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, 2017. 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 13, 2017, 5,776,175 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, 2017 (unaudited) and December 31, 2016		3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)		4
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)		5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
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, 2017 and December 31, 2016

Dollars in Thousands, Except Share and Per Share Data	September 30, 2017		December 31, 2016
	(Unaudited)			*
Assets
Cash and due from banks	$	34,755	$	18,229
Federal funds sold		132		42
Securities available for sale, at fair value		53,594		52,975
Restricted equity securities, at cost		2,371		2,213
Loans held for sale		1,013		678
Loans, net of allowance for loan losses of $3,706 in 2017 and $3,636 in 2016		431,104		415,355
Property and equipment, net		13,098		13,371
Other real estate owned, net of valuation allowance of $589 in 2017 and $825 in 2016		3,562		3,794
Bank owned life insurance		8,115		7,469
Accrued income		2,619		2,289
Other assets		1,084		875
Total assets	$	551,447	$	517,290
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	110,249	$	91,354
Interest-bearing		368,695		359,494
Total deposits		478,944		450,848
Federal Home Loan Bank borrowings		11,361		8,000
Subordinated notes		7,247		7,224
Other borrowings		992		1,117
Accrued interest payable		508		386
Other liabilities		1,717		1,490
Total liabilities		500,769		469,065
Commitments and contingencies
Stockholders’ equity:
Common stock, $5 par value; authorized 10,000,000 shares, issued and outstanding 5,771,175 (includes 28,679 restricted shares) at September 30, 2017 and 5,760,735 (includes 31,546 restricted shares) at December 31, 2016		28,776		28,765
Surplus		17,942		17,833
Retained earnings		3,363		1,247
Accumulated other comprehensive income (loss)		107		(56	)
Total HomeTown Bankshares Corporation stockholders’ equity		50,188		47,789
Noncontrolling interest in consolidated subsidiary		490		436
Total stockholders’ equity		50,678		48,225
Total liabilities and stockholders' equity	$	551,447	$	517,290

*Derived from audited consolidated 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, 2017 and 2016

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in Thousands, Except Share and Per Share Data	2017		2016		2017		2016
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest and dividend income:
Loans and fees on loans	$	4,797	$	4,523	$	14,123	$	13,116
Taxable investment securities		244		209		744		614
Nontaxable investment securities		75		93		239		295
Dividends on restricted stock		33		31		98		101
Other interest income		68		34		160		79
Total interest and dividend income		5,217		4,890		15,364		14,205
Interest expense:
Deposits		588		588		1,694		1,629
Subordinated notes		134		134		402		402
Other borrowed funds		58		54		171		221
Total interest expense		780		776		2,267		2,252
Net interest income		4,437		4,114		13,097		11,953
Provision for loan losses		40		111		575		979
Net interest income after provision for loan losses		4,397		4,003		12,522		10,974
Noninterest income:
Service charges on deposit accounts		120		178		415		496
ATM and interchange income		206		176		612		491
Mortgage banking		263		251		725		607
Gains on sales of investment securities, net		18		43		60		257
Other income		150		187		675		468
Total noninterest income		757		835		2,487		2,319
Noninterest expense:
Salaries and employee benefits		2,099		1,772		6,153		5,095
Occupancy and equipment expense		391		439		1,245		1,317
Data processing expense		309		237		954		679
ATM processing expense		57		60		180		172
Advertising and marketing expense		112		127		383		345
Professional fees		89		135		454		352
Bank franchise taxes		100		92		299		275
FDIC insurance expense		78		89		181		247
Losses on sales and write-downs of other real estate owned, net		-		-		380		91
Other real estate owned expense		28		25		66		72
Directors’ fees		97		98		306		307
Other expense		444		412		1,308		1,161
Total noninterest expense		3,804		3,486		11,909		10,113
Net income before income taxes		1,350		1,352		3,100		3,180
Income tax expense		413		416		930		1,203
Net income		937		936		2,170		1,977
Less net income attributable to non-controlling interest		20		33		54		49
Net income attributable to HomeTown Bankshares Corporation		917		903		2,116		1,928
Effective dividends on preferred stock		-		-		-		408
Net income available to common stockholders	$	917	$	903	$	2,116	$	1,520
Basic earnings per common share	$	0.16	$	0.16	$	0.37	$	0.36
Diluted earnings per common share	$	0.16	$	0.16	$	0.37	$	0.26
Weighted average common shares outstanding		5,770,175		5,763,944		5,767,602		4,279,821
Diluted weighted average common shares outstanding		5,794,777		5,774,086		5,792,204		5,776,632

See Notes to Consolidated Financial Statements

4

HomeTown Bankshares Corporation

Consolidated Statements of Comprehensive Income

For the three and nine months ended September 30, 2017 and 2016

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Dollars In Thousands	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net income	$	937		$	936		$	2,170		$	1,977
Other comprehensive income (loss):
Net unrealized holding gains (losses) on securities available for sale during the period		(201	)		(149	)		307			583
Deferred income tax benefit (expense) on unrealized holding gains (losses) on securities available for sale		68			50			(104	)		(198	)
Reclassification adjustment for gains on sales of investment securities included in net income		(18	)		(43	)		(60	)		(257	)
Tax expense related to realized gains on securities sold		6			15			20			87
Total other comprehensive income (loss)		(145	)		(127	)		163			215
Comprehensive income		792			809			2,333			2,192
Less: Comprehensive income attributable to the non-controlling interest		20			33			54			49
Comprehensive income attributable to HomeTown Bankshares Corporation	$	772		$	776		$	2,279		$	2,143

See Notes to Consolidated Financial Statements

5

HomeTown Bankshares Corporation

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2017 and 2016

	For the Nine Months Ended September 30,
Dollars in Thousands	2017			2016
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	2,170		$	1,977
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		545			568
Provision for loan losses		575			979
Amortization of premium on securities, net		351			448
Amortization of discount on subordinated notes		23			23
Gains on sales of loans held for sale		(516	)		(435	)
Losses on sales and write-downs of other real estate, net		380			91
Gains on sales of investment securities, net		(60	)		(257	)
Increase in value of life insurance contracts		(146	)		(133	)
Stock compensation expense		109			111
Originations of loans held for sale		(24,759	)		(17,443	)
Proceeds from sales of loans held for sale		24,940			19,227
Changes in assets and liabilities:
Accrued income		(330	)		(19	)
Other assets		(222	)		(199	)
Deferred taxes, net		(71	)		163
Accrued interest payable		122			226
Other liabilities		227			(300	)
Net cash flows provided by operating activities		3,338			5,027
Cash flows from investing activities:
Net (increase) decrease in federal funds sold		(90	)		296
Purchases of available for sale securities		(18,099	)		(14,087	)
Sales, maturities, and calls of available for sale securities		17,436			12,682
(Purchase) redemption of restricted equity securities, net		(158	)		322
Net increase in loans		(17,074	)		(37,771	)
Purchase of other real estate at foreclosure		(274	)		-
Proceeds from sales of other real estate		876			1,353
Purchases of bank owned life insurance		(500	)		(1,000	)
Purchases of property and equipment		(272	)		(103	)
Net cash flows used in investing activities		(18,155	)		(38,308	)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits		18,895			11,448
Net increase in interest-bearing deposits		9,201			29,000
Net increase (decrease) in FHLB borrowings		3,361			(13,000	)
Net increase (decrease) in other borrowings		(125	)		(1,235	)
Proceeds from exercise of stock options		28			–
Preferred stock dividend payment		–			(408	)
Net settlement restricted stock and cash in lieu of fractional shares		(17	)		(5	)
Net cash flows provided by financing activities		31,343			25,800
Net increase (decrease) in cash and cash equivalents16,526		16,526			(7,481	)
Cash and cash equivalents, beginning		18,229			28,745
Cash and cash equivalents, ending	$	34,755		$	21,264
Supplemental disclosure of cash flow information:
Cash payments for interest	$	2,122		$	2,026
Cash payments for income taxes	$	1,211		$	1,253
Supplemental disclosure of noncash investing activities:
Change in unrealized gains (losses) on available for sale securities	$	247		$	326
Transfer from loans to other real estate	$	750		$	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, 2017 and for the periods ended September 30, 2017 and 2016 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, 2017 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, 2016, included in the Company’s Form 10-K for the year ended December 31, 2016. 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’s 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, 2017 and December 31, 2016, are as follows:

(Dollars In Thousands)	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	13,327	$	91	$	(62	)	$	13,356
Mortgage-backed securities and CMO’s		21,322		35		(164	)		21,193
Corporate securities		6,490		89		(21	)		6,558
Municipal securities		12,293		284		(90	)		12,487
	$	53,432	$	499	$	(337	)	$	53,594

7

(Dollars In Thousands)	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	12,422	$	118	$	(96	)	$	12,444
Mortgage-backed securities and CMO’s		19,979		54		(265	)		19,768
Corporate securities		5,000		66		-			5,066
Municipal securities		15,659		266		(228	)		15,697
	$	53,060	$	504	$	(589	)	$	52,975

U. S. Government agency securities: The unrealized losses on fifteen 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 basis of the investments. Because the Company does not intend to sell the investments before recovery of their amortized cost basis which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2017.

Mortgage-backed securities and CMO’s: The unrealized losses on twenty-two 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 basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2017.

Corporate securities: The unrealized loss on three of the Company’s investments in corporate securities was caused by increases in market interest rates over the yield at the time the security was purchased. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider this investment to be other-than-temporarily impaired at September 30, 2017.

Municipal securities: The unrealized losses on seven 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 basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2017.

The following tables demonstrate the unrealized loss position of available-for-sale securities at September 30, 2017 and December 31, 2016. This information summarizes the amount of time individual securities have been in a continuous, unrealized loss position.

	September 30, 2017
	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	$	4,513	$	(36	)	$	1,984	$	(26	)	$	6,497	$	(62	)
Mortgage-backed securities and CMO’s		9,394		(73	)		4,404		(91	)		13,798		(164	)
Corporate securities		2,469		(21	)		-		-			2,469		(21	)
Municipal securities		1,250		(9	)		2,322		(81	)		3,572		(90	)
	$	17,626	$	(139	)	$	8,710	$	(198	)	$	26,336	$	(337	)

	December 31, 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	$	3,492	$	(32	)	$	3,491	$	(64	)	$	6,983	$	(96	)
Mortgage-backed securities and CMO’s		14,232		(235	)		1,474		(30	)		15,706		(265	)
Corporate securities		500		-			-		-			500		-
Municipal securities		6,967		(223	)		262		(5	)		7,229		(228	)
	$	25,191	$	(490	)	$	5,227	$	(99	)	$	30,418	$	(589	)

8

There are forty-seven debt securities with fair values totaling $26.3 million considered temporarily impaired at September 30, 2017.  As of September 30, 2017, the Company does not consider any bond in an unrealized loss position to be other-than-temporarily impaired.

The Company realized gains of $165 thousand and $105 thousand of losses on sales of securities in the first nine months of 2017. The Company realized gains of $262 thousand and $5 thousand of losses during the same period last year.

The amortized cost and fair values of investment securities available for sale at September 30, 2017, by contractual maturity are as follows:

(Dollars In Thousands)	Amortized Cost		Fair Value
One year or less	$	246	$	247
Over one through five years		3,153		3,147
Over five through ten years		14,651		14,807
Greater than 10 years		35,382		35,393
	$	53,432	$	53,594

Note 3. Loans Receivable

The major classifications of loans in the consolidated balance sheets at September 30, 2017 and December 31, 2016 were as follows:

(Dollars In Thousands)	September 30, 2017			December 31, 2016
Construction loans:
Residential	$	12,278		$	10,204
Land acquisition, development & commercial		33,915			27,480
Real estate:
Residential		117,114			111,626
Commercial		173,713			172,248
Commercial, industrial & agricultural		61,070			59,702
Equity lines		28,914			29,956
Consumer		7,724			7,668
Overdrafts		82			107
Total		434,810			418,991
Less allowance for loan losses		(3,706	)		(3,636	)
Loans, net	$	431,104		$	415,355

The past due and nonaccrual status of loans as of September 30, 2017 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	$	173	$	−	$	−	$	173	$	12,105	$	12,278	$	−
Land acquisition, development & commercial		172		95		32		299		33,616		33,915		−
Real estate:
Residential		578		648		144		1,370		115,744		117,114		459
Commercial		364		−		530		894		172,819		173,713		211
Commercial, industrial & agricultural		496		23		100		619		60,533		61,152		27
Equity lines		93		−		204		297		28,617		28,914		−
Consumer		7		40		14		61		7,663		7,724		3
Total	$	1,883	$	806	$	1,024	$	3,713	$	431,097	$	434,810	$	700

9

The past-due and nonaccrual status of loans as of December 31, 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:
Residential	$	−	$	−	$	−	$	−	$	10,204	$	10,204	$	−
Land acquisition, development & commercial		−		−		−		−		27,480		27,480		−
Real Estate:
Residential		672		193		577		1,442		110,184		111,626		577
Commercial		115		−		−		115		172,133		172,248		336
Commercial, industrial & agricultural		60		33		−		93		59,716		59,809		11
Equity lines		258		−		−		258		29,698		29,956		−
Consumer		8		6		4		18		7,650		7,668		−
Total	$	1,113	$	232	$	581	$	1,926	$	417,065	$	418,991	$	924

There were eight credits and three credit card accounts totaling $1.0 million, which were past due ninety days or more as of September 30, 2017. Of that total, two credits totaling $19 thousand were on nonaccrual status. There were two loans, totaling $4 thousand, which were past due ninety days or more and still accruing interest at December 31, 2016.

