financial Instruments with Off-Balance-Sheet Risk

In the normal course of business to meet the financing needs of its customers, the Company is a party to financial instruments with off-balance-sheet risk. These financial instruments involve commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The same credit policy is used in making commitments as is used for on-balance-sheet risk.

At September 30, 2016 outstanding commitments to extend credit including letters of credit were $98.8 million. There are no commitments to extend credit on impaired loans.

Commitments to extend credit are agreements to lend to a customer as long as there is no breach of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments may expire without ever being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash outlays for the Company.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This update is intended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management is required under the new guidance to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for each interim and annual reporting period. If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce diversity in practice. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) Requires 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) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact that ASU 2016-01 will have on its consolidated financial statements.

32

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) 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 is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” Among other things, the amendments in ASU 2016-07, eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early Adoption is permitted. The Company is currently assessing the impact that ASU 2016-07 will have on its consolidated financial statements.

During March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Shares-Based Payment Accounting.” The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company elected early adoption of ASU 2016-09 in the second quarter of 2016.

During June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For public companies that are not SEC filers, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.

During August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. If retrospective application is impractical for some of the issues addressed by the update, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

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ITEM 4.         CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended.)  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

34

PART II OTHER INFORMATION

Item 1.         Legal Proceedings.

In the normal course of business, the Company becomes involved in litigation arising from the banking, financial and other activities it conducts. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on the Company’s financial condition, operating results or liquidity.

Item 1A.       Risk Factors.

Not applicable to smaller reporting companies.

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

None

Item 3.         Defaults Upon Senior Securities

None

Item 4.         Mine Safety Disclosure

Not applicable.

Item 5.         Other Information

None

Item 6.         Exhibits

(a) Exhibits

Exhibit No.
31.1	Certification of Chief Executive of Officer (302 Certification).
31.2	Certification of Chief Financial Officer (302 Certification).
32	Certification pursuant to 18 U.S.C. Section 1350 (906 Certification).
101*	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, is formatted in XBRL interactive data files: (i) Consolidated Balance Sheets at September 30, 2016, and December 31, 2015; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2016, and 2015; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016, and 2015;  (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015; and (v) Notes to Consolidated Financial Statements.

* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

35

SIGNATURES

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

HOMETOWN BANK
Date: November 14, 2016	By:	/S/ SUSAN K. STILL
		Susan K. Still
		President
		Chief Executive Officer
Date: November 14, 2016	By:	/S/ VANCE W. ADKINS
		Vance W. Adkins
		Executive Vice President
		Chief Financial Officer

36

HOMETOWN BANK

FORM 10Q

INDEX TO EXHIBITS

Exhibit	Description
31.1	Certification of Chief Executive of Officer (302 Certification).
31.2	Certification of Chief Financial Officer (302 Certification).
32	Certification pursuant to 18 U.S.C. Section 1350 (906 Certification).

101* Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, is formatted in XBRL interactive data files: (i) Consolidated Balance Sheets at September 30, 2016, and December 31, 2015; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2016, and 2015; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016, and 2015;  (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015; and (v) Notes to Consolidated Financial Statements.

* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

37

EX-31.1

 Exhibit 31.1

CERTIFICATION

I, Susan K. Still certify that:

1. I have reviewed this quarterly report on Form 10-Q of HOMETOWN BANKSHARES CORPORATION.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and

d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2016	/s/ Susan K. Still
	Susan K. Still
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Vance W. Adkins certify that:

1. I have reviewed this quarterly report on Form 10-Q of HOMETOWN BANKSHARES CORPORATION.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and

d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2016	/s/ Vance W. Adkins
	Vance W. Adkins
	Executive Vice President
	Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF FINANCIAL REPORTS PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies that, to his/her knowledge, (i) the Form 10-Q filed by HOMETOWN BANKSHARES CORPORATION (the “Issuer”) for the periods ended September 30, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer [on the dates and for the periods presented therein].

HOMETOWN BANKSHARES CORPORATION

Date: November 14, 2016	By:	/s/ Susan K. Still
		Susan K. Still
		President and Chief Executive Officer
Date: November 14, 2016	By:	/s/ Vance W. Adkins
		Vance W. Adkins
		Executive Vice President
		Chief Financial Officer

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Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 10, 2016
Document Information [Line Items]
Entity Registrant Name	HomeTown Bankshares Corp
Entity Central Index Key	0001461640
Trading Symbol	hmta
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		5,763,944
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	[1]
Series C Preferred Stock [Member]
Stockholders’ equity:
Convertible preferred stock, no par value; Series C authorized 20,000 shares, issued and outstanding none at September 30, 2016 and 13,600 at December 31, 2015		$ 12,893
Cash and due from banks	21,264	28,745
Federal funds sold	1,033	1,329
Securities available for sale, at fair value	54,085	52,544
Restricted equity securities, at cost	2,213	2,535
Loans held for sale	294	1,643
Loans, net of allowance for loan losses of $3,544 in 2016 and $3,298 in 2015	400,371	364,060
Property and equipment, net	13,543	14,008
Other real estate owned, net of valuation allowance of $420 in 2016 and in 2015	4,274	5,237
Bank owned life insurance	7,418	6,285
Accrued income	2,076	2,057
Other assets	1,141	942
Total assets	507,712	479,385
Noninterest-bearing	88,716	77,268
Interest-bearing	351,278	322,278
Total deposits	439,994	399,546
Federal Home Loan Bank borrowings	9,000	22,000
Subordinated notes	7,217	7,194
Other borrowings	1,126	2,361
Accrued interest payable	598	372
Other liabilities	1,495	1,521
Total liabilities	459,430	432,994
Commitments and contingencies
Common stock, $5 par value; authorized 10,000,000 shares, issued and outstanding 5,763,944 (includes 32,342 restricted shares) at September 30, 2016 and 3,362,536 (includes 37,848 restricted shares) at December 31, 2015	28,781	16,801
Surplus	17,810	15,484
Retained earnings	657	443
Accumulated other comprehensive income	611	396
Total HomeTown Bankshares Corporation stockholders’ equity	47,859	46,017
Non-controlling interest in consolidated subsidiary	423	374
Total stockholders’ equity	48,282	46,391
Total liabilities and stockholders’ equity	$ 507,712	$ 479,385

[1] Derived from consolidated audited financial statements.

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	[1]
Series C Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, authorized (in shares)	20,000	20,000
Preferred stock, issued (in shares)	0	13,600
Preferred stock, outstanding (in shares)	0	13,600
Loans, allowance for loan losses	$ 3,544	$ 3,298
Other real estate owned, valuation allowance	$ 420	$ 420
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, authorized shares (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	5,763,944	3,362,536
Common stock, restricted shares (in shares)	32,342	37,848

[1] Derived from consolidated audited financial statements.

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Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015		Sep. 30, 2016	Sep. 30, 2015
Interest and dividend income:
Loans and fees on loans	$ 4,523	$ 4,173		$ 13,116	$ 12,119
Taxable investment securities	209	170		614	552
Nontaxable investment securities	93	100		295	303
Dividends on restricted stock	31	36		101	104
Other interest income	34	10		79	28
Total interest and dividend income	4,890	4,489		14,205	13,106
Interest expense:
Deposits	588	490		1,629	1,403
Subordinated notes	134			402
Other borrowed funds	54	100		221	294
Total interest expense	776	590		2,252	1,697
Net interest income	4,114	3,899		11,953	11,409
Provision for loan losses	111			979
Net interest income after provision for loan losses	4,003	3,899		10,974	11,409
Noninterest income:
Service charges on deposit accounts	178	128		496	362
ATM and interchange income	176	148		491	416
Mortgage banking	251	161		607	539
Gains on sales of investment securities, net	43	12		257	52
Other income	187	232		468	542
Total noninterest income	835	681		2,319	1,911
Noninterest expense:
Salaries and employee benefits	1,772	1,641		5,095	4,801
Occupancy and equipment expense	439	441		1,317	1,325
Data processing expense	237	215		679	632
Advertising and marketing expense	127	198		345	607
Professional fees	135	80		352	303
Bank franchise taxes	92	66		275	197
FDIC insurance expense	89	80		247	239
Losses on sales and writedowns of other real estate, net		140		91	140
Other real estate owned expense	25	35		72	105
Directors’ fees	98	55		307	166
Other expense	472	386		1,333	1,153
Total noninterest expense	3,486	3,337		10,113	9,668
Net income before income taxes	1,352	1,243		3,180	3,652
Income tax expense	416	381		1,203	1,108
Net income	936	862		1,977	2,544
Less net income attributable to non-controlling interest	33	7		49	50
Net income attributable to HomeTown Bankshares Corporation	903	855		1,928	2,494
Effective dividends on preferred stock		210		408	630
Net income available to common stockholders	$ 903	$ 645		$ 1,520	$ 1,864
Basic earnings per common share (in dollars per share)	$ 0.16	$ 0.19	[1],[2]	$ 0.36	$ 0.54	[1],[2]
Diluted earnings per common share (in dollars per share)	$ 0.16	$ 0.15	[1],[2]	$ 0.26	$ 0.43	[1],[2]
Weighted average common shares outstanding (in shares)	5,763,944	3,428,085	[1],[2]	4,279,821	3,426,467	[1],[2]
Diluted weighted average common shares outstanding (in shares)	5,774,086	5,757,685	[1],[2]	5,776,632	5,756,067	[1],[2]

[1] Restated for 4% common stock dividend distributed July 11, 2016.

[2] Restated for the 4% stock dividend distributed July 11, 2016

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net income	$ 936	$ 862	$ 1,977	$ 2,544
Other comprehensive income (loss):
Net unrealized holding gains (losses) on securities available for sale during the period	(149)	275	583	20
Deferred income tax (expense) benefit on unrealized holding gains (losses) on securities available for sale	50	(93)	(198)	(7)
Reclassification adjustment for gains on sales of investment securities included in net income	(43)	(12)	(257)	(52)
Tax expense related to realized gains on securities sold	15	4	87	18
Total other comprehensive income (loss)	(127)	174	215	(21)
Comprehensive income	809	1,036	2,192	2,523
Less: Comprehensive income attributable to the non-controlling interest	33	7	49	50
Comprehensive income attributable to HomeTown Bankshares Corporation	$ 776	$ 1,029	$ 2,143	$ 2,473

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016		Sep. 30, 2015
Cash flows from operating activities:
Net income	$ 1,977		$ 2,544
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	568		571
Provision for loan losses	979
Amortization of premium on securities, net	448		440
Amortization of discount on subordinated notes	23
Gains on sales of loans held for sale	(435)		(407)
Losses on sales and writedowns of other real estate, net	91		140
Gains on sales of investment securities, net	(257)		(52)
Increase in value of life insurance contracts	(133)		(120)
Stock compensation expense	111		102
Originations of loans held for sale	(17,443)		(18,136)
Proceeds from sales of loans held for sale	19,227		18,391
Changes in assets and liabilities:
Accrued income	(19)		51
Other assets	(199)		(154)
Deferred taxes, net	163		11
Accrued interest payable	226		167
Other liabilities	(300)		(686)
Net cash flows provided by operating activities	5,027		2,862
Cash flows from investing activities:
Net (increase) decrease in federal funds sold	296		(1,026)
Purchases of available for sale securities	(14,087)		(5,997)
Sales, maturities, and calls of available for sale securities	12,682		9,494
(Purchase) redemption of restricted equity securities, net	322		(218)
Net increase in loans	(37,771)		(28,500)
Proceeds from sales of other real estate	1,353		138
Purchases of bank owned life insurance	(1,000)		(2,500)
Purchases of property and equipment	(103)		(329)
Net cash flows used in investing activities	(38,308)		(28,938)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits	11,448		30,224
Net increase in interest-bearing deposits	29,000		7,408
Net increase (decrease) in FHLB borrowings	(13,000)		4,900
Net increase (decrease) in other borrowings	(1,235)		439
Net increase in equity of non-controlling interest			317
Preferred stock dividend payment	(408)		(630)
Cash in lieu of fractional shares	(5)
Net cash flows provided by financing activities	25,800		42,658
Net increase (decrease) in cash and cash equivalents	(7,481)		16,582
Cash and cash equivalents, beginning	28,745	[1]	13,795
Cash and cash equivalents, ending	21,264		30,377
Supplemental disclosure of cash flow information:
Cash payments for interest	2,026		1,530
Cash payments for income taxes	1,253		1,676
Supplemental disclosure of noncash investing and financing activities:
Change in unrealized gains (loss) on available for sale securities	326		(32)
Transfer from loans to other real estate	481
Conversion of Preferred Stock to Common Stock	$ 12,893

[1] Derived from consolidated audited financial statements.