Impaired loans, which include TDR’s of $4.2 million, and the related allowance at September 30, 2017, were as follows:

September 30, 2017 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		648		648		−		652		14
Commercial		4,141		4,317		−		4,172		121
Commercial, industrial & agricultural		27		27		−		28		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with no allowance	$	4,816	$	4,992	$	−	$	4,852	$	135

September 30, 2017 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		−		−		−		−		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	−	$	−	$	−	$	−	$	−

10

  Impaired loans, which include TDRs of $6.4 million, and the related allowance at December 31, 2016, were as follows:

December 31, 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:
Residential	$	−	$	−	$	–	$	−	$	−
Land acquisition, development & commercial		−		−		–		−		−
Real Estate:
Residential		770		770		–		629		(11	)
Commercial		6,380		6,556		–		6,521		255
Commercial, industrial & agricultural		11		11		–		11		−
Equity lines		−		−		–		−		−
Consumer		−		−		–		−		−
Total loans with no allowance	$	7,161	$	7,337	$	–	$	7,161	$	244

December 31, 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:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real Estate:
Residential		−		−		−		−		−
Commercial		115		115		17		122		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	115	$	115	$	17	$	122	$	−

Troubled Debt Restructurings

Troubled debt restructurings (“TDR’s”) were comprised of five loans totaling $4.2 million at September 30, 2017.  This compares with $6.4 million in total restructured loans at December 31, 2016. Two of the five loans totaling $3.9 million were accruing at September 30, 2017. The other three loans totaling $238 thousand were on nonaccrual status at the end of the third quarter of 2017.  Three TDRs totaling $757 thousand were past due with their restructured terms at September 30, 2017.

The following table presents by class of loan, information related to the loan modified in a TDR during 2017:

(Dollars in Thousands)	Loans modified as TDR's For the nine months ended September 30, 2017
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:
Residential		—		—		—
Commercial		1		218		218
Commercial, industrial, agricultural		—		11		29
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		1	$	229	$	247

The loan relationship identified above in the table was originally restructured into two TDR’s during 2015 and was included in substandard nonaccrual loans and impaired loans at the end of 2016. There was an additional $18 thousand added to the TDR relationship during the first quarter of 2017.

11

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

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.

Note 4. Allowance for Loan Losses

The following table presents, as of September 30, 2017, 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, 2017	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	$	63	$	−		$	−	$	26		$	89	$	−	$	89	$	12,278	$	−	$	12,278
Land acquisition, development & commercial		173		−			−		50			223		−		223		33,915		−		33,915
Real estate:				−
Residential		866		−			−		4			870		−		870		117,114		648		116,466
Commercial		1,516		(436	)		41		565			1,686		−		1,686		173,713		4,141		169,572
Commercial, industrial & agricultural		461		(68	)		−		92			485		−		485		61,152		27		61,125
Equity lines		338		−			−		(93	)		245		−		245		28,914		−		28,914
Consumer		97		(59	)		17		44			99		−		99		7,724		−		7,724
Unallocated		122		−			−		(113	)		9		−		9		−		−		−
Total	$	3,636	$	(563	)	$	58	$	575		$	3,706	$	−	$	3,706	$	434,810	$	4,816	$	429,994

12

The following table presents, as of December 31, 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).

December 31, 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	$	−		$	−	$	(20	)	$	63	$	−	$	63	$	10,204	$	−	$	10,204
Land acquisition, development & commercial		187		(2	)		−		(12	)		173		−		173		27,480		−		27,480
Real estate:
Residential		1,047		(4	)		45		(222	)		866		−		866		111,626		770		110,856
Commercial		1,001		(606	)		−		1,121			1,516		17		1,499		172,248		6,495		165,753
Commercial, industrial & agricultural		531		(34	)		−		(36	)		461		−		461		59,809		11		59,798
Equity lines		277		(99	)		10		150			338		−		338		29,956		−		29,956
Consumer		85		(103	)		49		66			97		−		97		7,668		−		7,668
Unallocated		87		−			−		35			122		−		122		−		−		−
Total	$	3,298	$	(848	)	$	104	$	1,082		$	3,636	$	17	$	3,619	$	418,991	$	7,276	$	411,715

Loans by credit quality indicators as of September 30, 2017 were as follows:

(Dollars in Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	12,278	$	−	$	−	$	−	$	12,278
Land acquisition, development & commercial		33,915		−		−		−		33,915
Real estate loans:
Residential		116,240		226		189		459		117,114
Commercial		172,818		20		664		211		173,713
Commercial, industrial, agricultural		60,495		106		524		27		61,152
Equity lines		28,914		−		−		−		28,914
Consumer		7,721		−		−		3		7,724
Total Loans	$	432,381	$	352	$	1,377	$	700	$	434,810

13

Loans by credit quality indicators as of December 31, 2016 were as follows:

(Dollars in Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	10,204	$	−	$	−	$	−	$	10,204
Land acquisition, development & commercial		27,480		−		−		−		27,480
Real estate loans:
Residential		110,856		−		193		577		111,626
Commercial		171,369		−		543		336		172,248
Commercial, industrial, agricultural		59,120		78		600		11		59,809
Equity lines		29,956		−		−		−		29,956
Consumer		7,668		−		−		−		7,668
Total Loans	$	416,653	$	78	$	1,336	$	924	$	418,991

At September 30, 2017 and December 31, 2016, the Company had no loans classified as Doubtful or Loss.

Note 5. Other Real Estate Owned

Changes in other real estate owned for the nine months ended September 30, 2017 were as follows:

(Dollars in Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	4,619		$	(825	)	$	3,794
Additions		1,024			—			1,024
Write downs		—			(380	)		(380	)
Sales		(1,492	)		616			(876	)
Balance at quarter end	$	4,151		$	(589	)	$	3,562

Changes in other real estate owned 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
Write downs		—			—			—
Sales		(1,444	)		—			(1,444	)
Balance at quarter end	$	4,694		$	(420	)	$	4,274

The major classifications of other real estate owned in the consolidated balance sheets at September 30, 2017 and December 31, 2016 were as follows:

(Dollars in Thousands)	September 30, 2017		December 31, 2016
Residential lots	$	1,978	$	2,234
Residential development		22		423
Residential single-family homes		1,024		-
Commercial lots		90		90
Commercial buildings		448		1,047
Total Other Real Estate Owned	$	3,562	$	3,794

There were no residential real estate loans in the process of foreclosure at September 30, 2017 or December 31, 2016.

Other real estate owned related expenses in the consolidated statements of income for the three and nine months ended September 30, 2017 and September 30, 2016 include:

(Dollars In Thousands)	Three months Ended September 30, 2017		Three months Ended September 30, 2016		Nine months Ended September 30, 2017		Nine months Ended September 30, 2016
Net loss on sales	$	—	$	—	$	—	$	91
Provision for unrealized losses		—		—		380		—
Operating expenses		28		25		66		72
Total Other Real Estate Owned	$	28	$	25	$	446	$	163

14

Note 6. Stock Based Compensation

The Company recorded stock based compensation expense of $109 thousand and $111 thousand for the years to date September 30, 2017 and 2016, respectively.

The 2005 Stock Option Plan (the Plan) pursuant to which the Board of Directors granted stock options to directors, officers and employees expired in 2016, thus there are no options available for future issuance. Under the fair value recognition provisions of relevant accounting guidance, stock-based compensation cost was measured at the grant date based on the fair value of the award and was and continues to be recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. 

The Company used the Black-Scholes option pricing model to determine the fair value of stock options. The fair value of the stock based payment awards was affected by the price of the Company's stock and a number of financial assumptions and variables. These variables included the risk-free interest rate, expected dividend rate, expected stock price volatility and the expected life of the options.  No stock options were granted during 2017 or 2016. Compensation expense is charged to income ratably over the vesting period and was $53 thousand and $58 thousand for the year to date September 30, 2017 and September 30, 2016, respectively. As of September 30, 2017, there was $158 thousand of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost will be recognized over the next 2.25 years.  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, 2017 is as follows:

	Options Outstanding			Weighted Average Exercise Price		Aggregate Intrinsic Value (1)		Weighted Average Contractual Term (years)
Balance at December 31, 2016		201,000		$	7.80
Granted		–			–
Exercised		(4,000	)		6.90
Expired		(5,500	)		10.00
Forfeited		–			–
Balance at September 30, 2017		191,500		$	7.76	$	609,025		6.07
Exercisable at September 30, 2017		99,700		$	8.55	$	246,415		4.91

(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, 2017.

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 $56 thousand and $53 thousand for the years to date September 30, 2017 and 2016, 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 8,258 and 11,149* shares of restricted stock under the plan during the years to date September 30, 2017 and September 30, 2016, respectively. The weighted-average grant date fair value of restricted stock granted in 2017 was $9.87 compared to $9.09* in 2016.  

15

As of September 30, 2017, there was $190 thousand of total unrecognized compensation cost related to restricted stock granted under the Plan. The cost is expected to be recognized through 2022. A summary of the activity for restricted stock awards for the periods indicated is presented below:

	For the Nine Months Ended September 30, 2017					For the Nine Months Ended September 30, 2016
	Shares			Weighted- Average Grant Date Fair Value		Shares				Weighted- Average Grant Date Fair Value
Nonvested at beginning of year		31,546		$	7.03		39,352		*	$	6.00	*
Granted		8,258			9.87		11,149		*		9.09	*
Vested		(11,125	)		6.03		(11,371	)	*		5.44	*
Forfeited		-			-		(6,788	)	*		6.99	*
Nonvested at the end of the period		28,679		$	8.23		32,342		*	$	7.06	*

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).

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:

(Dollars in Thousands)			Carrying value at September 30, 2017
Description	Balance as of September 30, 2017		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	$	13,356	$	–	$	13,356	$	–
Mortgage-backed securities and CMO’s		21,193		–		21,193		–
Corporate securities		6,558		–		6,558		–
Municipal securities		12,487		–		12,487		–

16

(Dollars in Thousands)			Carrying value at December 31, 2016
Description	Balance as of December 31, 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	$	12,444	$	–	$	12,444	$	–
Mortgage-backed securities and CMO’s		19,768		–		19,768		–
Corporate securities		5,066		–		5,066		–
Municipal securities		15,697		–		15,697		–

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 tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis as of September 30, 2017 and December 31, 2016.

(Dollars in Thousands)			Carrying value at September 30, 2017
Description	Balance as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale		1,013		–		1,013		–
Other real estate owned		3,562		–		–		3,562

17

(Dollars in Thousands)			Carrying value at December 31, 2016
Description	Balance as of December 31, 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	$	98	$	–	$	–	$	98
Loans held for sale		678		–		678		–
Other real estate owned		3,794		–		–		3,794

At September 30, 2017 and December 31, 2016, 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, 2017:

(Dollars in Thousands)	Quantitative information about Level 3 Fair Value Measurements for September 30, 2017
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Other real estate owned	$	1,378	Discounted appraised value	Selling cost		6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal		4%	-	13%	(12%)
	$	2,184	Internal evaluations	Internal evaluations		4%	-	95%	(22%)

The following table displays quantitative information about Level 3 Fair Value Measurements for December 31, 2016:

(Dollars in Thousands)	Quantitative information about Level 3 Fair Value Measurements for December 31, 2016
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	98	Discounted appraised value	Residual cash flows discount rate		6%	-	6%	(6%)
Other real estate owned	$	1,560	Discounted appraised value	Selling cost		6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal		4%	-	12%	(10%)
	$	2,234	Internal evaluations	Internal evaluations		4%	-	54%	(24%)

18

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.

Federal funds sold: Federal funds sold consist of overnight loans to other financial institutions and mature within one to three days. At September 30, 2017 and December 31, 2016, 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. 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 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).

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, 2017 and December 31, 2016, 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, 2017:

(Dollars in Thousands)			Fair value at September 30, 2017
Description	Carrying value as of September 30, 2017		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	$	34,755	$	34,755	$	–	$	–	$	34,755
Federal funds sold		132		132		–		–		132
Securities available for sale		53,594		–		53,594		–		53,594
Restricted equity securities		2,371		–		2,371		–		2,371
Loans held for sale		1,013		–		1,013		–		1,013
Loans, net		431,104		–		–		433,652		433,652
Bank owned life insurance		8,115		–		8,115		–		8,115
Accrued income		2,619		–		2,619		–		2,619
Financial liabilities
Total deposits		478,944		–		479,777		–		479,777
FHLB borrowings		11,361		–		11,386		–		11,386
Subordinated notes		7,247		–		7,954		–		7,954
Other borrowings		992		–		992		–		992
Accrued interest payable		508		–		508		–		508

The carrying amounts and approximate fair values of the Company's financial instruments are as follows at December 31, 2016:

(Dollars in Thousands)			Fair value at December 31, 2016
Description	Carrying value as of December 31, 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	$	18,229	$	17,479	$	760	$	–	$	18,239
Federal funds sold		42		42		–		–		42
Securities available for sale		52,975		–		52,975		–		52,975
Restricted equity securities		2,213		–		2,213		–		2,213
Loans held for sale		678		–		678		–		678
Loans, net		415,355		–		–		415,039		415,039
Bank owned life insurance		7,469		–		7,469		–		7,469
Accrued income		2,289		–		2,289		–		2,289
Financial liabilities
Total deposits		450,848		–		451,385		–		451,385
FHLB borrowings		8,000		–		8,031		–		8,031
Subordinated notes		7,224		–		8,012		–		8,012
Other borrowings		1,117		–		1,117		–		1,117
Accrued interest payable		386		–		386		–		386

20

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, 2017 and 2016 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)	2017		2016
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	18	$	43	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		6		15	Income tax expense
	$	12	$	28	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)	2017		2016
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	60	$	257	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		20		87	Income tax expense
	$	40	$	170	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. All of the remaining Series C Preferred Stock was converted to common stock on June 29, 2016.

	For the Three Months Ended September 30,
	2017						2016
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		5,770,175	$	917	$	0.16		5,763,944	$	903	$	0.16
Series C Preferred Stock Dividends				−						−
Effect of dilutive securities:
Convertible preferred stock		−		−		−		−		−		−
Dilutive stock options		24,602		−		−		10,142		−		−
Earnings per common share, diluted		5,794,777	$	917	$	0.16		5,774,086	$	903	$	0.16

21

	For the Nine Months Ended September 30,
	2017						2016
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		5,767,602	$	2,116	$	0.37		4,279,821	$	1,520	$	0.36
Series C Preferred Stock Dividends				−						−
Effect of dilutive securities:
Convertible preferred stock		−		−				1,486,669		−		(0.10	)
Dilutive stock options		24,602		−				10,142		−		−
Earnings per common share, diluted		5,792,204	$	2,116	$	0.37		5,776,632	$	1,520	$	0.26

At September 30, 2017 and 2016, the number of stock options considered antidilutive and excluded from the calculation of diluted weighted average shares was 33,000 and 49,500, respectively. 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.

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, 2016. 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.

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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 Banking Group offers personalized banking solutions to work with customers to clarify financial goals and bring together professionals to satisfy their investment, credit, and other financial needs.

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, 2016. 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.

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 reached $551 million in assets with continued growth in both loans and core deposits.  The Company reported net income of $917 thousand for the quarter ended September 30, 2017 compared to $434 thousand for the previous quarter and $903 thousand for the same period in 2016.  Net Income for the first nine months of 2017 was $2.1 million compared to $1.5 million for the first nine months of 2016.  Earnings per share on a fully diluted basis were $0.16 for the third quarter of 2017 and $0.37 per share for the nine months ended September 30, 2017 compared to $0.16 and $0.26 per share, respectively, for the same periods in 2016. 

Profitability was higher in the third quarter of 2017 and the first nine months of 2017 compared to 2016.  The increased profitability in 2017 was due to growth in net interest income and non-interest income as well as a reduction in the provision for loan losses.  Non-interest expenses were higher, mostly due to continued reduction in the OREO portfolio and a partial reduction of incentive bonus accruals in 2016 that are fully accrued in 2017.  A reduction in income tax expense also contributed to the higher profitability compared to 2016.

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Three Months Ended September 30, 2017

Net income attributable to HomeTown Bankshares was $917 thousand for the third quarter of 2017, varying favorably from the previous quarter by $483 thousand, and $14 thousand more than the same quarter in 2016. Lower provision for loan losses and noninterest expenses contributed to the increase from the previous quarter while less provision expense also contributed to the increase from the same quarter in 2016. Additionally, net interest income for the third quarter of 2017 varied favorably from the previous quarter and the same quarter last year. Net interest income for the three months ended September 30, 2017 was $61 thousand greater than the previous quarter and $323 thousand more than the third quarter of 2016. Noninterest income declined $276 thousand from the prior quarter and $78 thousand less than the same quarter in 2016. Higher net interest income was slightly offset by a reduction in noninterest income from less service charge fees and gains on sales of investment securities.

Net interest income for the three months ended September 30, 2017 totaled $4.4 million, and was $323 thousand or 8% greater than the same quarter in the prior year. The expansion of the loan portfolio and higher yielding investment securities provided $291 thousand in additional interest income. Average loans for the quarter were $434 million, $36 million or 9% more than the third quarter of 2016. Excess funds from increased liquidity were placed in interest bearing bank accounts until needed to fund further loan growth. Average interest-bearing deposits with banks were $600 thousand greater for the third quarter of 2017 than for the same quarter in 2016.

Deposits largely funded the expansion of the loan portfolio with total average interest bearing and noninterest-bearing deposits for the third quarter of 2017 of $468 million, an increase of $26 million over the average for the same quarter in 2016. Average FHLB borrowings for the three months ended September 30, 2017 was $11.5 million compared to $9.4 million for the same period in 2016.

The net interest margin was 3.46%, 3.48%, and 3.49% for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016, respectively. Deposits were the major source of funding with rates generally increasing while loans have been slower to reprice. Continued downward pressure on rates stemming from competition in the market place also contributed to lower loan yields. Management decreased the level of brokered deposits that generally are more expensive than interest bearing deposits and reduced reliance on them as a funding source favorably impacted the funding mix.

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	For the Three Months Ended September 30, 2017								For the Three Months Ended September 30, 2016
(Dollars in thousands)	Average Balance			Interest Income/ Expense		Yield/ Rate			Average Balance			Interest Income/ Expense		Yield/ Rate
Assets:
Federal funds sold	$	124		$	—		1.00	%	$	998		$	1		0.32	%
Deposits in banks		20,903			68		1.28			20,325			33		0.65
Securities, taxable		37,303			244		2.61			39,215			209		2.13
Securities, nontaxable (1)		11,302			75		4.04			14,222			93		3.97
Restricted equity securities		2,371			33		5.57			2,236			31		5.44
Loans held for sale		705			7		4.10			575			5		3.70
Loans (1)		434,170			4,790		4.33			398,451			4,518		4.52
Total earnings assets		506,877			5,217		4.07			476,022			4,890		4.13
Less: Allowance for loan losses		(3,692	)							(3,484	)
Total non-earning assets		36,896								37,881
Total Assets	$	540,081							$	510,419
Liabilities and shareholders’ equity
Interest bearing deposits:
Checking	$	95,588		$	50		0.21	%	$	81,898		$	36		0.17	%
Money market savings		73,699			48		0.26			71,281			44		0.24
Regular savings		51,904			47		0.36			42,741			39		0.36
Time Deposits		138,458			443		1.27			159,393			469		1.17
FHLB borrowings		11,485			51		1.72			9,442			45		1.88
Subordinated notes		7,242			134		7.41			7,212			134		7.40
Other borrowings		709			7		3.98			1,935			9		1.80
Total interest-bearing liabilities		379,085			780		0.82			373,902			776		0.82
Noninterest-bearing liabilities:
Demand deposits		108,487								86,408
Other liabilities		1,873								2,088
Total liabilities		489,445								462,398
Total HomeTown Bankshares Corporation stockholders’ equity		50,164								47,626
Non-controlling interest in consolidated subsidiary		472			—					395			—
Total Liabilities and Stockholders’ Equity	$	540,081			780				$	510,419			776
Net interest income				$	4,437							$	4,114
Interest rate spread							3.25								3.31
Interest expense to average earning assets							0.61								0.64
Net interest margin							3.46	%							3.49	%

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

25

	Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
	Increase			Change Due To:
(Dollars in thousands)	(Decrease)			Rate			Volume
Interest income:
Federal funds sold	$	(1	)	$	—		$	(1	)
Deposits in banks		35			33			2
Securities, taxable		35			33			2
Securities, nontaxable		(18	)		1			(19)
Restricted equity securities		2			—			2
Loans held for sale		2			1			1
Loans		272			(118	)		390
Total interest income		327			(50)			377
Interest expense:
Interest bearing liabilities:
Checking		14			7			7
Money market savings		4			2			2
Regular savings		8			—			8
Time Deposits		(26	)		36			(62)
FHLB borrowings		6			(3)			9
Subordinated notes		—			—			—
Other borrowings		(2	)		1			(3)
Total interest expense		4			43			(39)
Net interest income	$	323		$	(93)		$	416

A provision for loan losses of $40 thousand was recorded for the three months ended September 30, 2017 compared to $465 thousand in the prior quarter and $111 thousand for the three months ended September 30, 2016. See discussion under Allowance for Loan Losses for additional information.

Noninterest income for the third quarter of 2017 was $757 thousand, and was $78 thousand less than the same period last year. ATM and interchange income were up $30 thousand for 2017 compared to 2016 due to growth in customer base and fully implementing the in-house credit card program during the 4^th quarter of 2016. Mortgage banking income was $12 thousand more than the prior year due to a higher volume of mortgages processed and sold. The third quarter of 2017 included $18 thousand in gains realized from the sales of investment securities compared to $43 thousand in the same quarter of 2016. Other income was $37 thousand less for the quarter ended September 30, 2017 compared to the same quarter last year from less service charge fees and gains on sales of investment securities.

For the three months ended September 30, 2017, noninterest expense was $3.8 million, $318 thousand or 9.1% more than the $3.5 million recorded in the same quarter last year. Salaries and employee benefits for the three months ended September 30, 2017 were $327 thousand or 18% more than the same three months of 2016. For the quarter to quarter comparison, the amount of Accounting Standards Codification (ASC) 310-20 origination costs that were deferred was greater in 2016 than 2017 due to a higher volume of new loans and renewals; thus increasing 2017 expense applied to salaries and benefits. Another factor contributing to higher salaries and employee benefits expense was the partial reversal of incentive bonus accruals in 2016 that has fully accrued through September 30, 2017. Mortgage commissions, software expenses and data processing costs due to an increased customer base and core upgrade were also up from the same quarter in 2016.

Nine months Ended September 30, 2017

Net income attributable to HomeTown Bankshares for the year through September 30, 2017 was $2.1 million, $188 thousand or 9.8% more than the earnings for the same period in 2016. Net interest income and noninterest income varied favorably from the prior year, but were negated by higher noninterest expense.

Net interest income was up $1.1 million or 9.6% to $13 million for the first nine months of 2017 over the same period in 2016. Higher loan volume helped to offset lower interest rates on loans and increased interest expense on deposits. A year-over year decline of 7 basis points in the net interest margin was realized from 3.48% for the first nine months of 2017 compared to 3.55% for the same period in 2016.

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	For the Nine Months Ended September 30, 2017								For the Nine Months Ended September 30, 2016
(Dollars in thousands)	Average Balance			Interest Income/ Expense		Yield/ Rate			Average Balance			Interest Income/ Expense		Yield/ Rate
Assets:
Federal funds sold	$	74		$	—		0.88	%	$	1,320		$	4		0.37	%
Deposits in banks		19,363			160		1.10			13,212			75		0.76
Securities, taxable		37,977			744		2.61			38,450			614		2.13
Securities, nontaxable (1)		12,114			239		3.99			14,705			295		4.05
Restricted equity securities		2,372			98		5.53			2,464			101		5.45
Loans held for sale		642			20		4.08			472			13		3.79
Loans (1)		429,398			14,103		4.34			384,957			13,103		4.55
Total earnings assets		501,940			15,364		4.08			455,580			14,205		4.21
Less: Allowance for loan losses		(3,718	)							(3,393	)
Total non-earning assets		37,038								45,552
Total Assets	$	535,260							$	497,739
Liabilities and shareholders’ equity
Interest bearing deposits:
Checking	$	93,769		$	130		0.18	%	$	77,818		$	89		0.15	%
Money market savings		72,356			135		0.25			70,769			128		0.24
Regular savings		49,625			130		0.35			41,145			113		0.37
Time Deposits		141,480			1,299		1.23			149,030			1,299		1.17
FHLB borrowings		11,959			148		1.63			16,163			200		1.63
Subordinated notes		7,234			402		7.41			7,204			402		7.46
Other borrowings		1,208			23		2.52			1,565			21		1.78
Total interest-bearing liabilities		377,631			2,267		0.80			363,694			2,252		0.82
Noninterest-bearing liabilities:
Demand deposits		105,904								84,363
Other liabilities		1,925								2,082
Total liabilities		485,460								450,139
Total HomeTown Bankshares Corporation stockholders’ equity		49,347								47,213
Non-controlling interest in consolidated subsidiary		453			—					387			—
Total Liabilities and Stockholders’ Equity	$	535,260			2,267				$	497,739			2,252
Net interest income				$	13,097							$	11,953
Interest rate spread							3.28								3.39
Interest expense to average earning assets							0.60								0.66
Net interest margin							3.48	%							3.55	%

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

27

	Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
	Increase		Change Due To:
(Dollars in thousands)	(Decrease)		Rate		Volume
Interest income:
Federal funds sold	$	(4)	$	5	$	(9)
Deposits in banks		85		34		51
Securities, taxable		130		60		70
Securities, nontaxable		(56)		(5)		(51)
Restricted equity securities		(3)		1		(4)
Loans held for sale		7		1		6
Loans		1,000		(434)		1,434
Total interest income		1,159		(338)		1,497
Interest expense:
Interest bearing liabilities:
Checking		41		19		22
Money market savings		7		4		3
Regular savings		17		(5)		22
Time Deposits		—		59		(59)
FHLB borrowings		(52)		—		(52)
Subordinated notes		—		—		—
Other borrowings		2		1		1
Total interest expense		15		78		(63)
Net interest income	$	1,144	$	(415)	$	1,559

The year to date provision for loan losses totaled $575 thousand for the nine months ended September 30, 2017 compared to $979 thousand for the same period in 2016. See discussion under Allowance for Loan Losses for additional information.

For the year to date through September 30, 2017, noninterest income totaled $2.5 million, an increase of $168 thousand or 7.2% over the same period in 2016. Gains on the sales of investment securities were down $197 thousand while ATM and interchange income were up $121 thousand for the first nine months of 2017 compared to 2016 due to growth in customer base and fully implementing the in-house credit card program during the 4^th quarter of 2016. Other income was $207 thousand higher for the nine months ended September 30, 2017 compared to the same period in 2016. Favorable variances from the continued growth of merchant processing income, investment brokerage commission fees, and a one-time bankruptcy settlement of $172 thousand contributed to the increase.