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Note 1 - Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

Note 1. Organization and Summary of Significant Accounting Policies

Organization

On September 4, 2009, Hometown Bankshares Corporation (the “Company”) acquired all outstanding stock of HomeTown Bank (the “Bank”) in an exchange for shares of the Company on a one-for-one basis to become a single-bank holding company with the Bank becoming a wholly-owned subsidiary. The Bank was organized and incorporated under the laws of the State of Virginia on November 9, 2004 and commenced operations on November 14, 2005. The Bank currently serves Roanoke City, Virginia, the County of Roanoke, Virginia, the City of Salem, Virginia, Christiansburg, Virginia, and surrounding areas. As a state chartered bank which is a member of the Federal Reserve System, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Board.

Basis of Presentation

The consolidated financial statements as of September 30, 2016 and for the periods ended September 30, 2016 and 2015 included herein, have been prepared by HomeTown Bankshares Corporation, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

Management believes that all interim adjustments for the periods ended September 30, 2016 are of a normal recurring nature. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for such interim periods. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto as of December 31, 2015, included in the Company’s Form 10-K for the year ended December 31, 2015. Interim financial performance is not necessarily indicative of performance for the full year.

The accounting and reporting policies of the Company follow generally accepted accounting principles and general practices within the financial services industry.

The consolidated financial statements of HomeTown Bankshares Corporation include the accounts of its wholly-owned subsidiary HomeTown Bank and the accounts of its subsidiary, HomeTown Residential Mortgage LLC. HomeTown Bank owns a 49% interest in HomeTown Residential Mortgage LLC which originates and sells mortgages secured by personal residences. Due to the marketing support and direction provided by HomeTown Bank to HomeTown Residential Mortgage LLC, along with guarantees of warehouse lines of credit used in its operation, the Company is deemed to exercise control of this entity. The ownership interest in HomeTown Residential Mortgage LLC not owned by the Company is reported as Non-Controlling Interest in a Consolidated Subsidiary. All significant intercompany balances and

transactions have been eliminated in consolidation.

The Company elected the early adoption of ASU 2016-09,

Compensation – Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting.

The tax effect of the expiration of nonqualified stock options was recognized in the second quarter as a discrete item when the expiration occurred and increased income tax expense by $236 thousand. The Company elected an accounting policy to account for forfeitures when they occur and reverse compensation cost previously recognized, in the period the award is forfeited before the completion of the requisite service period. The Company’s other accounting policies and basic principles have not changed since the summary disclosure of these in our Annual Report on Form 10-K. Please refer to Form 10-K for these policies.

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Note 2 - Investment Securities

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 2. Investment Securities

The amortized cost and fair value of available-for-sale securities as of September 30, 2016 and December 31, 2015, are as follows:

(Dollars In Thousands)	September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	12,806	$	250	$	(51	)	$	13,005
Mortgage-backed securities and CMO’s		20,900		159		(48	)		21,011
Corporate securities		3,750		62		–			3,812
Municipal securities		15,703		575		(21	)		16,257
	$	53,159	$	1,046	$	(120	)	$	54,085

(Dollars In Thousands)	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	16,899	$	227	$	(107	)	$	17,019
Mortgage-backed securities and CMO’s		18,289		75		(174	)		18,190
Municipal securities		16,756		594		(15	)		17,335
	$	51,944	$	896	$	(296	)	$	52,544

U. S. Government and agency securities:

The unrealized losses on twelve of the Company’s investments in obligations of the U. S. government were caused by increases in market interest rates over the yields available at the time the securities were purchased.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired

at September 30, 2016.

Mortgage-backed securities and CMO’s:

The unrealized losses on fourteen of the Company’s investments in government-sponsored entity mortgage-backed securities and collateralized mortgage obligations (“CMOs”) were caused by increases in market interest rates over the yields available at the time the securities were purchased. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2016.

Corporate securities

:

The Company had no investments with unrealized losses in corporate securities at September 30, 2016.

Municipal securities:

The unrealized losses on nine of the Company’s investments in municipal securities were caused by increases in market interest rates over the yields available at the time the securities were purchased. All municipal securities are investment grade. Because the decline in market value is attributable to changes in interest rates, credit spreads, and not credit quality, and because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired

at September 30, 2016.

The following tables demonstrate the unrealized loss position of available-for-sale securities at September 30, 2016 and December 31, 2015. This information summarizes the amount of time individual securities have been in a continuous, unrealized loss position.

	September 30, 2016
	Less than 12 months					12 months or more					Total
(Dollars In Thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U. S. Government agency securities	$	888	$	(1	)	$	3,596	$	(50	)	$	4,484	$	(51	)
Mortgage-backed securities and CMO’s		3,831		(18	)		1,588		(30	)		5,419		(48	)
Municipal securities		3,552		(20	)		267		(1	)		3,819		(21	)
	$	8,271	$	(39	)	$	5,451	$	(81	)	$	13,722	$	(120	)

	December 31, 2015
	Less than 12 months					12 months or more					Total
(Dollars In Thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government agency securities	$	1,999	$	(24	)	$	4,924	$	(83	)	$	6,923	$	(107	)
Mortgage-backed securities and CMO’s		10,326		(114	)		3,069		(60	)		13,395		(174	)
Municipal securities		805		(10	)		526		(5	)		1,331		(15	)
	$	13,130	$	(148	)	$	8,519	$	(148	)	$	21,649	$	(296	)

There are thirty-five debt securities with fair values totaling $13.7 million considered temporarily impaired at September 30, 2016.  As of September 30, 2016, the Company does not consider any bond in an unrealized loss position to be other-than-temporarily impaired.

The Company realized gains of $262 thousand and $5 thousand of losses on sales of securities in the first nine months of 2016. The Company realized gains of $67 thousand and $15 thousand of losses during the same period last year.

The amortized cost and fair values of investment securities available for sale at September 30, 2016, by contractual maturity are as follows:

(Dollars In Thousands)	Amortized Cost		Fair Value
One year or less	$	120	$	121
Over one through five years		1,395		1,420
Over five through ten years		13,782		14,000
Greater than 10 years		37,862		38,544
	$	53,159	$	54,085

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Note 3 - Loans Receivable

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

 

Note 3. Loans Receivable

The major classifications of loans in the consolidated balance sheets at September 30, 2016 and December 31, 2015 were as follows:

(Dollars In Thousands)	September 30, 2016			December 31, 2015
Construction loans:
Residential	$	12,630		$	11,779
Land acquisition, development & commercial		25,157			27,440
Real estate:
Residential		110,965			100,268
Commercial		162,330			140,952
Commercial, industrial & agricultural		55,857			53,012
Equity lines		29,253			26,376
Consumer		7,723			7,531
Total		403,915			367,358
Less allowance for loan losses		(3,544	)		(3,298	)
Loans, net	$	400,371		$	364,060

The past due and nonaccrual status of loans as of September 30, 2016 was as follows:

(Dollars In Thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Nonaccrual Loans
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	12,630	$	12,630	$	−
Land acquisition, development & commercial		−		−		−		−		25,157		25,157		−
Real estate:
Residential		103		−		802		905		110,060		110,965		577
Commercial		−		−		−		−		162,330		162,330		347
Commercial, industrial & agricultural		−		−		−		−		55,857		55,857		11
Equity lines		50		106		−		156		29,097		29,253		−
Consumer		5		3		−		8		7,715		7,723		−
Total	$	158	$	109	$	802	$	1,069	$	402,846	$	403,915	$	935

The past-due and nonaccrual status of loans as of December 31, 2015 was as follows:

(Dollars In Thousands)	30-59 Days Past-Due		60-89 Days Past-Due		90 Days or More Past- Due		Total Past- Due		Current		Total Loans		Nonaccrual Loans
Construction:
Residential	$	−	$	−	$	−	$	−	$	11,779	$	11,779	$	−
Land acquisition, development & commercial		−		−		11		11		27,429		27,440		11
Real Estate:
Residential		297		−		50		347		99,921		100,268		−
Commercial		44		−		792		836		140,116		140,952		368
Commercial, industrial & agricultural		52		84		35		171		52,841		53,012		47
Equity lines		105		−		−		105		26,271		26,376		−
Consumer		−		−		−		−		7,531		7,531		−
Total	$	498	$	84	$	888	$	1,470	$	365,888	$	367,358	$	426

There was one loan, in the amount of $225 thousand, that was past due ninety days or more and still accruing interest as of September 30, 2016. There were two loans, totaling $842 thousand, which were past due ninety days or more and still accruing interest at December 31, 2015.

Impaired loans, which include TDR’s of $6.5 million, and the related allowance at September 30, 2016, were as follows:

September 30, 2016 With no related allowance: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real estate:
Residential		770		770		−		582		(14	)
Commercial		6,463		6,639		−		6,559		191
Commercial, industrial & agricultural		11		11		−		12		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with no allowance	$	7,244	$	7,420	$	−	$	7,153	$	177

September 30, 2016 With an allowance recorded: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real estate:
Residential		−		−		−		−		−
Commercial		119		119		17		123		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	119	$	119	$	17	$	123	$	−

Impaired loans, which include TDRs of $6.7 million, and the related allowance at December 31, 2015, were as follows:

December 31, 2015 With no related allowance: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction:
Residential	$	−	$	−	$	–	$	−	$	−
Land acquisition, development & commercial		−		−		–		−		−
Real Estate:
Residential		247		247		–		255		13
Commercial		7,451		7,627		–		7,623		291
Commercial, industrial & agricultural		12		12		–		12		−
Equity lines		−		−		–		−		−
Consumer		−		−		–		−		−
Total loans with no allowance	$	7,710	$	7,886	$	–	$	7,890	$	304

December 31, 2015 With an allowance recorded: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real Estate:
Residential		−		−		−		−		−
Commercial		127		127		17		135		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	127	$	127	$	17	$	135	$	−

Troubled Debt Restructurings

Troubled debt restructurings (“TDR’s”) were comprised of six loans totaling $6.5 million at September 30, 2016.  This compares with $6.7 million in total restructured loans at December 31, 2015. Four of the six loans totaling $6.2 million were not on nonaccrual status at September 30, 2016. The other two loans totaling $238 thousand were on nonaccrual status at the end of the third quarter of 2016.  All TDR’s were current with their restructured terms at September 30, 2016.

No loans were modified in a TDR during the first nine months of 2016.

The following table presents by class of loan, information related to the loan modified in a TDR during 2015:

	Loans modified as TDR's For the nine months ended September 30, 2015
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
			(Dollars in Thousands)
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:
Residential		—		—		—
Commercial		1		260		255
Commercial, industrial, agricultural		—		—		12
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		1	$	260	$	267

The loan identified above in the table restructured into two TDR’s during the nine months ended September 30, 2015. It was included in substandard nonaccrual loans and impaired loans at the end of 2014.

Management considers troubled debt restructurings and subsequent defaults in restructured loans in the determination of the adequacy of the Company’s allowance for loan losses. When identified as a TDR, a loan is evaluated for potential loss based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs if the loan is collateral dependent. Loans identified as TDRs frequently are on non-accrual status at the time of the restructuring and, in some cases, partial charge-offs may have already been taken against the loan and a specific allowance may have already been established for the loan. As a result of any modification as a TDR, if a specific reserve is associated with the loan it may be increased. Additionally, loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future defaults. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. As a result, any specific allowance may be increased, adjustments may be made in the allocation of the total allowance balance, or partial charge-offs may be taken to further write-down the carrying value of the loan. Management exercises significant judgment in developing estimates for potential losses associated with TDRs.