For the nine months ended September 30, 2017, noninterest expense was $11.9 million, $1.8 million or 18% more than the $10 million recorded during the same period in 2016. Salaries and employee benefits for the first nine months of 2017 were $1 million or 21% more than the same period in 2016. The number of full time equivalent employees were 103 and 99 at September 30, 2017 and September 30, 2016, respectively. The increase was due to several factors including the implementation of an in-house credit card program and additional operations personnel to support the continued loan and deposit growth. Other factors included unfilled open positions in the prior year, and new positions to accommodate growth, as well as annual merit raises. Also contributing to the increase was the deferral of less loan origination costs, in accordance with ASC 310-20. As discussed in the quarter to quarter comparison, a write-down on other real estate owned also contributed to higher noninterest expense. Bank Franchise Taxes were also up in correlation with increased equity and a reduction in real estate taxes on foreclosed properties.

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 totaled $551 million at September 30, 2017, an increase of $34 million or 6.6% since year end 2016. The continued expansion of the loan portfolio by $15.8 million during the nine months since December 31, 2016, accounted for nearly half of the asset growth. Excess funds held in liquid cash and due from accounts on the last day of the third quarter 2017 were $16.5 million higher than December 31, 2016.

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The Company’s liabilities at September 30, 2017 totaled $501 million compared to $469 million at December 31, 2016, an increase of $31.7 million or 6.8%. Total deposits rose $28.1 million during the same period to $479 million at September 30, 2017. Core deposits, which exclude brokered deposits and retail CD’s over $250 thousand, totaled $437 million at September 30, 2017 and were $24 million more than at year end 2016.

At September 30, 2017 and December 31, 2016, the stockholders’ equity of HomeTown Bankshares was $50.2 million and $47.8 million, respectively, an increase of $2.4 million. The change in stockholders’ equity in the first nine months of 2017 was primarily the result of net income.  

Non-performing Assets

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

	September 30, 2017		December 31, 2016
(Dollars in thousands)
Real Estate:
Construction and land development	$	—	$	—
Residential 1-4 families		459		577
Commercial real estate		211		336
Commercial loans		27		11
Equity lines		—		—
Loans to individuals		3		—
Total nonperforming loans		700		924
Other real estate owned		3,562		3,794
Total nonperforming assets, excluding performing restructured loans		4,262		4,718
Performing restructured loans		3,930		6,160
Total nonperforming assets, including restructured loans	$	8,192	$	10,878

Total nonperforming assets, including restructured loans, declined $2.7 million during the first nine months of 2017. A commercial real estate loan in the net amount of $2.4 million, after a $430 thousand charge-off, was placed on nonaccrual status in the second quarter of 2017. During the third quarter of 2017, this commercial real estate loan was repaid in the amount of $2.4 million, with no further loss.  A 1-4 family residential loan was placed on nonaccrual status and a 1-4 family loan, previously on nonaccrual status, was repaid during the third quarter of 2017 in the amounts of $459 thousand and $577 thousand, respectively.  A commercial real estate loan in the amount of $108 was returned to accrual status during the third quarter of 2017. A restructured loan for $2.2 million that was performing at December 31, 2016 was paid off by the borrower in January 2017. A residential home in Roanoke County was recorded into other real estate owned in the amount of $1.0 million during September 2017. During the third quarter, sales of residential lots reduced other real estate owned by $209 thousand.  A warehouse in Salem, which had been foreclosed on in April 2011 and had been subject to several write-downs, was sold in the first quarter of 2017 without any further loss and accounted for $599 thousand of the reduction in other real estate owned since year end 2016. In addition, a write-down was recorded in the amount of $380 thousand during the second quarter of 2017 on a residential development property.  A payment on this same residential development property reduced the other real estate owned balance by $21 thousand.

Troubled debt restructurings (“TDR’s”) were comprised of five loans totaling $4.2 million at September 30, 2017.  This compares to $6.4 million in total restructured loans at December 31, 2016. Two of the five loans totaling $3.9 million were accruing interest at September 30, 2017. The remaining three loans were to one borrower and totaled $238 thousand and were included in non-accruing loans at September 30, 2017. Three TDRs totaling $757 thousand were past due with their restructured terms at September 30, 2017. See Note 3 for more information.

The major classifications of other real estate owned in the consolidated balance sheets at September 30, 2017 and December 31, 2016 are included in Note 5, and the activity in other real estate owned for the first nine months of 2017 and 2016 is also included in Note 5.

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 2017, a provision of $575 thousand was recorded. Total net charge offs for the year through September 30, 2017 were $505 thousand. The increase in net charge offs was the main reason for additional provision for loan losses in the third quarter of 2017. Loan growth also contributed to the need for additional provision in 2017.

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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 were zero at September 30, 2017 and $17 thousand at December 31, 2016.  Impaired loans totaled $4.8 million at September 30, 2017, and were $2.6 million less than the balance at year end 2016.  The decrease resulted from principal paydowns and the payoff of loans throughout 2017.

The percentage of the allowance for loan losses to total loans was 0.85% at September 30, 2017, and 0.87% at December 31, 2016.  Unallocated reserves were $9 thousand at September 30, 2017 and $122 thousand at December 31, 2016. Some surplus or unallocated reserve is desirable given the inherent weakness in this type of predictive analysis. The allowance for loan losses to nonaccrual loans was 529% at September 30, 2017 and 394% at December 31, 2016. Past due and non-accruing loans to total loans was 0.86% at September 30, 2017 compared to 0.51% at December 31, 2016.

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 $76.6 million at September 30, 2017, compared to $59.2 million at December 31, 2016.   Higher levels of commercial noninterest bearing deposits contributed to higher levels of liquidity at the end of the third quarter 2017. Commercial deposits remain volatile and withdrawals may result in less liquidity in the future. Surges and declines in commercial deposits will continue to impact liquidity in an unpredictable manner.

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 deposits are not an attractive source for funding, either for reasons of maturity or pricing, alternative sources include FHLB advances, brokered deposits, fed funds purchased and lines of credit. The Company is approved to borrow 25% of our total assets from the FHLB subject to providing qualifying collateral.  At September 30, 2017, the Company had borrowed $11.4 million of the $25.8 million of lendable collateral value, leaving $14.4 million of unused credit immediately available. The Company also had $36.5 million of fed funds lines of credit available at September 30, 2017. In addition, the Company had access to a $10.0 million credit line through Promontory’s Insured Cash Sweep (ICS) one way buy program at a rate of the one-month LIBOR plus 11 basis points. At September 30, 2017, there were no advances on the fed funds or credit lines.   

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”.

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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 $3.4 million of retained earnings at September 30, 2017. No cash dividends were paid to common stockholders in the first nine months of 2017.

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, 2017 and December 31, 2016.

Risk Based Capital Analysis

Capital Analysis

HomeTown Bank	September 30, 2017		December 31, 2016
(Dollars in thousands)
Common Equity Tier 1 Capital:
Common Stock	$	14,697	$	14,697
Surplus		32,187		32,078
Retained Earnings		10,326		8,008
Common Equity Tier 1 Capital		57,210		54,783
Tier 1 Capital:
Tier 1 Minority Interest		25		17
Tier 1 Capital		57,235		54,800
Total Capital:
Allowance for Loan Losses (allowable portion)		3,706		3,636
Total Capital	$	60,941	$	58,436

The Bank’s total capital increased $2.5 million from December 31, 2016 to September 30, 2017, primarily as the result of the retained $2.4 million ($2.6 million gross minus a $.2 million dividend to the parent company) year to date September 30, 2017 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, 2017	Actual					Minimum Capital Requirement including the Capital Conservation Buffer for 2017					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)	$	60,941		12.54	%	$	44,936		9.250	%	$	48,580		10.00	%
Tier I Common Equity (to Risk-Weighted Assets)	$	57,210		11.78	%	$	27,933		5.750	%	$	31,577		6.50	%
Tier I Capital (to Risk-Weighted Assets)	$	57,235		11.78	%	$	35,220		7.250	%	$	38,864		8.00	%
Tier I Capital (to Average Assets)	$	57,235		10.60	%	$	21,602		4.00	%	$	27,003		5.00	%

HomeTown Bank December 31, 2016	Actual					Minimum Capital Requirement including the 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)	$	58,436		12.59	%	$	40,045		8.625	%	$	46,429		10.00	%
Tier I Common Equity (to Risk-Weighted Assets)	$	54,783		11.80	%	$	23,795		5.125	%	$	30,179		6.50	%
Tier I Capital (to Risk-Weighted Assets)	$	54,800		11.80	%	$	30,759		6.625	%	$	37,143		8.00	%
Tier I Capital (to Average Assets)	$	54,800		10.67	%	$	20,537		4.00	%	$	25,671		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, 2017, outstanding commitments to extend credit including letters of credit were $117 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 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.

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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.

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. 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.

During January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business—inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.

During March 2017, the FASB issued ASU 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The amendments in this ASU require an employer that offers defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715 to report the service cost component of net periodic benefit cost in the same line item(s) as other compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. If the other components of net periodic benefit cost are not presented on a separate line or lines, the line item(s) used in the income statement must be disclosed. In addition, only the service cost component will be eligible for capitalization as part of an asset, when applicable. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements.

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During March 2017, the FASB issued ASU 2017‐08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017‐08 will have on its consolidated financial statements.

During May 2017, the FASB issued ASU 2017‐09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.  The amendments are effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The Company is currently assessing the impact that ASU 2017‐09 will have on its consolidated financial statements.

During August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. The Company is currently assessing the impact that ASU 2017-12 will have on its consolidated financial statements.

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

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.

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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, 2017, is formatted in XBRL interactive data files: (i) Consolidated Balance Sheets at September 30, 2017, and December 31, 2016; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2017, and 2016; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017, and 2016;  (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016; 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.

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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, 2017	By:	/S/ SUSAN K. STILL
		Susan K. Still
		President
		Chief Executive Officer
Date: November 14, 2017	By:	/S/ VANCE W. ADKINS
		Vance W. Adkins
		Executive Vice President
		Chief Financial Officer

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  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, 2017, is formatted in XBRL interactive data files: (i) Consolidated Balance Sheets at September 30, 2017, and December 31, 2016; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2017, and 2016; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017, and 2016;  (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016; 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.

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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, 2017	/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, 2017	/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 30,2017, 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, 2017	By:	/s/ Susan K. Still
		Susan K. Still
		President and Chief Executive Officer
Date: November 14, 2017	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, 2017	Nov. 13, 2017
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)		5,776,175
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	[1]
Assets
Cash and due from banks	$ 34,755	$ 18,229
Federal funds sold	132	42
Securities available for sale, at fair value	53,594	52,975
Restricted equity securities, at cost	2,371	2,213
Loans held for sale	1,013	678
Loans, net of allowance for loan losses of $3,706 in 2017 and $3,636 in 2016	431,104	415,355
Property and equipment, net	13,098	13,371
Other real estate owned, net of valuation allowance of $589 in 2017 and $825 in 2016	3,562	3,794
Bank owned life insurance	8,115	7,469
Accrued income	2,619	2,289
Other assets	1,084	875
Total assets	551,447	517,290
Liabilities and Stockholders’ Equity
Noninterest-bearing	110,249	91,354
Interest-bearing	368,695	359,494
Total deposits	478,944	450,848
Federal Home Loan Bank borrowings	11,361	8,000
Subordinated notes	7,247	7,224
Other borrowings	992	1,117
Accrued interest payable	508	386
Other liabilities	1,717	1,490
Total liabilities	500,769	469,065
Commitments and contingencies
Stockholders’ equity:
Common stock, $5 par value; authorized 10,000,000 shares, issued and outstanding 5,771,175 (includes 28,679 restricted shares) at September 30, 2017 and 5,760,735 (includes 31,546 restricted shares) at December 31, 2016	28,776	28,765
Surplus	17,942	17,833
Retained earnings	3,363	1,247
Accumulated other comprehensive income (loss)	107	(56)
Total HomeTown Bankshares Corporation stockholders’ equity	50,188	47,789
Noncontrolling interest in consolidated subsidiary	490	436
Total stockholders’ equity	50,678	48,225
Total liabilities and stockholders' equity	$ 551,447	$ 517,290

[1] Derived from consolidated audited financial statements.