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Note 4 - Allowance for Loan Losses

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 4. Allowance for Loan Losses

The following table presents, as of September 30, 2016, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

September 30, 2016

	Allowance for loan losses																Loans
Class of Loan (Dollars in Thousands)	Beginning balance		Charge- offs			Recoveries		Provisions			Ending Balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
Construction loans:
Residential	$	83	$	−		$	−	$	2		$	85	$	−	$	85	$	12,630	$	−	$	12,630
Land acquisition, development & commercial		187		(2	)		−		(20	)		165		−		165		25,157		−		25,157
Real estate:
Residential		1,047		−			45		(164	)		928		−		928		110,965		770		110,195
Commercial		1,001		(606	)		−		1,064			1,459		17		1,442		162,330		6,582		155,748
Commercial, industrial & agricultural		531		(34	)		−		(73	)		424		−		424		55,857		11		55,846
Equity lines		277		(99	)		10		164			352		−		352		29,253		−		29,253
Consumer		85		(65	)		18		56			94		−		94		7,723		−		7,723
Unallocated		87		−			−		(50	)		37		−		37		−		−		−
Total	$	3,298	$	(806	)	$	73	$	979		$	3,544	$	17	$	3,527	$	403,915	$	7,363	$	396,552

The following table presents, as of December 31, 2015, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

December 31, 2015

	Allowance for loan losses																Loans
Class of Loan (Dollars in Thousands)	Beginning balance		Charge- offs			Recoveries		Provisions			Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
Construction loans:
Residential	$	43	$	−		$	−	$	40		$	83	$	−	$	83	$	11,779	$	−	$	11,779
Land acquisition, development & commercial		453		−			−		(266	)		187		−		187		27,440		−		27,440
Real estate:
Residential		833		−			1		213			1,047		−		1,047		100,268		247		100,021
Commercial		1,012		−			−		(11	)		1,001		17		984		140,952		7,578		133,374
Commercial, industrial & agricultural		319		−			10		202			531		−		531		53,012		12		53,000
Equity lines		423		−			1		(147	)		277		−		277		26,376		−		26,376
Consumer		65		(80	)		34		66			85		−		85		7,531		−		7,531
Unallocated		184		−			−		(97	)		87		−		87		−		−		−
Total	$	3,332	$	(80	)	$	46	$	−		$	3,298	$	17	$	3,281	$	367,358	$	7,837	$	359,521

Loans by credit quality indicators as of September 30, 2016 were as follows:

(Dollars In Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	12,630	$	−	$	−	$	−	$	12,630
Land acquisition, development & commercial		25,157		−		−		−		25,157
Real estate loans:
Residential		110,195		−		193		577		110,965
Commercial		161,429		−		554		347		162,330
Commercial, industrial, agricultural		55,246		−		600		11		55,857
Equity lines		29,253		−		−		−		29,253
Consumer		7,642		79		2		−		7,723
Total Loans	$	401,552	$	79	$	1,349	$	935	$	403,915

Loans by credit quality indicators as of December 31, 2015 were as follows:

(Dollars In Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	11,779	$	−	$	−	$	−	$	11,779
Land acquisition, development & commercial		27,429		−		−		11		27,440
Real estate loans:
Residential		95,809		4,212		247		−		100,268
Commercial		138,034		1,155		1,395		368		140,952
Commercial, industrial, agricultural		51,801		1,164		−		47		53,012
Equity lines		26,376		−		−		−		26,376
Consumer		7,523		−		8		−		7,531
Total Loans	$	358,751	$	6,531	$	1,650	$	426	$	367,358

At September 30, 2016 and December 31, 2015, the Company had no loans classified as Doubtful or Loss.

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Note 5 - Foreclosed Properties

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Real Estate Owned [Text Block]

Note 5. Foreclosed Properties

Changes in foreclosed properties for the nine months ended September 30, 2016 were as follows:

(Dollars In Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	5,657		$	(420	)	$	5,237
Additions		481			—			481
Writedowns		—			—			—
Sales		(1,444	)		—			(1,444	)
Balance at the end of the period	$	4,694		$	(420	)	$	4,274

Changes in foreclosed properties for the nine months ended September 30, 2015 were as follows:

(Dollars In Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	7,408		$	(422	)	$	6,986
Additions		—			—			—
Writedowns		—			(140	)		(140	)
Sales		(138	)		—			(138	)
Balance at the end of the period	$	7,270		$	(562	)	$	6,708

The major classifications of other real estate owned in the consolidated balance sheets at September 30, 2016 and December 31, 2015 were as follows:

(Dollars In Thousands)	September 30, 2016		December 31, 2015
Residential lots	$	2,409	$	2,520
Residential development		423		423
Commercial lots		90		90
Commercial buildings		1,352		2,204
Total Other Real Estate Owned	$	4,274	$	5,237

There were no residential real estate loans in the process of foreclosure at September 30, 2016 or December 31, 2015.

Other real estate owned related expenses in the consolidated statements of income for the three and nine months ended September 30, 2016 and September 30, 2015 include:

(Dollars In Thousands)	Three months Ended September 30, 2016		Three months Ended September 30, 2015		Nine months Ended September 30, 2016		Nine months Ended September 30, 2015
Net loss on sales	$	—	$	—	$	91	$	—
Provision for unrealized losses		—		140		—		140
Operating expenses		25		35		72		105
Total Other Real Estate Owned	$	25	$	175	$	163	$	245

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Note 6 - Stock Based Compensation

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 6. Stock Based Compensation

The Company recorded stock based compensation expense of $111 thousand and $102 thousand for the years to date September 30, 2016 and 2015, respectively.

The Company has a 2005 Stock Option Plan (the Plan) pursuant to which the Board of Directors may grant stock options to directors, officers and employees. Under the fair value recognition provisions of relevant accounting guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The fair value of the stock based payment awards is affected by the price of our stock and a number of financial assumptions and variables. These variables include the risk free interest rate, expected dividend rate, expected stock price volatility and the expected life of the options.  On December 18, 2014, the Board of Directors granted 165 thousand shares which will vest over a five year period. Financial assumptions and variables used to determine the fair value of these stock options are; risk free interest rate of 2.01%, an expected term of 7.5 years, an expected stock price volatility of 26% and a dividend rate of 0%. The fair value of the options was determined to be $2.29 per option. Compensation expense will be charged to income ratably over the vesting period and was $58 thousand year to date September 30, 2016 and $56 thousand year to date September 30, 2015. As of September 30, 2016 there was $229 thousand of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost will be recognized over the next 3.25 years. No options were granted during the nine months ended September 30, 2016. All previously issued options were fully vested at the end of 2012. At the discretion of the Board of Directors, the stock option plan was not modified for the 4% stock dividend distributed on July 11, 2016.

A summary of option activity under the 2005 stock option plan year to date September 30, 2016 is as follows:

	Options Outstanding			Weighted Average Exercise Price		Aggregate Intrinsic Value (1)		Weighted Average Contractual Term (years)
Balance at December 31, 2015		546,460		$	8.62
Granted		–			–
Exercised		–			–
Expired		(333,960	)		9.09
Forfeited		(6,000	)		6.90
Balance at September 30, 2016		206,500		$	7.90	$	329,700		6.59
Exercisable at September 30, 2016		82,100		$	9.41	$	68,460		4.11

(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 2016.

In 2009, the Board of Directors authorized 132,000 shares of common stock for issuance under the Restricted Stock Plan. On July 11, 2016, a 4% stock dividend was distributed and added 5,280 to the total number of shares authorized for issuance and currently raising the total available to 137,280. The plan provides for restricted stock awards to key employees. Restricted shares awarded to employees generally vest over a five year period and compensation expense is charged to income ratably over the vesting period and was $53 thousand and $46 thousand for the years to date September 30, 2016 and 2015, respectively. Compensation is accounted for using the fair market value of the Company’s common stock on the date the restricted shares are awarded. The Company granted 11,149* and 9,014* shares of restricted stock under the plan during the years to date September 30, 2016 and 2015, respectively. The weighted-average grant date fair value of restricted stock granted in 2016 was $9.09* compared to $7.40* in 2015.  

As of September 30, 2016, there was $183 thousand of total unrecognized compensation cost related to restricted stock granted under the Plan. The cost is expected to be recognized through 2021. A summary of the activity for restricted stock awards for the periods indicated is presented below:

	For the nine months ended September 30, 2016						For the nine months ended September 30, 2015
	Shares			Weighted- Average Grant Date Fair Value			Shares			Weighted- Average Grant Date Fair Value
Nonvested at beginning of year		39,352	*	$	6.00	*		39,227	*	$	5.35	*
Granted		11,149	*		9.09	*		9,014	*		7.40	*
Vested		(11,371	) *		5.44	*		(11,279	) *		5.34	*
Forfeited		(6,788	) *		6.99	*		–	*		–	*
Nonvested at the end of the period		32,342	*	$	7.06	*		36,962	*	$	5.85	*

The Restricted Stock Plan provides for the adjustment of the total number of shares reserved for issuance under the plan and the number of shares covered by each outstanding Award for stock dividends and stock splits.

*Restated for the 4% stock dividend distributed July 11, 2016.

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Note 7 - Fair Value Measurement

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 7. Fair Value Measurement

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 - Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level 3 - Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:

Securities available for sale:

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

The following table presents the balances of financial

assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015:

(Dollars In Thousands)			Carrying value at September 30, 2016
Description	Balance as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government agency securities	$	13,005	$	–	$	13,005	$	–
Mortgage-backed securities and CMO’s		21,011		–		21,011		–
Corporate securities		3,812		–		3,812		–
Municipal securities		16,257		–		16,257		–

(Dollars In Thousands)			Carrying value at December 31, 2015
Description	Balance as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government agency securities	$	17,019	$	–	$	17,019	$	–
Mortgage-backed securities and CMO’s		18,190		–		18,190		–
Municipal securities		17,335		–		17,335		–

Certain assets are measured at fair value on a nonrecurring basis in accordance with generally accepted accounting principles (GAAP). Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements:

Impaired Loans:

The Company does not record loans at fair value on a recurring basis. However, from time to time a loan is considered impaired and a specific reserve is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures the extent of any loss. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value, and discounted cash flow. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investment in such loans. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. If carried at market price based on appraised value less selling costs using observable market data, it is recorded as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraisal value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Loans held for sale:

The carrying value of these loans approximates the fair value. These loans close in the name of the Bank’s consolidated joint venture subsidiary HomeTown Residential Mortgage, LLC, but are generally sold within a two-week period.

Other Real Estate Owned (OREO)

: The carrying amount of real estate owned by the Company resulting from foreclosures is estimated at the lesser of cost or the fair value of the real estate based on an observable market price or a current appraised value less selling costs. If carried at market price based on appraised value using observable market data, it is recorded as nonrecurring Level 2. When an appraised value is not available or is not current, or management determines the fair value of the real estate is further impaired below the appraised value or there is no observable market price, the Company records the real estate as nonrecurring Level 3.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis as of September 30, 2016 and December 31, 2015.

(Dollars In Thousands)			Carrying value at September 30, 2016
Description	Balance as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans, net of valuation allowance	$	102	$	–	$	–	$	102
Loans held for sale		294		–		294		–
Other real estate owned		4,274		–		–		4,274

(Dollars In Thousands)			Carrying value at December 31, 2015
Description	Balance as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans, net of valuation allowance	$	110	$	–	$	–	$	110
Loans held for sale		1,643		–		1,643		–
Other real estate owned		5,237		–		1,300		3,937

At September 30, 2016 and December 31, 2015, the Company did not have any liabilities measured at fair value on a nonrecurring basis.

The following table displays quantitative information about Level 3 Fair Value Measurements for September 30, 2016:

(Dollars In Thousands)	Quantitative information about Level 3 Fair Value Measurements for September 30, 2016
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	102	Discounted cash flows	Residual cash flows discount rate	6%	-	6%	(6%)
Other real estate owned	$	1,735	Discounted appraised value	Selling cost	6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal	4%	-	4%	(4%)
	$	2,539	Internal evaluations	Internal evaluations	3%	-	38%	(19%)

The following table displays quantitative information about Level 3 Fair Value Measurements for December 31, 2015:

(Dollars In Thousands)	Quantitative information about Level 3 Fair Value Measurements for December 31, 2015
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	110	Discounted cash flows	Residual cash flows discount rate	6%	-	6%	(6%)
Other real estate owned	$	1,735	Discounted appraised value	Selling cost	6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal	4%	-	9%	(8%)
	$	2,202	Internal evaluations	Internal evaluations	4%	-	39%	(21%)

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and due from banks: The carrying amounts reported in the consolidated balance sheet for cash on hand and amounts due from correspondent banks approximate their fair values. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of contractual maturities on such time deposits.

Federal funds sold: Federal funds sold consist of overnight loans to other financial institutions and mature within one to three days. At September 30, 2016 and December 31, 2015, management believes the carrying value of federal funds sold approximates estimated market value.

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

Restricted equity securities: For these restricted equity securities, the carrying amount is a reasonable estimate of fair value based on the redemption provisions of the related securities.

Loans held for sale: The carrying value of these loans approximates the fair value. These loans close in the name of the Bank’s joint venture subsidiary HomeTown Residential Mortgage, LLC, but are generally sold within a two-week period.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. Their fair values are measured utilizing independent valuation techniques of similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Bank owned life insurance: The cash values of these policies are estimates using information provided by insurance carriers. The policies are carried at their cash surrender value, which approximates fair value.

Deposit liabilities: The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit and individual retirement accounts are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of contractual maturities on such time deposits.

FHLB borrowings: The fair values for FHLB borrowings are estimated using a discounted cash flow calculation that applies interest rates currently being offered on FHLB borrowings to the contractual maturities on such FHLB borrowings.

Subordinated notes: The fair values is measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

Other borrowings: The warehouse line of credit is a short term revolving credit facility used to fund mortgage loans originations until the underlying loan is sold.

The warehouse line of credit, federal funds purchased, borrowings under repurchase agreements mature within 30 days and approximate their fair values.

Accrued interest: The carrying amount of accrued interest receivable and payable approximates fair value.

Off-balance sheet financial instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements. At September 30, 2016 and December 31, 2015, the fair value of loan commitments and standby letters of credit were deemed to be immaterial.

The carrying amounts and approximate fair values of the Company's financial instruments are as follows at September 30, 2016:

(Dollars In Thousands)			Fair value at September 30, 2016
Description	Carrying value as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Approximate Fair Values
Financial assets
Cash and due from banks	$	21,264	$	20,514	$	755	$	–	$	21,269
Federal funds sold		1,033		1,033		–		–		1,033
Securities available-for-sale		54,085		–		54,085		–		54,085
Restricted equity securities		2,213		–		2,213		–		2,213
Loans held for sale		294		–		294		–		294
Loans, net		400,371		–		–		402,625		402,625
Bank owned life insurance		7,418		–		7,418		–		7,418
Accrued income		2,076		–		2,076		–		2,076
Financial liabilities
Total deposits		439,994		–		440,207		–		440,207
FHLB borrowings		9,000		–		9,109		–		9,109
Subordinated notes		7,217		–		7,770		–		7,770
Other borrowings		1,126		–		1,126		–		1,126
Accrued interest payable		598		–		598		–		598

The carrying amounts and approximate fair values of the Company's financial instruments are as follows at December 31, 2015:

(Dollars In Thousands)			Fair value at December 31, 2015
Description	Carrying value as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Approximate Fair Values
Financial assets
Cash and due from banks	$	28,745	$	26,995	$	1,767	$	–	$	28,762
Federal funds sold		1,329		1,329		–		–		1,329
Securities available for sale		52,544		–		52,544		–		52,544
Restricted equity securities		2,535		–		2,535		–		2,535
Loans held for sale		1,643		–		1,643		–		1,643
Loans, net		364,060		–		–		362,440		362,440
Bank owned life insurance		6,285		–		6,285		–		6,285
Accrued income		2,057		–		2,057		–		2,057
Financial liabilities
Total deposits		399,546		–		400,117		–		400,117
FHLB borrowings		22,000		–		22,191		–		22,191
Subordinated notes		7,194		–		7,354		–		7,354
Other borrowings		2,361		–		2,361		–		2,361
Accrued interest payable		372		–		372		–		372

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Note 8 - Reclassifications Out of Other Comprehensive Income

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

Note 8. Reclassifications Out of Other Comprehensive Income

Items reclassified in their entirety to net income for the three and nine months ended September 30, 2016 and 2015 are as follows:

Details about Other Comprehensive Components	Amounts Reclassified from Other Comprehensive Income for the Three Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
(Dollars In Thousands)	2016		2015
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	43	$	12	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		15		4	Income tax expense
	$	28	$	8	Net income

Details about Other Comprehensive Components	Amounts Reclassified from Other Comprehensive Income for the Nine Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
(Dollars In Thousands)	2016		2015
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	257	$	52	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		87		18	Income tax expense
	$	170	$	34	Net income

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Note 9 - Earnings Per Common Share

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

Note 9. Earnings per Common Share

The following tables show the weighted average number of shares used in computing earnings per common share and the effect on weighted average number of shares of diluted potential common stock. Potential dilutive common stock had no effect on income available to common shareholders.

	For the Three Months Ended September 30,
	2016						2015
Dollars In Thousands, except share and per share data	Weighted Average Common Share s Outstanding		Net Income Available to Common Shareholders		Per Share Amount		Weighted Average Common Share s Outstanding			Net Income Available to Common Shareholders		Per Share Amount
Earnings per common share, basic		5,763,944	$	903	$	0.16		3,428,085	*	$	645	$	0.19	*
Series C Preferred Stock Dividends				−							210
Effect of dilutive securities:
Convertible preferred stock		−		−		−		2,369,600	*		−		(0.04	)*
Dilutive stock options		10,142		−		−		−			−		−
Earnings per common share, diluted		5,774,086	$	903	$	0.16		5,757,685	*	$	855	$	0.15	*

*Restated for 4% common stock dividend distributed July 11, 2016.

	For the Nine Months Ended September 30,
	2016							2015
Dollars In Thousands, except share and per share data	Weighted Average Common Share s Outstanding		Net Income Available to Common Shareholders		Per Share Amount			Weighted Average Common Share s Outstanding			Net Income Available to Common Shareholders		Per Share Amount
Earnings per common share, basic		4,279,821	$	1,520	$	0.36			3,426,467	*	$	1,864	$	0.54	*
Series C Preferred Stock Dividends				−								630
Effect of dilutive securities:
Convertible preferred stock		1,486,669		−		(0.10	)		2,329,600	*		−		(0.11	) *
Dilutive stock options		10,142		−		−			−			−		−
Earnings per common share, diluted		5,776,632	$	1,520	$	0.26			5,756,067	*	$	2,494	$	0.43	*

*Restated for 4% common stock dividend distributed July 11, 2016.

Nonvested restricted shares were included in weighted average common shares outstanding for computing basic earnings per share, as the holder has voting rights and would share in a stock or cash dividend during the vesting period.

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Note 10 - Subsequent Events

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Subsequent Events [Text Block]

Note 10. Subsequent Events

There were no reportable subsequent events.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The consolidated financial statements as of September 30, 2016 and for the periods ended September 30, 2016 and 2015 included herein, have been prepared by HomeTown Bankshares Corporation, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

Management believes that all interim adjustments for the periods ended September 30, 2016 are of a normal recurring nature. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for such interim periods. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto as of December 31, 2015, included in the Company’s Form 10-K for the year ended December 31, 2015. Interim financial performance is not necessarily indicative of performance for the full year.

The accounting and reporting policies of the Company follow generally accepted accounting principles and general practices within the financial services industry.

The consolidated financial statements of HomeTown Bankshares Corporation include the accounts of its wholly-owned subsidiary HomeTown Bank and the accounts of its subsidiary, HomeTown Residential Mortgage LLC. HomeTown Bank owns a 49% interest in HomeTown Residential Mortgage LLC which originates and sells mortgages secured by personal residences. Due to the marketing support and direction provided by HomeTown Bank to HomeTown Residential Mortgage LLC, along with guarantees of warehouse lines of credit used in its operation, the Company is deemed to exercise control of this entity. The ownership interest in HomeTown Residential Mortgage LLC not owned by the Company is reported as Non-Controlling Interest in a Consolidated Subsidiary. All significant intercompany balances and

transactions have been eliminated in consolidation.

The Company elected the early adoption of ASU 2016-09,

Compensation – Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting.

The tax effect of the expiration of nonqualified stock options was recognized in the second quarter as a discrete item when the expiration occurred and increased income tax expense by $236 thousand. The Company elected an accounting policy to account for forfeitures when they occur and reverse compensation cost previously recognized, in the period the award is forfeited before the completion of the requisite service period. The Company’s other accounting policies and basic principles have not changed since the summary disclosure of these in our Annual Report on Form 10-K. Please refer to Form 10-K for these policies.

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Note 2 - Investment Securities (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

(Dollars In Thousands)	September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	12,806	$	250	$	(51	)	$	13,005
Mortgage-backed securities and CMO’s		20,900		159		(48	)		21,011
Corporate securities		3,750		62		–			3,812
Municipal securities		15,703		575		(21	)		16,257
	$	53,159	$	1,046	$	(120	)	$	54,085

(Dollars In Thousands)	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	16,899	$	227	$	(107	)	$	17,019
Mortgage-backed securities and CMO’s		18,289		75		(174	)		18,190
Municipal securities		16,756		594		(15	)		17,335
	$	51,944	$	896	$	(296	)	$	52,544

Schedule of Unrealized Loss on Investments [Table Text Block]

	September 30, 2016
	Less than 12 months					12 months or more					Total
(Dollars In Thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U. S. Government agency securities	$	888	$	(1	)	$	3,596	$	(50	)	$	4,484	$	(51	)
Mortgage-backed securities and CMO’s		3,831		(18	)		1,588		(30	)		5,419		(48	)
Municipal securities		3,552		(20	)		267		(1	)		3,819		(21	)
	$	8,271	$	(39	)	$	5,451	$	(81	)	$	13,722	$	(120	)

	December 31, 2015
	Less than 12 months					12 months or more					Total
(Dollars In Thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government agency securities	$	1,999	$	(24	)	$	4,924	$	(83	)	$	6,923	$	(107	)
Mortgage-backed securities and CMO’s		10,326		(114	)		3,069		(60	)		13,395		(174	)
Municipal securities		805		(10	)		526		(5	)		1,331		(15	)
	$	13,130	$	(148	)	$	8,519	$	(148	)	$	21,649	$	(296	)

Investments Classified by Contractual Maturity Date [Table Text Block]

(Dollars In Thousands)	Amortized Cost		Fair Value
One year or less	$	120	$	121
Over one through five years		1,395		1,420
Over five through ten years		13,782		14,000
Greater than 10 years		37,862		38,544
	$	53,159	$	54,085

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Note 3 - Loans Receivable (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

(Dollars In Thousands)	September 30, 2016			December 31, 2015
Construction loans:
Residential	$	12,630		$	11,779
Land acquisition, development & commercial		25,157			27,440
Real estate:
Residential		110,965			100,268
Commercial		162,330			140,952
Commercial, industrial & agricultural		55,857			53,012
Equity lines		29,253			26,376
Consumer		7,723			7,531
Total		403,915			367,358
Less allowance for loan losses		(3,544	)		(3,298	)
Loans, net	$	400,371		$	364,060

Past Due Financing Receivables [Table Text Block]

(Dollars In Thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Nonaccrual Loans
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	12,630	$	12,630	$	−
Land acquisition, development & commercial		−		−		−		−		25,157		25,157		−
Real estate:
Residential		103		−		802		905		110,060		110,965		577
Commercial		−		−		−		−		162,330		162,330		347
Commercial, industrial & agricultural		−		−		−		−		55,857		55,857		11
Equity lines		50		106		−		156		29,097		29,253		−
Consumer		5		3		−		8		7,715		7,723		−
Total	$	158	$	109	$	802	$	1,069	$	402,846	$	403,915	$	935

(Dollars In Thousands)	30-59 Days Past-Due		60-89 Days Past-Due		90 Days or More Past- Due		Total Past- Due		Current		Total Loans		Nonaccrual Loans
Construction:
Residential	$	−	$	−	$	−	$	−	$	11,779	$	11,779	$	−
Land acquisition, development & commercial		−		−		11		11		27,429		27,440		11
Real Estate:
Residential		297		−		50		347		99,921		100,268		−
Commercial		44		−		792		836		140,116		140,952		368
Commercial, industrial & agricultural		52		84		35		171		52,841		53,012		47
Equity lines		105		−		−		105		26,271		26,376		−
Consumer		−		−		−		−		7,531		7,531		−
Total	$	498	$	84	$	888	$	1,470	$	365,888	$	367,358	$	426