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	[1]
Loans, allowance for loan losses	$ 3,706	$ 3,636
Other real estate owned, valuation allowance	$ 589	$ 825
Common stock, par value (in dollars per share)	$ 5	$ 5
Common stock, authorized shares (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	5,771,175	5,760,735
Common stock, shares outstanding (in shares)	5,771,175	5,760,735
Common stock, restricted shares (in shares)	28,679	31,546

[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, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Interest and dividend income:
Loans and fees on loans	$ 4,797	$ 4,523	$ 14,123	$ 13,116
Taxable investment securities	244	209	744	614
Nontaxable investment securities	75	93	239	295
Dividends on restricted stock	33	31	98	101
Other interest income	68	34	160	79
Total interest and dividend income	5,217	4,890	15,364	14,205
Interest expense:
Deposits	588	588	1,694	1,629
Subordinated notes	134	134	402	402
Other borrowed funds	58	54	171	221
Total interest expense	780	776	2,267	2,252
Net interest income	4,437	4,114	13,097	11,953
Provision for loan losses	40	111	575	979
Net interest income after provision for loan losses	4,397	4,003	12,522	10,974
Noninterest income:
Service charges on deposit accounts	120	178	415	496
ATM and interchange income	206	176	612	491
Mortgage banking	263	251	725	607
Gains on sales of investment securities, net	18	43	60	257
Other income	150	187	675	468
Total noninterest income	757	835	2,487	2,319
Noninterest expense:
Salaries and employee benefits	2,099	1,772	6,153	5,095
Occupancy and equipment expense	391	439	1,245	1,317
Data processing expense	309	237	954	679
ATM processing expense	57	60	180	172
Advertising and marketing expense	112	127	383	345
Professional fees	89	135	454	352
Bank franchise taxes	100	92	299	275
FDIC insurance expense	78	89	181	247
Losses on sales and write-downs of other real estate owned, net			380	91
Operating expenses	28	25	66	72
Directors’ fees	97	98	306	307
Other expense	444	412	1,308	1,161
Total noninterest expense	3,804	3,486	11,909	10,113
Net income before income taxes	1,350	1,352	3,100	3,180
Income tax expense	413	416	930	1,203
Net income	937	936	2,170	1,977
Less net income attributable to non-controlling interest	20	33	54	49
Net income attributable to HomeTown Bankshares Corporation	917	903	2,116	1,928
Effective dividends on preferred stock				408
Net income available to common stockholders	$ 917	$ 903	$ 2,116	$ 1,520
Basic earnings per common share (in dollars per share)	$ 0.16	$ 0.16	$ 0.37	$ 0.36
Diluted earnings per common share (in dollars per share)	$ 0.16	$ 0.16	$ 0.37	$ 0.26
Weighted average common shares outstanding (in shares)	5,770,175	5,763,944	5,767,602	4,279,821
Diluted weighted average common shares outstanding (in shares)	5,794,777	5,774,086	5,792,204	5,776,632

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net income	$ 937	$ 936	$ 2,170	$ 1,977
Other comprehensive income (loss):
Net unrealized holding gains (losses) on securities available for sale during the period	(201)	(149)	307	583
Deferred income tax benefit (expense) on unrealized holding gains (losses) on securities available for sale	68	50	(104)	(198)
Reclassification adjustment for gains on sales of investment securities included in net income	(18)	(43)	(60)	(257)
Tax expense related to realized gains on securities sold	6	15	20	87
Total other comprehensive income (loss)	(145)	(127)	163	215
Comprehensive income	792	809	2,333	2,192
Less: Comprehensive income attributable to the non-controlling interest	20	33	54	49
Comprehensive income attributable to HomeTown Bankshares Corporation	$ 772	$ 776	$ 2,279	$ 2,143

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Cash flows from operating activities:
Net income	$ 937	$ 936	$ 2,170	$ 1,977
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			545	568
Provision for loan losses	40	111	575	979	$ 1,082
Amortization of premium on securities, net			351	448
Amortization of discount on subordinated notes			23	23
Gains on sales of loans held for sale			(516)	(435)
Losses on sales and write-downs of other real estate owned, net			380	91
Gains on sales of investment securities, net	(18)	(43)	(60)	(257)
Increase in value of life insurance contracts			(146)	(133)
Stock compensation expense			109	111
Originations of loans held for sale			(24,759)	(17,443)
Proceeds from sales of loans held for sale			24,940	19,227
Changes in assets and liabilities:
Accrued income			(330)	(19)
Other assets			(222)	(199)
Deferred taxes, net			(71)	163
Accrued interest payable			122	226
Other liabilities			227	(300)
Net cash flows provided by operating activities			3,338	5,027
Cash flows from investing activities:
Net (increase) decrease in federal funds sold			(90)	296
Purchases of available for sale securities			(18,099)	(14,087)
Sales, maturities, and calls of available for sale securities			17,436	12,682
(Purchase) redemption of restricted equity securities, net			(158)	322
Net increase in loans			(17,074)	(37,771)
Purchase of other real estate at foreclosure			(274)
Proceeds from sales of other real estate			876	1,353
Purchases of bank owned life insurance			(500)	(1,000)
Purchases of property and equipment			(272)	(103)
Net cash flows used in investing activities			(18,155)	(38,308)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits			18,895	11,448
Net increase in interest-bearing deposits			9,201	29,000
Net increase (decrease) in FHLB borrowings			3,361	(13,000)
Net increase (decrease) in other borrowings			(125)	(1,235)
Proceeds from exercise of stock options			28
Preferred stock dividend payment				(408)
Net settlement restricted stock and cash in lieu of fractional shares			(17)	(5)
Net cash flows provided by financing activities			31,343	25,800
Net increase (decrease) in cash and cash equivalents			16,526	(7,481)
Cash and cash equivalents, beginning			18,229	28,745	28,745
Cash and cash equivalents, ending	$ 34,755	$ 21,264	34,755	21,264	$ 18,229
Supplemental disclosure of cash flow information:
Cash payments for interest			2,122	2,026
Cash payments for income taxes			1,211	1,253
Supplemental disclosure of noncash investing activities:
Change in unrealized gains (losses) on available for sale securities			247	326
Transfer from loans to other real estate			750	481
Conversion of Preferred Stock to Common Stock				$ 12,893

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Note 1 - Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2017

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, 2017

and for the periods ended

September 30, 2017

and

2016

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, 2017

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, 2016,

included in the Company’s Form

10

-K for the year ended

December 31, 2016.

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

’s 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, 2017

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, 2017

and

December 31, 2016,

are as follows:

(Dollars In Thousands)	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	13,327	$	91	$	(62	)	$	13,356
Mortgage-backed securities and CMO ’s		21,322		35		(164	)		21,193
Corporate securities		6,490		89		(21	)		6,558
Municipal securities		12,293		284		(90	)		12,487
	$	53,432	$	499	$	(337	)	$	53,594

(Dollars In Thousands)	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	12,422	$	118	$	(96	)	$	12,444
Mortgage-backed securities and CMO ’s		19,979		54		(265	)		19,768
Corporate securities		5,000		66		-			5,066
Municipal securities		15,659		266		(228	)		15,697
	$	53,060	$	504	$	(589	)	$	52,975

U. S. Government agency securities:

The unrealized losses on

fifteen

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 basis of the investments. Because the Company does

not

intend to sell the investments before recovery of their amortized cost basis which

may

be maturity, the Company does

not

consider those investments to be other-than-temporarily impaired at

September 30, 2017.

Mortgage-backed securities and CMO

’s:

The unrealized losses on

twenty-two

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 basis, which

may

be maturity, the Company does

not

consider those investments to be other-than-temporarily impaired at

September 30, 2017.

Corporate securities

:

The unrealized loss on

three

of the Company’s investments in corporate securities was caused by increases in market interest rates over the yield at the time the security was purchased. Because the decline in market value is attributable to changes in interest rates and

not

credit quality, the Company does

not

consider this investment to be other-than-temporarily impaired at

September 30, 2017.

Municipal securities:

The unrealized losses on

seven

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 basis, which

may

be maturity, the Company does

not

consider those investments to be other-than-temporarily impaired at

September 30, 2017.

The following tables demonstrate the unrealized loss position of available-for-sale securities at

September 30, 2017

and

December 31, 2016.

This information summarizes the amount of time individual securities have been in a continuous, unrealized loss position.

	September 30, 2017
	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	$	4,513	$	(36	)	$	1,984	$	(26	)	$	6,497	$	(62	)
Mortgage-backed securities and CMO’s		9,394		(73	)		4,404		(91	)		13,798		(164	)
Corporate securities		2,469		(21	)		-		-			2,469		(21	)
Municipal securities		1,250		(9	)		2,322		(81	)		3,572		(90	)
	$	17,626	$	(139	)	$	8,710	$	(198	)	$	26,336	$	(337	)

	December 31, 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	$	3,492	$	(32	)	$	3,491	$	(64	)	$	6,983	$	(96	)
Mortgage-backed securities and CMO ’s		14,232		(235	)		1,474		(30	)		15,706		(265	)
Corporate securities		500		-			-		-			500		-
Municipal securities		6,967		(223	)		262		(5	)		7,229		(228	)
	$	25,191	$	(490	)	$	5,227	$	(99	)	$	30,418	$	(589	)

There are forty-

seven

debt securities with fair values totaling

$26.3

million considered temporarily impaired at

September 30, 2017.  

As of

September 30, 2017,

the Company does

not

consider any bond in an unrealized loss position to be other-than-temporarily impaired.

The Company realized gains of

$1

65

thousand and

$105

thousand of losses on sales of securities in the

first

nine

months of

2017.

The Company realized gains of

$262

thousand and

$5

thousand of losses during the same period last year.

The amortized cost and fair values of investment securities available for sale at

September 30, 2017,

by contractual maturity are as follows:

(Dollars In Thousands)	Amortized Cost		Fair Value
One year or less	$	246	$	247
Over one through five years		3,153		3,147
Over five through ten years		14,651		14,807
Greater than 10 years		35,382		35,393
	$	53,432	$	53,594

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Note 3 - Loans Receivable

9 Months Ended

Sep. 30, 2017

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, 2017

and

December 31, 2016

were as follows:

(Dollars In Thousands)	September 30, 2017			December 31, 2016
Construction loans:
Residential	$	12,278		$	10,204
Land acquisition, development & commercial		33,915			27,480
Real estate:
Residential		117,114			111,626
Commercial		173,713			172,248
Commercial, industrial & agricultural		61,070			59,702
Equity lines		28,914			29,956
Consumer		7,724			7,668
Overdrafts		82			107
Total		434,810			418,991
Less allowance for loan losses		(3,706	)		(3,636	)
Loans, net	$	431,104		$	415,355

The past due and nonaccrual status of loans as of

September 30, 2017

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	$	173	$	−	$	−	$	173	$	12,105	$	12,278	$	−
Land acquisition, development & commercial		172		95		32		299		33,616		33,915		−
Real estate:
Residential		578		648		144		1,370		115,744		117,114		459
Commercial		364		−		530		894		172,819		173,713		211
Commercial, industrial & agricultural		496		23		100		619		60,533		61,152		27
Equity lines		93		−		204		297		28,617		28,914		−
Consumer		7		40		14		61		7,663		7,724		3
Total	$	1,883	$	806	$	1,024	$	3,713	$	431,097	$	434,810	$	700

The past-due and nonaccrual status of loans as of

December 31, 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:
Residential	$	−	$	−	$	−	$	−	$	10,204	$	10,204	$	−
Land acquisition, development & commercial		−		−		−		−		27,480		27,480		−
Real Estate:
Residential		672		193		577		1,442		110,184		111,626		577
Commercial		115		−		−		115		172,133		172,248		336
Commercial, industrial & agricultural		60		33		−		93		59,716		59,809		11
Equity lines		258		−		−		258		29,698		29,956		−
Consumer		8		6		4		18		7,650		7,668		−
Total	$	1,113	$	232	$	581	$	1,926	$	417,065	$	418,991	$	924

There were

eight

credits and

three

credit card accounts totaling

$1.0

million, which were past due

ninety

days or more as of

September 30, 2017.

Of that total,

two

credits totaling

$19

thousand were on nonaccrual status. There were

two

loans, totaling

$4

thousand, which were past due

ninety

days or more and still accruing interest at

December 31, 2016.

Impaired loans, which include TDR

’s of

$4.2

million, and the related allowance at

September 30, 2017,

were as follows:

September 30, 2017 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		648		648		−		652		14
Commercial		4,141		4,317		−		4,172		121
Commercial, industrial & agricultural		27		27		−		28		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with no allowance	$	4,816	$	4,992	$	−	$	4,852	$	135

September 30, 2017 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		−		−		−		−		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	−	$	−	$	−	$	−	$	−

 

 Impaired loans, which include TDRs of

$6.4

million, and the related allowance at

December 31, 2016,

were as follows:

December 31, 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:
Residential	$	−	$	−	$	–	$	−	$	−
Land acquisition, development & commercial		−		−		–		−		−
Real Estate:
Residential		770		770		–		629		(11	)
Commercial		6,380		6,556		–		6,521		255
Commercial, industrial & agricultural		11		11		–		11		−
Equity lines		−		−		–		−		−
Consumer		−		−		–		−		−
Total loans with no allowance	$	7,161	$	7,337	$	–	$	7,161	$	244

December 31, 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:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real Estate:
Residential		−		−		−		−		−
Commercial		115		115		17		122		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	115	$	115	$	17	$	122	$	−

Troubled Debt Restructurings

Troubled debt restructurings (“TDR

’s”) were comprised of

five

loans totaling

$4.2

million at

September 30, 2017.  

This compares with

$6.4

million in total restructured loans at

December 31, 2016. 

Two

of the

five

loans totaling

$3.9

million were accruing at

September 30, 2017.

The other

three

loans totaling

$238

thousand were on nonaccrual status at the end of the

third

quarter of

2017.

  Three TDRs totaling

$757

thousand were past due with their restructured terms at

September 30, 2017.

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

2017:

(Dollars in Thousands)	Loans modified as TDR's For the nine months ended September 30, 2017
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:
Residential		—		—		—
Commercial		1		218		218
Commercial, industrial, agricultural		—		11		29
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		1	$	229	$	247

The loan relationship identified above in the table was originally restructured into

two

TDR

’s during

2015

and was included in substandard nonaccrual loans and impaired loans at the end of

2016.

There was an additional

$18

thousand added to the TDR relationship during the

first

quarter of

2017.

No

loans were modified in a TDR during the

first

nine

months of

2016.

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.

XML

Note 4 - Allowance for Loan Losses

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note

4.

Allowance for Loan Losses

The following table presents, as of

September 30, 2017,

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, 2017	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	$	63	$	−		$	−	$	26		$	89	$	−	$	89	$	12,278	$	−	$	12,278
Land acquisition, development & commercial		173		−			−		50			223		−		223		33,915		−		33,915
Real estate:				−
Residential		866		−			−		4			870		−		870		117,114		648		116,466
Commercial		1,516		(436	)		41		565			1,686		−		1,686		173,713		4,141		169,572
Commercial, industrial & agricultural		461		(68	)		−		92			485		−		485		61,152		27		61,125
Equity lines		338		−			−		(93	)		245		−		245		28,914		−		28,914
Consumer		97		(59	)		17		44			99		−		99		7,724		−		7,724
Unallocated		122		−			−		(113	)		9		−		9		−		−		−
Total	$	3,636	$	(563	)	$	58	$	575		$	3,706	$	−	$	3,706	$	434,810	$	4,816	$	429,994

The following table presents, as of

December 31, 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).