Impaired Financing Receivables [Table Text Block]

September 30, 2016 With no related allowance: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real estate:
Residential		770		770		−		582		(14	)
Commercial		6,463		6,639		−		6,559		191
Commercial, industrial & agricultural		11		11		−		12		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with no allowance	$	7,244	$	7,420	$	−	$	7,153	$	177

September 30, 2016 With an allowance recorded: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction loans:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real estate:
Residential		−		−		−		−		−
Commercial		119		119		17		123		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	119	$	119	$	17	$	123	$	−

December 31, 2015 With no related allowance: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction:
Residential	$	−	$	−	$	–	$	−	$	−
Land acquisition, development & commercial		−		−		–		−		−
Real Estate:
Residential		247		247		–		255		13
Commercial		7,451		7,627		–		7,623		291
Commercial, industrial & agricultural		12		12		–		12		−
Equity lines		−		−		–		−		−
Consumer		−		−		–		−		−
Total loans with no allowance	$	7,710	$	7,886	$	–	$	7,890	$	304

December 31, 2015 With an allowance recorded: (Dollars In Thousands)	Recorded Investment in Loans		Unpaid Principal Balance		Related Allowance		Average Balance Total Loans		Interest Income Recognized
Construction:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real Estate:
Residential		−		−		−		−		−
Commercial		127		127		17		135		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	127	$	127	$	17	$	135	$	−

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	Loans modified as TDR's For the nine months ended September 30, 2015
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
			(Dollars in Thousands)
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:
Residential		—		—		—
Commercial		1		260		255
Commercial, industrial, agricultural		—		—		12
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		1	$	260	$	267

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Note 4 - Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	Allowance for loan losses																Loans
Class of Loan (Dollars in Thousands)	Beginning balance		Charge- offs			Recoveries		Provisions			Ending Balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
Construction loans:
Residential	$	83	$	−		$	−	$	2		$	85	$	−	$	85	$	12,630	$	−	$	12,630
Land acquisition, development & commercial		187		(2	)		−		(20	)		165		−		165		25,157		−		25,157
Real estate:
Residential		1,047		−			45		(164	)		928		−		928		110,965		770		110,195
Commercial		1,001		(606	)		−		1,064			1,459		17		1,442		162,330		6,582		155,748
Commercial, industrial & agricultural		531		(34	)		−		(73	)		424		−		424		55,857		11		55,846
Equity lines		277		(99	)		10		164			352		−		352		29,253		−		29,253
Consumer		85		(65	)		18		56			94		−		94		7,723		−		7,723
Unallocated		87		−			−		(50	)		37		−		37		−		−		−
Total	$	3,298	$	(806	)	$	73	$	979		$	3,544	$	17	$	3,527	$	403,915	$	7,363	$	396,552

	Allowance for loan losses																Loans
Class of Loan (Dollars in Thousands)	Beginning balance		Charge- offs			Recoveries		Provisions			Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Ending balance		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
Construction loans:
Residential	$	43	$	−		$	−	$	40		$	83	$	−	$	83	$	11,779	$	−	$	11,779
Land acquisition, development & commercial		453		−			−		(266	)		187		−		187		27,440		−		27,440
Real estate:
Residential		833		−			1		213			1,047		−		1,047		100,268		247		100,021
Commercial		1,012		−			−		(11	)		1,001		17		984		140,952		7,578		133,374
Commercial, industrial & agricultural		319		−			10		202			531		−		531		53,012		12		53,000
Equity lines		423		−			1		(147	)		277		−		277		26,376		−		26,376
Consumer		65		(80	)		34		66			85		−		85		7,531		−		7,531
Unallocated		184		−			−		(97	)		87		−		87		−		−		−
Total	$	3,332	$	(80	)	$	46	$	−		$	3,298	$	17	$	3,281	$	367,358	$	7,837	$	359,521

Financing Receivable Credit Quality Indicators [Table Text Block]

(Dollars In Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	12,630	$	−	$	−	$	−	$	12,630
Land acquisition, development & commercial		25,157		−		−		−		25,157
Real estate loans:
Residential		110,195		−		193		577		110,965
Commercial		161,429		−		554		347		162,330
Commercial, industrial, agricultural		55,246		−		600		11		55,857
Equity lines		29,253		−		−		−		29,253
Consumer		7,642		79		2		−		7,723
Total Loans	$	401,552	$	79	$	1,349	$	935	$	403,915

(Dollars In Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	11,779	$	−	$	−	$	−	$	11,779
Land acquisition, development & commercial		27,429		−		−		11		27,440
Real estate loans:
Residential		95,809		4,212		247		−		100,268
Commercial		138,034		1,155		1,395		368		140,952
Commercial, industrial, agricultural		51,801		1,164		−		47		53,012
Equity lines		26,376		−		−		−		26,376
Consumer		7,523		−		8		−		7,531
Total Loans	$	358,751	$	6,531	$	1,650	$	426	$	367,358

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Note 5 - Foreclosed Properties (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Forclosed Properties [Table Text Block]

(Dollars In Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	5,657		$	(420	)	$	5,237
Additions		481			—			481
Writedowns		—			—			—
Sales		(1,444	)		—			(1,444	)
Balance at the end of the period	$	4,694		$	(420	)	$	4,274

(Dollars In Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	7,408		$	(422	)	$	6,986
Additions		—			—			—
Writedowns		—			(140	)		(140	)
Sales		(138	)		—			(138	)
Balance at the end of the period	$	7,270		$	(562	)	$	6,708

Schedule of Real Estate Properties [Table Text Block]

(Dollars In Thousands)	September 30, 2016		December 31, 2015
Residential lots	$	2,409	$	2,520
Residential development		423		423
Commercial lots		90		90
Commercial buildings		1,352		2,204
Total Other Real Estate Owned	$	4,274	$	5,237

(Dollars In Thousands)	Three months Ended September 30, 2016		Three months Ended September 30, 2015		Nine months Ended September 30, 2016		Nine months Ended September 30, 2015
Net loss on sales	$	—	$	—	$	91	$	—
Provision for unrealized losses		—		140		—		140
Operating expenses		25		35		72		105
Total Other Real Estate Owned	$	25	$	175	$	163	$	245

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Note 6 - Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Options Outstanding			Weighted Average Exercise Price		Aggregate Intrinsic Value (1)		Weighted Average Contractual Term (years)
Balance at December 31, 2015		546,460		$	8.62
Granted		–			–
Exercised		–			–
Expired		(333,960	)		9.09
Forfeited		(6,000	)		6.90
Balance at September 30, 2016		206,500		$	7.90	$	329,700		6.59
Exercisable at September 30, 2016		82,100		$	9.41	$	68,460		4.11

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	For the nine months ended September 30, 2016						For the nine months ended September 30, 2015
	Shares			Weighted- Average Grant Date Fair Value			Shares			Weighted- Average Grant Date Fair Value
Nonvested at beginning of year		39,352	*	$	6.00	*		39,227	*	$	5.35	*
Granted		11,149	*		9.09	*		9,014	*		7.40	*
Vested		(11,371	) *		5.44	*		(11,279	) *		5.34	*
Forfeited		(6,788	) *		6.99	*		–	*		–	*
Nonvested at the end of the period		32,342	*	$	7.06	*		36,962	*	$	5.85	*

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Note 7 - Fair Value Measurement (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

(Dollars In Thousands)			Carrying value at September 30, 2016
Description	Balance as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government agency securities	$	13,005	$	–	$	13,005	$	–
Mortgage-backed securities and CMO’s		21,011		–		21,011		–
Corporate securities		3,812		–		3,812		–
Municipal securities		16,257		–		16,257		–

(Dollars In Thousands)			Carrying value at December 31, 2015
Description	Balance as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government agency securities	$	17,019	$	–	$	17,019	$	–
Mortgage-backed securities and CMO’s		18,190		–		18,190		–
Municipal securities		17,335		–		17,335		–

Fair Value Measurements, Nonrecurring [Table Text Block]

(Dollars In Thousands)			Carrying value at September 30, 2016
Description	Balance as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans, net of valuation allowance	$	102	$	–	$	–	$	102
Loans held for sale		294		–		294		–
Other real estate owned		4,274		–		–		4,274

(Dollars In Thousands)			Carrying value at December 31, 2015
Description	Balance as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans, net of valuation allowance	$	110	$	–	$	–	$	110
Loans held for sale		1,643		–		1,643		–
Other real estate owned		5,237		–		1,300		3,937

Fair Value Inputs, Assets, Quantitative Information [Table Text Block]

(Dollars In Thousands)	Quantitative information about Level 3 Fair Value Measurements for September 30, 2016
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	102	Discounted cash flows	Residual cash flows discount rate	6%	-	6%	(6%)
Other real estate owned	$	1,735	Discounted appraised value	Selling cost	6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal	4%	-	4%	(4%)
	$	2,539	Internal evaluations	Internal evaluations	3%	-	38%	(19%)

(Dollars In Thousands)	Quantitative information about Level 3 Fair Value Measurements for December 31, 2015
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	110	Discounted cash flows	Residual cash flows discount rate	6%	-	6%	(6%)
Other real estate owned	$	1,735	Discounted appraised value	Selling cost	6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal	4%	-	9%	(8%)
	$	2,202	Internal evaluations	Internal evaluations	4%	-	39%	(21%)

Fair Value, by Balance Sheet Grouping [Table Text Block]

(Dollars In Thousands)			Fair value at September 30, 2016
Description	Carrying value as of September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Approximate Fair Values
Financial assets
Cash and due from banks	$	21,264	$	20,514	$	755	$	–	$	21,269
Federal funds sold		1,033		1,033		–		–		1,033
Securities available-for-sale		54,085		–		54,085		–		54,085
Restricted equity securities		2,213		–		2,213		–		2,213
Loans held for sale		294		–		294		–		294
Loans, net		400,371		–		–		402,625		402,625
Bank owned life insurance		7,418		–		7,418		–		7,418
Accrued income		2,076		–		2,076		–		2,076
Financial liabilities
Total deposits		439,994		–		440,207		–		440,207
FHLB borrowings		9,000		–		9,109		–		9,109
Subordinated notes		7,217		–		7,770		–		7,770
Other borrowings		1,126		–		1,126		–		1,126
Accrued interest payable		598		–		598		–		598

(Dollars In Thousands)			Fair value at December 31, 2015
Description	Carrying value as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Approximate Fair Values
Financial assets
Cash and due from banks	$	28,745	$	26,995	$	1,767	$	–	$	28,762
Federal funds sold		1,329		1,329		–		–		1,329
Securities available for sale		52,544		–		52,544		–		52,544
Restricted equity securities		2,535		–		2,535		–		2,535
Loans held for sale		1,643		–		1,643		–		1,643
Loans, net		364,060		–		–		362,440		362,440
Bank owned life insurance		6,285		–		6,285		–		6,285
Accrued income		2,057		–		2,057		–		2,057
Financial liabilities
Total deposits		399,546		–		400,117		–		400,117
FHLB borrowings		22,000		–		22,191		–		22,191
Subordinated notes		7,194		–		7,354		–		7,354
Other borrowings		2,361		–		2,361		–		2,361
Accrued interest payable		372		–		372		–		372

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Note 8 - Reclassifications Out of Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

Details about Other Comprehensive Components	Amounts Reclassified from Other Comprehensive Income for the Three Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
(Dollars In Thousands)	2016		2015
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	43	$	12	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		15		4	Income tax expense
	$	28	$	8	Net income

Details about Other Comprehensive Components	Amounts Reclassified from Other Comprehensive Income for the Nine Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
(Dollars In Thousands)	2016		2015
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	257	$	52	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		87		18	Income tax expense
	$	170	$	34	Net income

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Note 9 - Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Three Months Ended September 30,
	2016						2015
Dollars In Thousands, except share and per share data	Weighted Average Common Share s Outstanding		Net Income Available to Common Shareholders		Per Share Amount		Weighted Average Common Share s Outstanding			Net Income Available to Common Shareholders		Per Share Amount
Earnings per common share, basic		5,763,944	$	903	$	0.16		3,428,085	*	$	645	$	0.19	*
Series C Preferred Stock Dividends				−							210
Effect of dilutive securities:
Convertible preferred stock		−		−		−		2,369,600	*		−		(0.04	)*
Dilutive stock options		10,142		−		−		−			−		−
Earnings per common share, diluted		5,774,086	$	903	$	0.16		5,757,685	*	$	855	$	0.15	*

	For the Nine Months Ended September 30,
	2016							2015
Dollars In Thousands, except share and per share data	Weighted Average Common Share s Outstanding		Net Income Available to Common Shareholders		Per Share Amount			Weighted Average Common Share s Outstanding			Net Income Available to Common Shareholders		Per Share Amount
Earnings per common share, basic		4,279,821	$	1,520	$	0.36			3,426,467	*	$	1,864	$	0.54	*
Series C Preferred Stock Dividends				−								630
Effect of dilutive securities:
Convertible preferred stock		1,486,669		−		(0.10	)		2,329,600	*		−		(0.11	) *
Dilutive stock options		10,142		−		−			−			−		−
Earnings per common share, diluted		5,776,632	$	1,520	$	0.26			5,756,067	*	$	2,494	$	0.43	*

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Note 1 - Organization and Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Jun. 30, 2016	Sep. 30, 2016
Corporate Joint Venture [Member] | Home Town Residential Mortgage LLC [Member]
Subsidiary or Equity Method Investee, Cumulative Percentage Ownership after All Transactions		49.00%
New Accounting Pronouncement, Early Adoption, Effect [Member]
Increase (Decrease) in Income Taxes	$ 236

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Note 2 - Investment Securities (Details Textual) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Corporate Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	0
US Government Agencies Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	12
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 4,484		$ 6,923
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	14
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 5,419		13,395
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	9
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 3,819		1,331
Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	35
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 13,700
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	13,722		$ 21,649
Available-for-sale Securities, Gross Realized Gains	262	$ 67
Available-for-sale Securities, Gross Realized Losses	$ 5	$ 15

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Note 2 - Investment Securities - Available-for-sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
US Government Agencies Debt Securities [Member]
Securities available-for-sale, amortized cost	$ 12,806	$ 16,899
Securities available-for-sale, gross unrealized gains	250	227
Securities available-for-sale, gross unrealized losses	(51)	(107)
Securities available for sale, at fair value	13,005	17,019
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available-for-sale, amortized cost	20,900	18,289
Securities available-for-sale, gross unrealized gains	159	75
Securities available-for-sale, gross unrealized losses	(48)	(174)
Securities available for sale, at fair value	21,011	18,190
Corporate Debt Securities [Member]
Securities available-for-sale, amortized cost	3,750
Securities available-for-sale, gross unrealized gains	62
Securities available-for-sale, gross unrealized losses
Securities available for sale, at fair value	3,812
US States and Political Subdivisions Debt Securities [Member]
Securities available-for-sale, amortized cost	15,703	16,756
Securities available-for-sale, gross unrealized gains	575	594
Securities available-for-sale, gross unrealized losses	(21)	(15)
Securities available for sale, at fair value	16,257	17,335
Securities available-for-sale, amortized cost	53,159	51,944
Securities available-for-sale, gross unrealized gains	1,046	896
Securities available-for-sale, gross unrealized losses	(120)	(296)
Securities available for sale, at fair value	$ 54,085	$ 52,544	[1]

[1] Derived from consolidated audited financial statements.

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Note 2 - Investment Securities - Unrealized Loss Positions of Available-for-sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
US Government Agencies Debt Securities [Member]
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	$ 888	$ 1,999
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(1)	(24)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	3,596	4,924
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(50)	(83)
Securities available-for-sale in a continuous unrealized loss position, total fair value	4,484	6,923
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	(51)	(107)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	3,831	10,326
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(18)	(114)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	1,588	3,069
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(30)	(60)
Securities available-for-sale in a continuous unrealized loss position, total fair value	5,419	13,395
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	(48)	(174)
US States and Political Subdivisions Debt Securities [Member]
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	3,552	805
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(20)	(10)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	267	526
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(1)	(5)
Securities available-for-sale in a continuous unrealized loss position, total fair value	3,819	1,331
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	(21)	(15)
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	8,271	13,130
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(39)	(148)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	5,451	8,519
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(81)	(148)
Securities available-for-sale in a continuous unrealized loss position, total fair value	13,722	21,649
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	$ (120)	$ (296)

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Note 2 - Investment Securities - Available-for-sale Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
One year or less, available-for-sale securities, amortized cost	$ 120
One year or less, available-for-sale securities, fair value	121
Over one through five years, available-for-sale securities, amortized cost	1,395
Over one through five years, available-for-sale securities, fair value	1,420
Over five through ten years, available-for-sale securities, amortized cost	13,782
Over five through ten years, available-for-sale securities, fair value	14,000
Greater than 10 years, available-for-sale securities, amortized cost	37,862
Greater than 10 years, available-for-sale securities, fair value	38,544
Available-for-sale securities, amortized cost	53,159	$ 51,944
Available-for-sale securities, fair value	$ 54,085	$ 52,544	[1]

[1] Derived from consolidated audited financial statements.

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Note 3 - Loans Receivable (Details Textual) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015	Dec. 31, 2015 USD ($)
Troubled Debt Restructuring, Modified [Member]
Financing Receivable, Modifications, Number of Contracts	0	2
Troubled Debt Restructuring [Member]
Financing Receivable, Modifications, Number of Contracts	6
Financing Receivable, Modifications, Recorded Investment	$ 6,500		$ 6,700
Performing Financial Instruments [Member]
Financing Receivable, Modifications, Number of Contracts	4
Financing Receivable, Modifications, Recorded Investment	$ 6,200
Nonperforming Financial Instruments [Member]
Financing Receivable, Modifications, Number of Contracts	2
Financing Receivable, Modifications, Recorded Investment	$ 238
Financing Receivable, Modifications, Number of Contracts		1
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	$ 225		$ 842

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Note 3 - Loans Receivable - Classifications of Loans Receivable (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015		Dec. 31, 2014
Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans and Leases Receivable, Gross	$ 12,630	$ 11,779
Less allowance for loan losses	(85)	(83)		$ (43)
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans and Leases Receivable, Gross	25,157	27,440
Less allowance for loan losses	(165)	(187)		(453)
Real Estate Portfolio Segment [Member] | Residential [Member]
Loans and Leases Receivable, Gross	110,965	100,268
Less allowance for loan losses	(928)	(1,047)		(833)
Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans and Leases Receivable, Gross	162,330	140,952
Less allowance for loan losses	(1,459)	(1,001)		(1,012)
Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans and Leases Receivable, Gross	55,857	53,012
Less allowance for loan losses	(424)	(531)		(319)
Equity Lines Portfolio Segment [Member]
Loans and Leases Receivable, Gross	29,253	26,376
Less allowance for loan losses	(352)	(277)		(423)
Consumer Portfolio Segment [Member]
Loans and Leases Receivable, Gross	7,723	7,531
Less allowance for loan losses	(94)	(85)		(65)
Loans and Leases Receivable, Gross	403,915	367,358
Less allowance for loan losses	(3,544)	(3,298)	[1]	$ (3,332)
Loans, net	$ 400,371	$ 364,060	[2]

[1] Derived from consolidated audited financial statements.

[2] Derived from consolidated audited financial statements.

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Note 3 - Loans Receivable - Past Due and Non-accrual Status of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivables, 30 to 59 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans, past due
Financing Receivables, 30 to 59 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due	103	297
Financing Receivables, 30 to 59 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans, past due		44
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans, past due		52
Financing Receivables, 30 to 59 Days Past Due [Member] | Equity Lines Portfolio Segment [Member]
Loans, past due	50	105
Financing Receivables, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans, past due	5
Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	158	498
Financing Receivables, 60 to 89 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans, past due		84
Financing Receivables, 60 to 89 Days Past Due [Member] | Equity Lines Portfolio Segment [Member]
Loans, past due	106
Financing Receivables, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans, past due	3
Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	109	84
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans, past due		11
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due	802	50
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans, past due		792
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans, past due		35
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Equity Lines Portfolio Segment [Member]
Loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans, past due
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	802	888
Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans, past due
Loans, current	12,630	11,779
Loans and Leases Receivable, Gross	12,630	11,779
Loans, nonaccrual Loans
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans, past due		11
Loans, current	25,157	27,429
Loans and Leases Receivable, Gross	25,157	27,440
Loans, nonaccrual Loans		11
Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due	905	347
Loans, current	110,060	99,921
Loans and Leases Receivable, Gross	110,965	100,268
Loans, nonaccrual Loans	577
Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans, past due		836
Loans, current	162,330	140,116
Loans and Leases Receivable, Gross	162,330	140,952
Loans, nonaccrual Loans	347	368
Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans, past due		171
Loans, current	55,857	52,841
Loans and Leases Receivable, Gross	55,857	53,012
Loans, nonaccrual Loans	11	47
Equity Lines Portfolio Segment [Member]
Loans, past due	156	105
Loans, current	29,097	26,271
Loans and Leases Receivable, Gross	29,253	26,376
Loans, nonaccrual Loans
Consumer Portfolio Segment [Member]
Loans, past due	8
Loans, current	7,715	7,531
Loans and Leases Receivable, Gross	7,723	7,531
Loans, nonaccrual Loans
Loans, past due	1,069	1,470
Loans, current	402,846	365,888
Loans and Leases Receivable, Gross	403,915	367,358
Loans, nonaccrual Loans	$ 935	$ 426

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Note 3 - Loans Receivable - Impaired Loans (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans with no related allowance, recorded investment in loans
Loans with no related allowance, unpaid principal balance
Loans with no related allowance, average balance total loans
Loans with no related allowance, interest income recognized
Loans with a related allowance, recorded investment in loans
Loans with a related allowance, unpaid principal balance
Related Allowance
Loans with a related allowance, average balance total loans
Loans with a related allowance, interest income recognized
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans with no related allowance, recorded investment in loans
Loans with no related allowance, unpaid principal balance
Loans with no related allowance, average balance total loans
Loans with no related allowance, interest income recognized
Loans with a related allowance, recorded investment in loans
Loans with a related allowance, unpaid principal balance
Related Allowance
Loans with a related allowance, average balance total loans
Loans with a related allowance, interest income recognized
Real Estate Portfolio Segment [Member] | Residential [Member]
Loans with no related allowance, recorded investment in loans	770	247
Loans with no related allowance, unpaid principal balance	770	247
Loans with no related allowance, average balance total loans	582	255
Loans with no related allowance, interest income recognized	(14)	13
Loans with a related allowance, recorded investment in loans
Loans with a related allowance, unpaid principal balance
Related Allowance
Loans with a related allowance, average balance total loans
Loans with a related allowance, interest income recognized
Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans with no related allowance, recorded investment in loans	6,463	7,451
Loans with no related allowance, unpaid principal balance	6,639	7,627
Loans with no related allowance, average balance total loans	6,559	7,623
Loans with no related allowance, interest income recognized	191	291
Loans with a related allowance, recorded investment in loans	119	127
Loans with a related allowance, unpaid principal balance	119	127
Related Allowance	17	17
Loans with a related allowance, average balance total loans	123	135
Loans with a related allowance, interest income recognized
Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans with no related allowance, recorded investment in loans	11	12
Loans with no related allowance, unpaid principal balance	11	12
Loans with no related allowance, average balance total loans	12	12
Loans with no related allowance, interest income recognized
Loans with a related allowance, recorded investment in loans
Loans with a related allowance, unpaid principal balance
Related Allowance
Loans with a related allowance, average balance total loans
Loans with a related allowance, interest income recognized
Equity Lines Portfolio Segment [Member]
Loans with no related allowance, recorded investment in loans
Loans with no related allowance, unpaid principal balance
Loans with no related allowance, average balance total loans
Loans with no related allowance, interest income recognized
Loans with a related allowance, recorded investment in loans
Loans with a related allowance, unpaid principal balance
Related Allowance
Loans with a related allowance, average balance total loans
Loans with a related allowance, interest income recognized
Consumer Portfolio Segment [Member]
Loans with no related allowance, recorded investment in loans
Loans with no related allowance, unpaid principal balance
Loans with no related allowance, average balance total loans
Loans with no related allowance, interest income recognized
Loans with a related allowance, recorded investment in loans
Loans with a related allowance, unpaid principal balance
Related Allowance
Loans with a related allowance, average balance total loans
Loans with a related allowance, interest income recognized
Loans with no related allowance, recorded investment in loans	7,244	7,710
Loans with no related allowance, unpaid principal balance	7,420	7,886
Loans with no related allowance, average balance total loans	7,153	7,890
Loans with no related allowance, interest income recognized	177	304
Loans with a related allowance, recorded investment in loans	119	127
Loans with a related allowance, unpaid principal balance	119	127
Related Allowance	17	17
Loans with a related allowance, average balance total loans	123	135
Loans with a related allowance, interest income recognized