December 31, 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	$	−		$	−	$	(20	)	$	63	$	−	$	63	$	10,204	$	−	$	10,204
Land acquisition, development & commercial		187		(2	)		−		(12	)		173		−		173		27,480		−		27,480
Real estate:
Residential		1,047		(4	)		45		(222	)		866		−		866		111,626		770		110,856
Commercial		1,001		(606	)		−		1,121			1,516		17		1,499		172,248		6,495		165,753
Commercial, industrial & agricultural		531		(34	)		−		(36	)		461		−		461		59,809		11		59,798
Equity lines		277		(99	)		10		150			338		−		338		29,956		−		29,956
Consumer		85		(103	)		49		66			97		−		97		7,668		−		7,668
Unallocated		87		−			−		35			122		−		122		−		−		−
Total	$	3,298	$	(848	)	$	104	$	1,082		$	3,636	$	17	$	3,619	$	418,991	$	7,276	$	411,715

Loans by credit quality indicators as of

September 30, 2017

were as follows:

(Dollars in Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	12,278	$	−	$	−	$	−	$	12,278
Land acquisition, development & commercial		33,915		−		−		−		33,915
Real estate loans:
Residential		116,240		226		189		459		117,114
Commercial		172,818		20		664		211		173,713
Commercial, industrial, agricultural		60,495		106		524		27		61,152
Equity lines		28,914		−		−		−		28,914
Consumer		7,721		−		−		3		7,724
Total Loans	$	432,381	$	352	$	1,377	$	700	$	434,810

Loans by credit quality indicators as of

December 31, 2016

were as follows:

(Dollars in Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	10,204	$	−	$	−	$	−	$	10,204
Land acquisition, development & commercial		27,480		−		−		−		27,480
Real estate loans:
Residential		110,856		−		193		577		111,626
Commercial		171,369		−		543		336		172,248
Commercial, industrial, agricultural		59,120		78		600		11		59,809
Equity lines		29,956		−		−		−		29,956
Consumer		7,668		−		−		−		7,668
Total Loans	$	416,653	$	78	$	1,336	$	924	$	418,991

At

September 30, 2017

and

December 31, 2016,

the Company had

no

loans classified as Doubtful or Loss.

XML

Note 5 - Other Real Estate Owned

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Real Estate Owned [Text Block]

Note

5.

Other Real Estate Owned

Changes in other real estate owned for the

nine

months ended

September 30, 2017

were as follows:

(Dollars in Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	4,619		$	(825	)	$	3,794
Additions		1,024			—			1,024
Write downs		—			(380	)		(380	)
Sales		(1,492	)		616			(876	)
Balance at quarter end	$	4,151		$	(589	)	$	3,562

Changes in other real estate owned 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
Write downs		—			—			—
Sales		(1,444	)		—			(1,444	)
Balance at quarter end	$	4,694		$	(420	)	$	4,274

The major classifications of other real estate owned in the consolidated balance sheets at

September 30, 2017

and

December 31, 2016

were as follows:

(Dollars in Thousands)	September 30, 2017		December 31, 2016
Residential lots	$	1,978	$	2,234
Residential development		22		423
Residential single-family homes		1,024		-
Commercial lots		90		90
Commercial buildings		448		1,047
Total Other Real Estate Owned	$	3,562	$	3,794

There were

no

residential real estate loans in the process of foreclosure at

September

 

30,

2017

or

December 31, 2016.

Other real estate owned related expenses in the consolidated statements of income for the

three

and

nine

months ended

September 30, 2017

and

September 30, 2016

include:

(Dollars In Thousands)	Three months Ended September 30, 2017		Three months Ended September 30, 2016		Nine months Ended September 30, 2017		Nine months Ended September 30, 2016
Net loss on sales	$	—	$	—	$	—	$	91
Provision for unrealized losses		—		—		380		—
Operating expenses		28		25		66		72
Total Other Real Estate Owned	$	28	$	25	$	446	$	163

XML

Note 6 - Stock Based Compensation

9 Months Ended

Sep. 30, 2017

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

$109

thousand and

$111

thousand for the years to date

September 30, 2017

and

2016,

respectively.

The

2005

Stock Option Plan (the Plan) pursuant to which the Board of Directors granted stock options to directors, officers and employees expired in

2016,

thus there are

no

options available for future issuance. Under the fair value recognition provisions of relevant accounting guidance, stock-based compensation cost

 was measured at the grant date based on the fair value of the award and was and continues to be recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. 

The Company used the Black-Scholes option pricing model to determine the fair value of stock options. The fair value of the stock based payment awards

 was affected by the price of the Company's stock and a number of financial assumptions and variables. These variables included the risk-free interest rate, expected dividend rate, expected stock price volatility and the expected life of the options. 

No

stock options were granted during

2017

or

2016.

Compensation expense is charged to income ratably over the vesting period and was

$53

thousand and

$58

thousand for the year to date

September 30, 2017

and

September 30, 2016,

respectively. As of

September 30, 2017,

there was

$158

thousand of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost will be recognized over the next

2.25

years.  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, 2017

is as follows:

	Options Outstanding			Weighted Average Exercise Price		Aggregate Intrinsic Value (1)		Weighted Average Contractual Term (years)
Balance at December 31, 2016		201,000		$	7.80
Granted		–			–
Exercised		(4,000	)		6.90
Expired		(5,500	)		10.00
Forfeited		–			–
Balance at September 30, 2017		191,500		$	7.76	$	609,025		6.07
Exercisable at September 30, 2017		99,700		$	8.55	$	246,415		4.91

(

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, 2017.

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

$56

thousand and

$53

thousand for the years to date

September 30, 2017

and

2016,

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

8,258

and

11,149*

shares of restricted stock under the plan during the years to date

September 30, 2017

and

September 30, 2016,

respectively. The weighted-average grant date fair value of restricted stock granted in

2017

 was

$9.87

compared to

$9.09*

in

2016.

  

As of

September 

30,

2017,

there was

$190

thousand of total unrecognized compensation cost related to restricted stock granted under the Plan. The cost is expected to be recognized through

2022.

A summary of the activity for restricted stock awards for the periods indicated is presented below:

	For the Nine Months Ended September 30, 2017					For the Nine Months Ended September 30, 2016
	Shares			Weighted- Average Grant Date Fair Value		Shares				Weighted- Average Grant Date Fair Value
Nonvested at beginning of year		31,546		$	7.03		39,352		*	$	6.00	*
Granted		8,258			9.87		11,149		*		9.09	*
Vested		(11,125	)		6.03		(11,371	)	*		5.44	*
Forfeited		-			-		(6,788	)	*		6.99	*
Nonvested at the end of the period		28,679		$	8.23		32,342		*	$	7.06	*

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.

XML

Note 7 - Fair Value Measurement

9 Months Ended

Sep. 30, 2017

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 tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of

September 30, 2017

and

December 31, 2016:

(Dollars in Thousands)			Carrying value at September 30, 2017
Description	Balance as of September 30, 2017		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	$	13,356	$	–	$	13,356	$	–
Mortgage-backed securities and CMO ’s		21,193		–		21,193		–
Corporate securities		6,558		–		6,558		–
Municipal securities		12,487		–		12,487		–

(Dollars in Thousands)			Carrying value at December 31, 2016
Description	Balance as of December 31, 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	$	12,444	$	–	$	12,444	$	–
Mortgage-backed securities and CMO ’s		19,768		–		19,768		–
Corporate securities		5,066		–		5,066		–
Municipal securities		15,697		–		15,697		–

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 tables summarize the Company

’s assets that were measured at fair value on a nonrecurring basis as of

September 30, 2017

and

December 31, 2016.

(Dollars in Thousands)			Carrying value at September 30, 2017
Description	Balance as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale		1,013		–		1,013		–
Other real estate owned		3,562		–		–		3,562

(Dollars in Thousands)			Carrying value at December 31, 2016
Description	Balance as of December 31, 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	$	98	$	–	$	–	$	98
Loans held for sale		678		–		678		–
Other real estate owned		3,794		–		–		3,794

At

September 30, 2017

and

December 31, 2016,

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, 2017:

(Dollars in Thousands)	Quantitative information about Level 3 Fair Value Measurements for September 30, 2017
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Other real estate owned	$	1,378	Discounted appraised value	Selling cost		6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal		4%	-	13%	(12%)
	$	2,184	Internal evaluations	Internal evaluations		4%	-	95%	(22%)

The following table displays quantitative information about Level

3

Fair Value Measurements for

December 31, 2016:

(Dollars in Thousands)	Quantitative information about Level 3 Fair Value Measurements for December 31, 2016
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	98	Discounted appraised value	Residual cash flows discount rate		6%	-	6%	(6%)
Other real estate owned	$	1,560	Discounted appraised value	Selling cost		6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal		4%	-	12%	(10%)
	$	2,234	Internal evaluations	Internal evaluations		4%	-	54%	(24%)

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.

Federal funds sold: Federal funds sold consist of overnight loans to other financial institutions and mature within

one

to

three

days. At

September 30, 2017

and

December 31, 2016,

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. 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 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

).

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, 2017

and

December 31, 2016,

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, 2017:

(Dollars in Thousands)			Fair value at September 30, 2017
Description	Carrying value as of September 30, 2017		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	$	34,755	$	34,755	$	–	$	–	$	34,755
Federal funds sold		132		132		–		–		132
Securities available for sale		53,594		–		53,594		–		53,594
Restricted equity securities		2,371		–		2,371		–		2,371
Loans held for sale		1,013		–		1,013		–		1,013
Loans, net		431,104		–		–		433,652		433,652
Bank owned life insurance		8,115		–		8,115		–		8,115
Accrued income		2,619		–		2,619		–		2,619
Financial liabilities
Total deposits		478,944		–		479,777		–		479,777
FHLB borrowings		11,361		–		11,386		–		11,386
Subordinated notes		7,247		–		7,954		–		7,954
Other borrowings		992		–		992		–		992
Accrued interest payable		508		–		508		–		508

The carrying amounts and approximate fair values of the Company's financial instruments are as follows at

December 31, 2016:

(Dollars in Thousands)			Fair value at December 31, 2016
Description	Carrying value as of December 31, 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	$	18,229	$	17,479	$	760	$	–	$	18,239
Federal funds sold		42		42		–		–		42
Securities available for sale		52,975		–		52,975		–		52,975
Restricted equity securities		2,213		–		2,213		–		2,213
Loans held for sale		678		–		678		–		678
Loans, net		415,355		–		–		415,039		415,039
Bank owned life insurance		7,469		–		7,469		–		7,469
Accrued income		2,289		–		2,289		–		2,289
Financial liabilities
Total deposits		450,848		–		451,385		–		451,385
FHLB borrowings		8,000		–		8,031		–		8,031
Subordinated notes		7,224		–		8,012		–		8,012
Other borrowings		1,117		–		1,117		–		1,117
Accrued interest payable		386		–		386		–		386

XML

Note 8 - Reclassifications Out of Other Comprehensive Income

9 Months Ended

Sep. 30, 2017

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, 2017

and

2016

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)	2017		2016
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	18	$	43	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		6		15	Income tax expense
	$	12	$	28	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)	2017		2016
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	60	$	257	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		20		87	Income tax expense
	$	40	$	170	Net income

XML

Note 9 - Earnings Per Common Share

9 Months Ended

Sep. 30, 2017

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. All of the remaining Series C Preferred Stock was converted to common stock on

June 29, 2016.

	For the Three Months Ended September 30,
	2017						2016
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		5,770,175	$	917	$	0.16		5,763,944	$	903	$	0.16
Series C Preferred Stock Dividends				−						−
Effect of dilutive securities:
Convertible preferred stock		−		−		−		−		−		−
Dilutive stock options		24,602		−		−		10,142		−		−
Earnings per common share, diluted		5,794,777	$	917	$	0.16		5,774,086	$	903	$	0.16

	For the Nine Months Ended September 30,
	2017						2016
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		5,767,602	$	2,116	$	0.37		4,279,821	$	1,520	$	0.36
Series C Preferred Stock Dividends				−						−
Effect of dilutive securities:
Convertible preferred stock		−		−				1,486,669		−		(0.10	)
Dilutive stock options		24,602		−				10,142		−		−
Earnings per common share, diluted		5,792,204	$	2,116	$	0.37		5,776,632	$	1,520	$	0.26

At

September 30, 2017

and

2016,

the number of stock options considered antidilutive and excluded from the calculation of diluted weighted average shares was

33,000

and

49,500,

respectively. 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.

XML

Note 10 - Subsequent Events

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Subsequent Events [Text Block]

Note

10.

Subsequent Events

There were

no

reportable subsequent events.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The consolidated financial statements as of

September 30, 2017

and for the periods ended

September 30, 2017

and

2016

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, 2017

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, 2016,

included in the Company’s Form

10

-K for the year ended

December 31, 2016.

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

’s 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.