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Note 3 - Loans Receivable - Loans Modified in TDR by Class of Loan (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($)
Construction Loan Portfolio Segment [Member] | Residential [Member]
Financing Receivable, Modifications, Number of Contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Financing Receivable, Modifications, Number of Contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Real Estate Portfolio Segment [Member] | Residential [Member]
Financing Receivable, Modifications, Number of Contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Real Estate Portfolio Segment [Member] | Commercial [Member]
Financing Receivable, Modifications, Number of Contracts	1
Pre-modification outstanding recorded investment	$ 260
Post-modification outstanding recorded investment	$ 255
Commercial Industrial and Agricultural Portfolio Segment [Member]
Financing Receivable, Modifications, Number of Contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment	$ 12
Equity Lines Portfolio Segment [Member]
Financing Receivable, Modifications, Number of Contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Consumer Portfolio Segment [Member]
Financing Receivable, Modifications, Number of Contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Financing Receivable, Modifications, Number of Contracts	1
Pre-modification outstanding recorded investment	$ 260
Post-modification outstanding recorded investment	$ 267

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Note 4 - Allowance for Loan Losses (Details Textual) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Doubtful [Member]
Loans and Leases Receivable, Gross	$ 0	$ 0
Unlikely to be Collected Financing Receivable [Member]
Loans and Leases Receivable, Gross	0	0
Loans and Leases Receivable, Gross	$ 403,915,000	$ 367,358,000

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Note 4 - Allowance for Loan Losses - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended			12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016		Sep. 30, 2015	Dec. 31, 2015
Construction Loan Portfolio Segment [Member] | Residential [Member]
Allowance for loan losses Beginning balance			$ 83		$ 43	$ 43
Allowance for loan losses Charge- offs
Allowance for loan losses Recoveries
Allowance for loan losses Provisions			2			40
Allowance for loan losses Ending Balance	$ 85		85			83
Allowance for loan losses Ending balance: individually evaluated for impairment
Allowance for loan losses Ending balance: collectively evaluated for impairment	85		85			83
Loans and Leases Receivable, Gross	12,630		12,630			11,779
Loans Ending balance: individually evaluated for impairment
Loans Ending balance: collectively evaluated for impairment	12,630		12,630			11,779
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Allowance for loan losses Beginning balance			187		453	453
Allowance for loan losses Charge- offs			(2)
Allowance for loan losses Recoveries
Allowance for loan losses Provisions			(20)			(266)
Allowance for loan losses Ending Balance	165		165			187
Allowance for loan losses Ending balance: individually evaluated for impairment
Allowance for loan losses Ending balance: collectively evaluated for impairment	165		165			187
Loans and Leases Receivable, Gross	25,157		25,157			27,440
Loans Ending balance: individually evaluated for impairment
Loans Ending balance: collectively evaluated for impairment	25,157		25,157			27,440
Real Estate Portfolio Segment [Member] | Residential [Member]
Allowance for loan losses Beginning balance			1,047		833	833
Allowance for loan losses Charge- offs
Allowance for loan losses Recoveries			45			1
Allowance for loan losses Provisions			(164)			213
Allowance for loan losses Ending Balance	928		928			1,047
Allowance for loan losses Ending balance: individually evaluated for impairment
Allowance for loan losses Ending balance: collectively evaluated for impairment	928		928			1,047
Loans and Leases Receivable, Gross	110,965		110,965			100,268
Loans Ending balance: individually evaluated for impairment	770		770			247
Loans Ending balance: collectively evaluated for impairment	110,195		110,195			100,021
Real Estate Portfolio Segment [Member] | Commercial [Member]
Allowance for loan losses Beginning balance			1,001		1,012	1,012
Allowance for loan losses Charge- offs			(606)
Allowance for loan losses Recoveries
Allowance for loan losses Provisions			1,064			(11)
Allowance for loan losses Ending Balance	1,459		1,459			1,001
Allowance for loan losses Ending balance: individually evaluated for impairment	17		17			17
Allowance for loan losses Ending balance: collectively evaluated for impairment	1,442		1,442			984
Loans and Leases Receivable, Gross	162,330		162,330			140,952
Loans Ending balance: individually evaluated for impairment	6,582		6,582			7,578
Loans Ending balance: collectively evaluated for impairment	155,748		155,748			133,374
Commercial Industrial and Agricultural Portfolio Segment [Member]
Allowance for loan losses Beginning balance			531		319	319
Allowance for loan losses Charge- offs			(34)
Allowance for loan losses Recoveries						10
Allowance for loan losses Provisions			(73)			202
Allowance for loan losses Ending Balance	424		424			531
Allowance for loan losses Ending balance: individually evaluated for impairment
Allowance for loan losses Ending balance: collectively evaluated for impairment	424		424			531
Loans and Leases Receivable, Gross	55,857		55,857			53,012
Loans Ending balance: individually evaluated for impairment	11		11			12
Loans Ending balance: collectively evaluated for impairment	55,846		55,846			53,000
Equity Lines Portfolio Segment [Member]
Allowance for loan losses Beginning balance			277		423	423
Allowance for loan losses Charge- offs			(99)
Allowance for loan losses Recoveries			10			1
Allowance for loan losses Provisions			164			(147)
Allowance for loan losses Ending Balance	352		352			277
Allowance for loan losses Ending balance: individually evaluated for impairment
Allowance for loan losses Ending balance: collectively evaluated for impairment	352		352			277
Loans and Leases Receivable, Gross	29,253		29,253			26,376
Loans Ending balance: individually evaluated for impairment
Loans Ending balance: collectively evaluated for impairment	29,253		29,253			26,376
Consumer Portfolio Segment [Member]
Allowance for loan losses Beginning balance			85		65	65
Allowance for loan losses Charge- offs			(65)			(80)
Allowance for loan losses Recoveries			18			34
Allowance for loan losses Provisions			56			66
Allowance for loan losses Ending Balance	94		94			85
Allowance for loan losses Ending balance: individually evaluated for impairment
Allowance for loan losses Ending balance: collectively evaluated for impairment	94		94			85
Loans and Leases Receivable, Gross	7,723		7,723			7,531
Loans Ending balance: individually evaluated for impairment
Loans Ending balance: collectively evaluated for impairment	7,723		7,723			7,531
Unallocated Financing Receivables [Member]
Allowance for loan losses Beginning balance			87		184	184
Allowance for loan losses Charge- offs
Allowance for loan losses Recoveries
Allowance for loan losses Provisions			(50)			(97)
Allowance for loan losses Ending Balance	37		37			87
Allowance for loan losses Ending balance: individually evaluated for impairment
Allowance for loan losses Ending balance: collectively evaluated for impairment	37		37			87
Loans and Leases Receivable, Gross
Loans Ending balance: individually evaluated for impairment
Loans Ending balance: collectively evaluated for impairment
Allowance for loan losses Beginning balance			3,298	[1]	3,332	3,332
Allowance for loan losses Charge- offs			(806)			(80)
Allowance for loan losses Recoveries			73			46
Allowance for loan losses Provisions	111		979
Allowance for loan losses Ending Balance	3,544		3,544			3,298	[1]
Allowance for loan losses Ending balance: individually evaluated for impairment	17		17			17
Allowance for loan losses Ending balance: collectively evaluated for impairment	3,527		3,527			3,281
Loans and Leases Receivable, Gross	403,915		403,915			367,358
Loans Ending balance: individually evaluated for impairment	7,363		7,363			7,837
Loans Ending balance: collectively evaluated for impairment	$ 396,552		$ 396,552			$ 359,521

[1] Derived from consolidated audited financial statements.

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Note 4 - Allowance for Loan Losses - Loans by Credit Quality Indicators (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Construction Loan Portfolio Segment [Member] | Residential [Member] | Pass [Member]
Loans and Leases Receivable, Gross	$ 12,630	$ 11,779
Construction Loan Portfolio Segment [Member] | Residential [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross
Construction Loan Portfolio Segment [Member] | Residential [Member] | Substandard [Member]
Loans and Leases Receivable, Gross
Construction Loan Portfolio Segment [Member] | Residential [Member] | Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross
Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans and Leases Receivable, Gross	12,630	11,779
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Pass [Member]
Loans and Leases Receivable, Gross	25,157	27,429
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Substandard [Member]
Loans and Leases Receivable, Gross
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross		11
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans and Leases Receivable, Gross	25,157	27,440
Real Estate Portfolio Segment [Member] | Residential [Member] | Pass [Member]
Loans and Leases Receivable, Gross	110,195	95,809
Real Estate Portfolio Segment [Member] | Residential [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross		4,212
Real Estate Portfolio Segment [Member] | Residential [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	193	247
Real Estate Portfolio Segment [Member] | Residential [Member] | Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross	577
Real Estate Portfolio Segment [Member] | Residential [Member]
Loans and Leases Receivable, Gross	110,965	100,268
Real Estate Portfolio Segment [Member] | Commercial [Member] | Pass [Member]
Loans and Leases Receivable, Gross	161,429	138,034
Real Estate Portfolio Segment [Member] | Commercial [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross		1,155
Real Estate Portfolio Segment [Member] | Commercial [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	554	1,395
Real Estate Portfolio Segment [Member] | Commercial [Member] | Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross	347	368
Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans and Leases Receivable, Gross	162,330	140,952
Commercial Industrial and Agricultural Portfolio Segment [Member] | Pass [Member]
Loans and Leases Receivable, Gross	55,246	51,801
Commercial Industrial and Agricultural Portfolio Segment [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross		1,164
Commercial Industrial and Agricultural Portfolio Segment [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	600
Commercial Industrial and Agricultural Portfolio Segment [Member] | Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross	11	47
Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans and Leases Receivable, Gross	55,857	53,012
Equity Lines Portfolio Segment [Member] | Pass [Member]
Loans and Leases Receivable, Gross	29,253	26,376
Equity Lines Portfolio Segment [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross
Equity Lines Portfolio Segment [Member] | Substandard [Member]
Loans and Leases Receivable, Gross
Equity Lines Portfolio Segment [Member] | Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross
Equity Lines Portfolio Segment [Member]
Loans and Leases Receivable, Gross	29,253	26,376
Consumer Portfolio Segment [Member] | Pass [Member]
Loans and Leases Receivable, Gross	7,642	7,523
Consumer Portfolio Segment [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross	79
Consumer Portfolio Segment [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	2	8
Consumer Portfolio Segment [Member] | Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross
Consumer Portfolio Segment [Member]
Loans and Leases Receivable, Gross	7,723	7,531
Pass [Member]
Loans and Leases Receivable, Gross	401,552	358,751
Special Mention [Member]
Loans and Leases Receivable, Gross	79	6,531
Substandard [Member]
Loans and Leases Receivable, Gross	1,349	1,650
Substandard Nonaccrual [Member]
Loans and Leases Receivable, Gross	935	426
Loans and Leases Receivable, Gross	$ 403,915	$ 367,358

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Note 5 - Foreclosed Properties - Foreclosed Properties Valuation Allowance (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016		Sep. 30, 2015
Balance at the beginning of the year	$ 5,657		$ 7,408
Balance at the beginning of the year	(420)	[1]	(422)
Balance at the beginning of the year	5,237	[2]	6,986
Additions	481
Additions
Additions	481
Writedowns			(140)
Writedowns			(140)
Sales	(1,444)		(138)
Sales
Sales	(1,444)		(138)
Balance at the end of the period	4,694		7,270
Balance at the end of the period	(420)		(562)
Balance at the end of the period	$ 4,274		$ 6,708

[1] Derived from consolidated audited financial statements.

[2] Derived from consolidated audited financial statements.

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Note 5 - Foreclosed Properties - Classification of Other Real Estate Owned and Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015		Dec. 31, 2014
Residential Lots [Member]
Other Real Estate Owned	$ 2,409		$ 2,409		$ 2,520
Residential Development [Member]
Other Real Estate Owned	423		423		423
Commercial Lots [Member]
Other Real Estate Owned	90		90		90
Commercial Buildings [Member]
Other Real Estate Owned	1,352		1,352		2,204
Other Real Estate Owned	4,274	$ 6,708	4,274	$ 6,708	$ 5,237	[1]	$ 6,986
Net loss on sales			91
Provision for unrealized losses		140		140
Operating expenses	25	35	72	105
Total Other Real Estate Owned	$ 25	$ 175	$ 163	$ 245

[1] Derived from consolidated audited financial statements.

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Note 6 - Stock Based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands				9 Months Ended
		Jul. 11, 2016	Dec. 18, 2014	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2009
Employee Stock Option [Member]
Allocated Share-based Compensation Expense				$ 58	$ 56
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate			2.01%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term			7 years 182 days
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate			26.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate			0.00%
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized				$ 229
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition				3 years 91 days
Restricted Stock [Member]
Allocated Share-based Compensation Expense				$ 53	$ 46
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				5 years
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized				$ 183
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		137,280				132,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized		5,280
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	[1]			11,149	9,014
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	[1]			$ 9.09	$ 7.40
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			165,000	0
Allocated Share-based Compensation Expense				$ 111	$ 102
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value			$ 2.29
Dividends, Common Stock, Stock, Percentge		4.00%

[1] Restated for the 4% stock dividend distributed July 11, 2016.

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Note 6 - Stock Based Compensation - Stock Option Activity (Details) - 2005 Stock Option Plan [Member]	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Beginning balance, options outstanding (in shares) | shares	546,460
Beginning balance, weighted average exercise price (in dollars per share) | $ / shares	$ 8.62
Expired, options outstanding (in shares) | shares	(333,960)
Expired, weighted average exercise price (in dollars per share) | $ / shares	$ (9.09)
Forfeited, options outstanding (in shares) | shares	(6,000)
Forfeited, weighted average exercise price (in dollars per share) | $ / shares	$ (6.90)
Ending balance, options outstanding (in shares) | shares	206,500
Ending balance, weighted average exercise price (in dollars per share) | $ / shares	$ 7.90
Balance, aggregate intrinsic value | $	$ 329,700	[1]
Balance, weighted average contractual term	6 years 215 days
Exercisable, options outstanding (in shares) | shares	82,100
Exercisable, weighted average exercise price (in dollars per share) | $ / shares	$ 9.41
Exercisable, aggregate intrinsic value | $	$ 68,460	[1]
Exercisable, weighted average contractual term	4 years 40 days

[1] The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 2016.

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Note 6 - Stock Based Compensation - Restricted Stock Awards Activity (Details) - Restricted Stock [Member] - $ / shares		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015
Nonvested at beginning of year, shares (in shares)	[1]	39,352	39,227
Nonvested at beginning of year, weighted-average grant date fair value (in dollars per share)	[1]	$ 6	$ 5.35
Granted, shares (in shares)	[1]	11,149	9,014
Granted, weighted-average grant date fair value (in dollars per share)	[1]	$ 9.09	$ 7.40
Vested, shares (in shares)	[1]	(11,371)	(11,279)
Vested, weighted-average grant date fair value (in dollars per share)	[1]	$ 5.44	$ 5.34
Forfeited, shares (in shares)	[1]	(6,788)
Forfeited, weighted-average grant date fair value (in dollars per share)	[1]	$ 6.99
Nonvested at the end of the period, shares (in shares)	[1]	32,342	36,962
Nonvested at the end of the period, weighted-average grant date fair value (in dollars per share)	[1]	$ 7.06	$ 5.85

[1] Restated for the 4% stock dividend distributed July 11, 2016.

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Note 7 - Fair Value Measurement (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Minimum [Member]
Federal Funds Maturity	1 day
Maximum [Member]
Federal Funds Maturity	3 days
Liabilities, Fair Value Disclosure, Nonrecurring	$ 0	$ 0

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Note 7 - Fair Value Measurement - Fair Value of Financial Assets and Liabililties Measured on Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale, at fair value
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale, at fair value	13,005	17,019
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale, at fair value
US Government Agencies Debt Securities [Member]
Securities available for sale, at fair value	13,005	17,019
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale, at fair value
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale, at fair value	21,011	18,190
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale, at fair value
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available for sale, at fair value	21,011	18,190
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale, at fair value
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale, at fair value	3,812
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale, at fair value
Corporate Debt Securities [Member]
Securities available for sale, at fair value	3,812
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale, at fair value
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale, at fair value	16,257	17,335
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale, at fair value
US States and Political Subdivisions Debt Securities [Member]
Securities available for sale, at fair value	16,257	17,335
Securities available for sale, at fair value	$ 54,085	$ 52,544	[1]

[1] Derived from consolidated audited financial statements.

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Note 7 - Fair Value Measurement - Fair Value of Financial Assets and Liabililties Measure on Non-recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015		Sep. 30, 2015	Dec. 31, 2014
Fair Value, Inputs, Level 1 [Member]
Impaired loans, net of valuation allowance
Loans held for sale
Other Real Estate Owned
Fair Value, Inputs, Level 2 [Member]
Impaired loans, net of valuation allowance
Loans held for sale	294	1,643
Other Real Estate Owned		1,300
Fair Value, Inputs, Level 3 [Member]
Impaired loans, net of valuation allowance	102	110
Loans held for sale
Other Real Estate Owned	4,274	3,937
Impaired loans, net of valuation allowance	102	110
Loans held for sale	294	1,643	[1]
Other Real Estate Owned	$ 4,274	$ 5,237	[1]	$ 6,708	$ 6,986

[1] Derived from consolidated audited financial statements.

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Note 7 - Fair Value Measurement - Fair Value Quantitative Information (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Impaired Loans [Member] | Discounted Appraised Value [Member] | Minimum [Member]
Impaired loans	6.00%	6.00%
	4.00%	4.00%
Impaired Loans [Member] | Discounted Appraised Value [Member] | Maximum [Member]
Impaired loans	6.00%	6.00%
	4.00%	9.00%
Impaired Loans [Member] | Discounted Appraised Value [Member] | Weighted Average [Member]
Impaired loans	6.00%	6.00%
	4.00%	8.00%
Impaired Loans [Member] | Discounted Appraised Value [Member]
Impaired loans	$ 102	$ 110
Other Real Estate Owned [Member] | Discounted Appraised Value [Member] | Minimum [Member]
Impaired loans	6.00%	6.00%
Other Real Estate Owned [Member] | Discounted Appraised Value [Member] | Maximum [Member]
Impaired loans	6.00%	6.00%
Other Real Estate Owned [Member] | Discounted Appraised Value [Member] | Weighted Average [Member]
Impaired loans	6.00%	6.00%
Other Real Estate Owned [Member] | Discounted Appraised Value [Member]
Other real estate owned	$ 1,735	$ 1,735
Other Real Estate Owned [Member] | Internal Evaluations [Member] | Minimum [Member]
	3.00%	4.00%
Other Real Estate Owned [Member] | Internal Evaluations [Member] | Maximum [Member]
	38.00%	39.00%
Other Real Estate Owned [Member] | Internal Evaluations [Member] | Weighted Average [Member]
	19.00%	21.00%
Other Real Estate Owned [Member] | Internal Evaluations [Member]
Other real estate owned	$ 2,539	$ 2,202

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Note 7 - Fair Value Measurement - Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Reported Value Measurement [Member]
Cash and due from banks	$ 21,264	$ 28,745
Federal funds sold	1,033	1,329
Available-for-sale securities, fair value	54,085	52,544
Restricted equity securities	2,213	2,535
Loans held for sale	294	1,643
Loans, net	400,371	364,060
Bank owned life insurance	7,418	6,285
Accrued income	2,076	2,057
Total deposits	439,994	399,546
FHLB borrowings	9,000	22,000
Subordinated notes	7,217	7,194
Other borrowings	1,126	2,361
Accrued interest payable	598	372
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and due from banks	20,514	26,995
Federal funds sold	1,033	1,329
Available-for-sale securities, fair value
Restricted equity securities
Loans held for sale
Loans, net
Bank owned life insurance
Accrued income
Total deposits
FHLB borrowings
Subordinated notes
Other borrowings
Accrued interest payable
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and due from banks	755	1,767
Federal funds sold
Available-for-sale securities, fair value	54,085	52,544
Restricted equity securities	2,213	2,535
Loans held for sale	294	1,643
Loans, net
Bank owned life insurance	7,418	6,285
Accrued income	2,076	2,057
Total deposits	440,207	400,117
FHLB borrowings	9,109	22,191
Subordinated notes	7,770	7,354
Other borrowings	1,126	2,361
Accrued interest payable	598	372
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and due from banks
Federal funds sold
Available-for-sale securities, fair value
Restricted equity securities
Loans held for sale
Loans, net	402,625	362,440
Bank owned life insurance
Accrued income
Total deposits
FHLB borrowings
Subordinated notes
Other borrowings
Accrued interest payable
Estimate of Fair Value Measurement [Member]
Cash and due from banks	21,269	28,762
Federal funds sold	1,033	1,329
Available-for-sale securities, fair value	54,085	52,544
Restricted equity securities	2,213	2,535
Loans held for sale	294	1,643
Loans, net	402,625	362,440
Bank owned life insurance	7,418	6,285
Accrued income	2,076	2,057
Total deposits	440,207	400,117
FHLB borrowings	9,109	22,191
Subordinated notes	7,770	7,354
Other borrowings	1,126	2,361
Accrued interest payable	598	372
Available-for-sale securities, fair value	$ 54,085	$ 52,544	[1]

[1] Derived from consolidated audited financial statements.

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Note 8 - Reclassifications Out of Other Comprehensive Income - Items Reclassified to Net Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Realized gains on sales of securities held for sale during the period consider available for sale	$ 43	$ 12	$ 257	$ 52
Tax expense related to realized gains on securities sold	15	4	87	18
	28	8	170	34
Tax expense related to realized gains on securities sold	416	381	1,203	1,108
	$ 903	$ 855	$ 1,928	$ 2,494

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Note 9 - Earnings Per Common Share (Details Textual)	Jul. 11, 2016
Dividends, Common Stock, Stock, Percentge	4.00%

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Note 9 - Earnings Per Common Share - Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015		Sep. 30, 2016	Sep. 30, 2015
Earnings per common share, basic (in shares)	5,763,944	3,428,085	[1],[2]	4,279,821	3,426,467	[1],[2]
Earnings per common share, basic	$ 903	$ 645		$ 1,520	$ 1,864
Earnings per common share, basic (in dollars per share)	$ 0.16	$ 0.19	[1],[2]	$ 0.36	$ 0.54	[1],[2]
Series C Preferred Stock Dividends		$ 210		$ 408	$ 630
Convertible preferred stock (in shares)		2,369,600	[1]	1,486,669	2,329,600	[1]
Convertible preferred stock (in dollars per share)		$ (0.04)	[1]	$ (0.10)	$ (0.11)	[1]
Dilutive stock options (in shares)	10,142			10,142
Earnings per common share, diluted (in shares)	5,774,086	5,757,685	[1],[2]	5,776,632	5,756,067	[1],[2]
Earnings per common share, diluted	$ 903	$ 855		$ 1,520	$ 2,494
Earnings per common share, diluted (in dollars per share)	$ 0.16	$ 0.15	[1],[2]	$ 0.26	$ 0.43	[1],[2]

[1] Restated for 4% common stock dividend distributed July 11, 2016.

[2] Restated for the 4% stock dividend distributed July 11, 2016