XML

Note 2 - Investment Securities (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

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

(Dollars In Thousands)	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	13,327	$	91	$	(62	)	$	13,356
Mortgage-backed securities and CMO ’s		21,322		35		(164	)		21,193
Corporate securities		6,490		89		(21	)		6,558
Municipal securities		12,293		284		(90	)		12,487
	$	53,432	$	499	$	(337	)	$	53,594

(Dollars In Thousands)	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U. S. Government agency securities	$	12,422	$	118	$	(96	)	$	12,444
Mortgage-backed securities and CMO ’s		19,979		54		(265	)		19,768
Corporate securities		5,000		66		-			5,066
Municipal securities		15,659		266		(228	)		15,697
	$	53,060	$	504	$	(589	)	$	52,975

Schedule of Unrealized Loss on Investments [Table Text Block]

	September 30, 2017
	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	$	4,513	$	(36	)	$	1,984	$	(26	)	$	6,497	$	(62	)
Mortgage-backed securities and CMO’s		9,394		(73	)		4,404		(91	)		13,798		(164	)
Corporate securities		2,469		(21	)		-		-			2,469		(21	)
Municipal securities		1,250		(9	)		2,322		(81	)		3,572		(90	)
	$	17,626	$	(139	)	$	8,710	$	(198	)	$	26,336	$	(337	)

	December 31, 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	$	3,492	$	(32	)	$	3,491	$	(64	)	$	6,983	$	(96	)
Mortgage-backed securities and CMO ’s		14,232		(235	)		1,474		(30	)		15,706		(265	)
Corporate securities		500		-			-		-			500		-
Municipal securities		6,967		(223	)		262		(5	)		7,229		(228	)
	$	25,191	$	(490	)	$	5,227	$	(99	)	$	30,418	$	(589	)

Investments Classified by Contractual Maturity Date [Table Text Block]

(Dollars In Thousands)	Amortized Cost		Fair Value
One year or less	$	246	$	247
Over one through five years		3,153		3,147
Over five through ten years		14,651		14,807
Greater than 10 years		35,382		35,393
	$	53,432	$	53,594

XML

Note 3 - Loans Receivable (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

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

(Dollars In Thousands)	September 30, 2017			December 31, 2016
Construction loans:
Residential	$	12,278		$	10,204
Land acquisition, development & commercial		33,915			27,480
Real estate:
Residential		117,114			111,626
Commercial		173,713			172,248
Commercial, industrial & agricultural		61,070			59,702
Equity lines		28,914			29,956
Consumer		7,724			7,668
Overdrafts		82			107
Total		434,810			418,991
Less allowance for loan losses		(3,706	)		(3,636	)
Loans, net	$	431,104		$	415,355

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	$	173	$	−	$	−	$	173	$	12,105	$	12,278	$	−
Land acquisition, development & commercial		172		95		32		299		33,616		33,915		−
Real estate:
Residential		578		648		144		1,370		115,744		117,114		459
Commercial		364		−		530		894		172,819		173,713		211
Commercial, industrial & agricultural		496		23		100		619		60,533		61,152		27
Equity lines		93		−		204		297		28,617		28,914		−
Consumer		7		40		14		61		7,663		7,724		3
Total	$	1,883	$	806	$	1,024	$	3,713	$	431,097	$	434,810	$	700

(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	$	−	$	−	$	−	$	−	$	10,204	$	10,204	$	−
Land acquisition, development & commercial		−		−		−		−		27,480		27,480		−
Real Estate:
Residential		672		193		577		1,442		110,184		111,626		577
Commercial		115		−		−		115		172,133		172,248		336
Commercial, industrial & agricultural		60		33		−		93		59,716		59,809		11
Equity lines		258		−		−		258		29,698		29,956		−
Consumer		8		6		4		18		7,650		7,668		−
Total	$	1,113	$	232	$	581	$	1,926	$	417,065	$	418,991	$	924

Impaired Financing Receivables [Table Text Block]

September 30, 2017 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		648		648		−		652		14
Commercial		4,141		4,317		−		4,172		121
Commercial, industrial & agricultural		27		27		−		28		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with no allowance	$	4,816	$	4,992	$	−	$	4,852	$	135

September 30, 2017 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		−		−		−		−		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	−	$	−	$	−	$	−	$	−

December 31, 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:
Residential	$	−	$	−	$	–	$	−	$	−
Land acquisition, development & commercial		−		−		–		−		−
Real Estate:
Residential		770		770		–		629		(11	)
Commercial		6,380		6,556		–		6,521		255
Commercial, industrial & agricultural		11		11		–		11		−
Equity lines		−		−		–		−		−
Consumer		−		−		–		−		−
Total loans with no allowance	$	7,161	$	7,337	$	–	$	7,161	$	244

December 31, 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:
Residential	$	−	$	−	$	−	$	−	$	−
Land acquisition, development & commercial		−		−		−		−		−
Real Estate:
Residential		−		−		−		−		−
Commercial		115		115		17		122		−
Commercial, industrial & agricultural		−		−		−		−		−
Equity lines		−		−		−		−		−
Consumer		−		−		−		−		−
Total loans with an allowance	$	115	$	115	$	17	$	122	$	−

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

(Dollars in Thousands)	Loans modified as TDR's For the nine months ended September 30, 2017
Class of Loan	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Construction loans:
Residential		—	$	—	$	—
Land acquisition, development & commercial		—		—		—
Real estate loans:
Residential		—		—		—
Commercial		1		218		218
Commercial, industrial, agricultural		—		11		29
Equity lines		—		—		—
Consumer		—		—		—
Total Loans		1	$	229	$	247

XML

Note 4 - Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

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

September 30, 2017	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	$	63	$	−		$	−	$	26		$	89	$	−	$	89	$	12,278	$	−	$	12,278
Land acquisition, development & commercial		173		−			−		50			223		−		223		33,915		−		33,915
Real estate:				−
Residential		866		−			−		4			870		−		870		117,114		648		116,466
Commercial		1,516		(436	)		41		565			1,686		−		1,686		173,713		4,141		169,572
Commercial, industrial & agricultural		461		(68	)		−		92			485		−		485		61,152		27		61,125
Equity lines		338		−			−		(93	)		245		−		245		28,914		−		28,914
Consumer		97		(59	)		17		44			99		−		99		7,724		−		7,724
Unallocated		122		−			−		(113	)		9		−		9		−		−		−
Total	$	3,636	$	(563	)	$	58	$	575		$	3,706	$	−	$	3,706	$	434,810	$	4,816	$	429,994

December 31, 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	$	−		$	−	$	(20	)	$	63	$	−	$	63	$	10,204	$	−	$	10,204
Land acquisition, development & commercial		187		(2	)		−		(12	)		173		−		173		27,480		−		27,480
Real estate:
Residential		1,047		(4	)		45		(222	)		866		−		866		111,626		770		110,856
Commercial		1,001		(606	)		−		1,121			1,516		17		1,499		172,248		6,495		165,753
Commercial, industrial & agricultural		531		(34	)		−		(36	)		461		−		461		59,809		11		59,798
Equity lines		277		(99	)		10		150			338		−		338		29,956		−		29,956
Consumer		85		(103	)		49		66			97		−		97		7,668		−		7,668
Unallocated		87		−			−		35			122		−		122		−		−		−
Total	$	3,298	$	(848	)	$	104	$	1,082		$	3,636	$	17	$	3,619	$	418,991	$	7,276	$	411,715

Financing Receivable Credit Quality Indicators [Table Text Block]

(Dollars in Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	12,278	$	−	$	−	$	−	$	12,278
Land acquisition, development & commercial		33,915		−		−		−		33,915
Real estate loans:
Residential		116,240		226		189		459		117,114
Commercial		172,818		20		664		211		173,713
Commercial, industrial, agricultural		60,495		106		524		27		61,152
Equity lines		28,914		−		−		−		28,914
Consumer		7,721		−		−		3		7,724
Total Loans	$	432,381	$	352	$	1,377	$	700	$	434,810

(Dollars in Thousands)	Pass		Special Mention		Substandard Accruing		Substandard Nonaccrual		Total
Construction loans:
Residential	$	10,204	$	−	$	−	$	−	$	10,204
Land acquisition, development & commercial		27,480		−		−		−		27,480
Real estate loans:
Residential		110,856		−		193		577		111,626
Commercial		171,369		−		543		336		172,248
Commercial, industrial, agricultural		59,120		78		600		11		59,809
Equity lines		29,956		−		−		−		29,956
Consumer		7,668		−		−		−		7,668
Total Loans	$	416,653	$	78	$	1,336	$	924	$	418,991

XML

Note 5 - Other Real Estate Owned (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Forclosed Properties [Table Text Block]

(Dollars in Thousands)	Other Real Estate Owned			Valuation Allowance			Net
Balance at the beginning of the year	$	4,619		$	(825	)	$	3,794
Additions		1,024			—			1,024
Write downs		—			(380	)		(380	)
Sales		(1,492	)		616			(876	)
Balance at quarter end	$	4,151		$	(589	)	$	3,562

(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
Write downs		—			—			—
Sales		(1,444	)		—			(1,444	)
Balance at quarter end	$	4,694		$	(420	)	$	4,274

Schedule of Real Estate Properties [Table Text Block]

(Dollars in Thousands)	September 30, 2017		December 31, 2016
Residential lots	$	1,978	$	2,234
Residential development		22		423
Residential single-family homes		1,024		-
Commercial lots		90		90
Commercial buildings		448		1,047
Total Other Real Estate Owned	$	3,562	$	3,794

(Dollars In Thousands)	Three months Ended September 30, 2017		Three months Ended September 30, 2016		Nine months Ended September 30, 2017		Nine months Ended September 30, 2016
Net loss on sales	$	—	$	—	$	—	$	91
Provision for unrealized losses		—		—		380		—
Operating expenses		28		25		66		72
Total Other Real Estate Owned	$	28	$	25	$	446	$	163

XML

Note 6 - Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

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, 2016		201,000		$	7.80
Granted		–			–
Exercised		(4,000	)		6.90
Expired		(5,500	)		10.00
Forfeited		–			–
Balance at September 30, 2017		191,500		$	7.76	$	609,025		6.07
Exercisable at September 30, 2017		99,700		$	8.55	$	246,415		4.91

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

	For the Nine Months Ended September 30, 2017					For the Nine Months Ended September 30, 2016
	Shares			Weighted- Average Grant Date Fair Value		Shares				Weighted- Average Grant Date Fair Value
Nonvested at beginning of year		31,546		$	7.03		39,352		*	$	6.00	*
Granted		8,258			9.87		11,149		*		9.09	*
Vested		(11,125	)		6.03		(11,371	)	*		5.44	*
Forfeited		-			-		(6,788	)	*		6.99	*
Nonvested at the end of the period		28,679		$	8.23		32,342		*	$	7.06	*

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Note 7 - Fair Value Measurement (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

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

(Dollars in Thousands)			Carrying value at September 30, 2017
Description	Balance as of September 30, 2017		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	$	13,356	$	–	$	13,356	$	–
Mortgage-backed securities and CMO ’s		21,193		–		21,193		–
Corporate securities		6,558		–		6,558		–
Municipal securities		12,487		–		12,487		–

(Dollars in Thousands)			Carrying value at December 31, 2016
Description	Balance as of December 31, 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	$	12,444	$	–	$	12,444	$	–
Mortgage-backed securities and CMO ’s		19,768		–		19,768		–
Corporate securities		5,066		–		5,066		–
Municipal securities		15,697		–		15,697		–

Fair Value Measurements, Nonrecurring [Table Text Block]

(Dollars in Thousands)			Carrying value at September 30, 2017
Description	Balance as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale		1,013		–		1,013		–
Other real estate owned		3,562		–		–		3,562

(Dollars in Thousands)			Carrying value at December 31, 2016
Description	Balance as of December 31, 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	$	98	$	–	$	–	$	98
Loans held for sale		678		–		678		–
Other real estate owned		3,794		–		–		3,794

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

(Dollars in Thousands)	Quantitative information about Level 3 Fair Value Measurements for September 30, 2017
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Other real estate owned	$	1,378	Discounted appraised value	Selling cost		6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal		4%	-	13%	(12%)
	$	2,184	Internal evaluations	Internal evaluations		4%	-	95%	(22%)

(Dollars in Thousands)	Quantitative information about Level 3 Fair Value Measurements for December 31, 2016
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Weighted Average)
Impaired loans	$	98	Discounted appraised value	Residual cash flows discount rate		6%	-	6%	(6%)
Other real estate owned	$	1,560	Discounted appraised value	Selling cost		6%	-	6%	(6%)
				Discount for lack of marketability and age of appraisal		4%	-	12%	(10%)
	$	2,234	Internal evaluations	Internal evaluations		4%	-	54%	(24%)

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

(Dollars in Thousands)			Fair value at September 30, 2017
Description	Carrying value as of September 30, 2017		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	$	34,755	$	34,755	$	–	$	–	$	34,755
Federal funds sold		132		132		–		–		132
Securities available for sale		53,594		–		53,594		–		53,594
Restricted equity securities		2,371		–		2,371		–		2,371
Loans held for sale		1,013		–		1,013		–		1,013
Loans, net		431,104		–		–		433,652		433,652
Bank owned life insurance		8,115		–		8,115		–		8,115
Accrued income		2,619		–		2,619		–		2,619
Financial liabilities
Total deposits		478,944		–		479,777		–		479,777
FHLB borrowings		11,361		–		11,386		–		11,386
Subordinated notes		7,247		–		7,954		–		7,954
Other borrowings		992		–		992		–		992
Accrued interest payable		508		–		508		–		508

(Dollars in Thousands)			Fair value at December 31, 2016
Description	Carrying value as of December 31, 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	$	18,229	$	17,479	$	760	$	–	$	18,239
Federal funds sold		42		42		–		–		42
Securities available for sale		52,975		–		52,975		–		52,975
Restricted equity securities		2,213		–		2,213		–		2,213
Loans held for sale		678		–		678		–		678
Loans, net		415,355		–		–		415,039		415,039
Bank owned life insurance		7,469		–		7,469		–		7,469
Accrued income		2,289		–		2,289		–		2,289
Financial liabilities
Total deposits		450,848		–		451,385		–		451,385
FHLB borrowings		8,000		–		8,031		–		8,031
Subordinated notes		7,224		–		8,012		–		8,012
Other borrowings		1,117		–		1,117		–		1,117
Accrued interest payable		386		–		386		–		386

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

9 Months Ended

Sep. 30, 2017

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)	2017		2016
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	18	$	43	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		6		15	Income tax expense
	$	12	$	28	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)	2017		2016
Available for sale securities
Realized gains on sales of securities held for sale during the period consider available for sale	$	60	$	257	Gains on sales of investment securities
Tax expense related to realized gains on securities sold		20		87	Income tax expense
	$	40	$	170	Net income

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Note 9 - Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

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

	For the Three Months Ended September 30,
	2017						2016
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		5,770,175	$	917	$	0.16		5,763,944	$	903	$	0.16
Series C Preferred Stock Dividends				−						−
Effect of dilutive securities:
Convertible preferred stock		−		−		−		−		−		−
Dilutive stock options		24,602		−		−		10,142		−		−
Earnings per common share, diluted		5,794,777	$	917	$	0.16		5,774,086	$	903	$	0.16

	For the Nine Months Ended September 30,
	2017						2016
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		5,767,602	$	2,116	$	0.37		4,279,821	$	1,520	$	0.36
Series C Preferred Stock Dividends				−						−
Effect of dilutive securities:
Convertible preferred stock		−		−				1,486,669		−		(0.10	)
Dilutive stock options		24,602		−				10,142		−		−
Earnings per common share, diluted		5,792,204	$	2,116	$	0.37		5,776,632	$	1,520	$	0.26

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Note 1 - Organization and Summary of Significant Accounting Policies (Details Textual)	9 Months Ended
	Sep. 30, 2017
Home Town Residential Mortgage LLC [Member]
Subsidiary or Equity Method Investee, Cumulative Percentage Ownership after All Transactions	49.00%

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Note 2 - Investment Securities (Details Textual) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	47
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 26,336		$ 30,418
Available-for-sale Securities, Gross Realized Gains	165	$ 262
Available-for-sale Securities, Gross Realized Losses	$ 105	$ 5
US Government Agencies Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	15
Other than Temporary Impairment Losses, Investments	$ 0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 6,497		6,983
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	22
Other than Temporary Impairment Losses, Investments	$ 0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 13,798		15,706
Corporate Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	3
Other than Temporary Impairment Losses, Investments	$ 0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 2,469		500
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	7
Other than Temporary Impairment Losses, Investments	$ 0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 3,572		$ 7,229

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Note 2 - Investment Securities - Available-for-sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Securities available-for-sale, amortized cost	$ 53,432	$ 53,060
Securities available-for-sale, gross unrealized gains	499	504
Securities available-for-sale, gross unrealized losses	(337)	(589)
Securities available for sale, at fair value	53,594	52,975	[1]
US Government Agencies Debt Securities [Member]
Securities available-for-sale, amortized cost	13,327	12,422
Securities available-for-sale, gross unrealized gains	91	118
Securities available-for-sale, gross unrealized losses	(62)	(96)
Securities available for sale, at fair value	13,356	12,444
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available-for-sale, amortized cost	21,322	19,979
Securities available-for-sale, gross unrealized gains	35	54
Securities available-for-sale, gross unrealized losses	(164)	(265)
Securities available for sale, at fair value	21,193	19,768
Corporate Debt Securities [Member]
Securities available-for-sale, amortized cost	6,490	5,000
Securities available-for-sale, gross unrealized gains	89	66
Securities available-for-sale, gross unrealized losses	(21)
Securities available for sale, at fair value	6,558	5,066
US States and Political Subdivisions Debt Securities [Member]
Securities available-for-sale, amortized cost	12,293	15,659
Securities available-for-sale, gross unrealized gains	284	266
Securities available-for-sale, gross unrealized losses	(90)	(228)
Securities available for sale, at fair value	$ 12,487	$ 15,697

[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, 2017	Dec. 31, 2016
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	$ 17,626	$ 25,191
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(139)	(490)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	8,710	5,227
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(198)	(99)
Securities available-for-sale in a continuous unrealized loss position, total fair value	26,336	30,418
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	(337)	(589)
US Government Agencies Debt Securities [Member]
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	4,513	3,492
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(36)	(32)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	1,984	3,491
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(26)	(64)
Securities available-for-sale in a continuous unrealized loss position, total fair value	6,497	6,983
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	(62)	(96)
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	9,394	14,232
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(73)	(235)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	4,404	1,474
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(91)	(30)
Securities available-for-sale in a continuous unrealized loss position, total fair value	13,798	15,706
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	(164)	(265)
Corporate Debt Securities [Member]
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	2,469	500
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(21)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss
Securities available-for-sale in a continuous unrealized loss position, total fair value	2,469	500
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	(21)
US States and Political Subdivisions Debt Securities [Member]
Securities available-for-sale in a continuous unrealized loss position, less than 12 months fair value	1,250	6,967
Securities available-for-sale in a continuous unrealized loss position, less than 12 months unrealized loss	(9)	(223)
Securities available-for-sale in a continuous unrealized loss position, 12 months or more fair value	2,322	262
Securities available-for-sale in a continuous unrealized loss position, 12 months or more unrealized loss	(81)	(5)
Securities available-for-sale in a continuous unrealized loss position, total fair value	3,572	7,229
Securities available-for-sale in a continuous unrealized loss position, total unrealized loss	$ (90)	$ (228)

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Note 2 - Investment Securities - Available-for-sale Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
One year or less, available-for-sale-securities, amortized cost	$ 246
One year or less, available-for-sale-securities, fair value	247
Over one through five years, available-for-sale securities, amortized cost	3,153
Over one through five years, available-for-sale securities, fair value	3,147
Over five through ten years, available-for-sale securities, amortized cost	14,651
Over five through ten years, available-for-sale securities, fair value	14,807
Greater than 10 years, available-for-sale securities, amortized cost	35,382
Greater than 10 years, available-for-sale securities, fair value	35,393
Available-for-sale securities, amortized cost	53,432	$ 53,060
Available-for-sale securities, fair value	$ 53,594	$ 52,975	[1]

[1] Derived from consolidated audited financial statements.

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Note 3 - Loans Receivable (Details Textual)	9 Months Ended		12 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016	Dec. 31, 2015	Mar. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing					$ 4,000
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 700,000				$ 924,000
Financing Receivable, 90 Days Past Due and Still Accruing, Number of Loans					2
Financing Receivable, Modifications, Recorded Investment	$ 4,200,000				$ 6,400,000
Financing Receivable, Troubled Debt Restructuring, Number of Contracts	5
Financing Receivable, Modifications, Recorded Investment, Past Due	$ 757,000
Financing Receivable, Modifications, Number of Contracts	1	0	2
Receivables, Change in Method of Calculating Impairment, Recorded Investment				$ 18,000
Financing Receivable, Modifications, Number of Contracts Past Due	3
Performing Financial Instruments [Member]
Financing Receivable, Modifications, Recorded Investment	$ 3,900,000
Financing Receivable, Troubled Debt Restructuring, Number of Contracts	2
Nonperforming Financial Instruments [Member]
Financing Receivable, Modifications, Recorded Investment	$ 238,000
Financing Receivable, Troubled Debt Restructuring, Number of Contracts	3
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	$ 1,000,000
Financing Receivable, Number of Contracts, Nonaccrual Status	2
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 19
Credits [Member]
Financing Receivable, 90 Days Past Due, Number of Loans	8
Credit Card Receivable [Member]
Financing Receivable, 90 Days Past Due, Number of Loans	3

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Note 3 - Loans Receivable - Classifications of Loans Receivable (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016		Dec. 31, 2015
Loans	$ 434,810	$ 418,991
Less allowance for loan losses	(3,706)	(3,636)	[1]	$ (3,298)
Loans, net	431,104	415,355	[2]
Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans	12,278	10,204
Less allowance for loan losses	(89)	(63)		(83)
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans	33,915	27,480
Less allowance for loan losses	(223)	(173)		(187)
Real Estate Portfolio Segment [Member] | Residential [Member]
Loans	117,114	111,626
Less allowance for loan losses	(870)	(866)		(1,047)
Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans	173,713	172,248
Less allowance for loan losses	(1,686)	(1,516)		(1,001)
Commercial Industrial And Agricultural Portfolio Segment Excluding Overdrafts [Member]
Loans	61,070	59,702
Equity Lines Portfolio Segment [Member]
Loans	28,914	29,956
Less allowance for loan losses	(245)	(338)		(277)
Consumer Portfolio Segment [Member]
Loans	7,724	7,668
Less allowance for loan losses	(99)	(97)		$ (85)
Overdrafts Portfolio Segment [Member]
Loans	$ 82	$ 107

[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 ($)	Sep. 30, 2017	Dec. 31, 2016
Loans, past due	$ 3,713,000	$ 1,926,000
Loans, current	431,097,000	417,065,000
Loans	434,810,000	418,991,000
Loans, nonaccrual loans	700,000	924,000
Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans, past due	173,000
Loans, current	12,105,000	10,204,000
Loans	12,278,000	10,204,000
Loans, nonaccrual loans
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans, past due	299,000
Loans, current	33,616,000	27,480,000
Loans	33,915,000	27,480,000
Loans, nonaccrual loans
Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due	1,370,000	1,442,000
Loans, current	115,744,000	110,184,000
Loans	117,114,000	111,626,000
Loans, nonaccrual loans	459,000	577,000
Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans, past due	894,000	115,000
Loans, current	172,819,000	172,133,000
Loans	173,713,000	172,248,000
Loans, nonaccrual loans	211,000	336,000
Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans, past due	619,000	93,000
Loans, current	60,533,000	59,716,000
Loans	61,152,000	59,809,000
Loans, nonaccrual loans	27,000	11,000
Equity Lines Portfolio Segment [Member]
Loans, past due	297,000	258,000
Loans, current	28,617,000	29,698,000
Loans	28,914,000	29,956,000
Loans, nonaccrual loans
Consumer Portfolio Segment [Member]
Loans, past due	61,000	18,000
Loans, current	7,663,000	7,650,000
Loans	7,724,000	7,668,000
Loans, nonaccrual loans	3,000
Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	1,883,000	1,113,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans, past due	173,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans, past due	172,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due	578,000	672,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans, past due	364,000	115,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans, past due	496,000	60,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Equity Lines Portfolio Segment [Member]
Loans, past due	93,000	258,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans, past due	7,000	8,000
Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	806,000	232,000
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	95,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due	648,000	193,000
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	23,000	33,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Equity Lines Portfolio Segment [Member]
Loans, past due
Financing Receivables, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans, past due	40,000	6,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	1,024,000	581,000
Loans, nonaccrual loans	19
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	32,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Residential [Member]
Loans, past due	144,000	577,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans, past due	530,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans, past due	100,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Equity Lines Portfolio Segment [Member]
Loans, past due	204,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans, past due	$ 14,000	$ 4,000

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Note 3 - Loans Receivable - Impaired Loans (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Loans with no related allowance, recorded investment in loans	$ 4,816	$ 7,161
Loans with no related allowance, unpaid principal balance	4,992	7,337
Loans with no related allowance, average balance total loans	4,852	7,161
Loans with no related allowance, interest income recognized	135	244
Loans with a related allowance, recorded investment in loans		115
Loans with a related allowance, unpaid principal balance		115
Related Allowance		17
Loans with a related allowance, average balance total loans		122
Loans with a related allowance, interest income recognized
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	648	770
Loans with no related allowance, unpaid principal balance	648	770
Loans with no related allowance, average balance total loans	652	629
Loans with no related allowance, interest income recognized	14	(11)
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	4,141	6,380
Loans with no related allowance, unpaid principal balance	4,317	6,556
Loans with no related allowance, average balance total loans	4,172	6,521
Loans with no related allowance, interest income recognized	121	255
Loans with a related allowance, recorded investment in loans		115
Loans with a related allowance, unpaid principal balance		115
Related Allowance		17
Loans with a related allowance, average balance total loans		122
Loans with a related allowance, interest income recognized
Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans with no related allowance, recorded investment in loans	27	11
Loans with no related allowance, unpaid principal balance	27	11
Loans with no related allowance, average balance total loans	28	11
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

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Note 3 - Loans Receivable - Loans Modified in TDR by Class of Loan (Details) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016	Dec. 31, 2015
Number of contracts	1	0	2
Pre-modification outstanding recorded investment	$ 229
Post-modification outstanding recorded investment	$ 247
Construction Loan Portfolio Segment [Member] | Residential [Member]
Number of contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Number of contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Real Estate Portfolio Segment [Member] | Residential [Member]
Number of contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Real Estate Portfolio Segment [Member] | Commercial [Member]
Number of contracts	1
Pre-modification outstanding recorded investment	$ 218
Post-modification outstanding recorded investment	$ 218
Commercial Industrial and Agricultural Portfolio Segment [Member]
Number of contracts
Pre-modification outstanding recorded investment	$ 11
Post-modification outstanding recorded investment	$ 29
Equity Lines Portfolio Segment [Member]
Number of contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment
Consumer Portfolio Segment [Member]
Number of contracts
Pre-modification outstanding recorded investment
Post-modification outstanding recorded investment

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Note 4 - Allowance for Loan Losses (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loans and Leases Receivable, Gross	$ 434,810	$ 418,991
Unlikely to be Collected Financing Receivable [Member]
Loans and Leases Receivable, Gross	0	0
Doubtful [Member]
Loans and Leases Receivable, Gross	$ 0	$ 0

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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, 2017	Sep. 30, 2016	Sep. 30, 2017		Sep. 30, 2016	Dec. 31, 2016
Allowance for loan losses, beginning balance			$ 3,636	[1]	$ 3,298	$ 3,298
Allowance for loan losses, charge- offs			(563)			(848)
Allowance for loan losses, recoveries			58			104
Allowance for loan losses, provisions	$ 40	$ 111	575		979	1,082
Allowance for loan losses, ending balance	3,706		3,706			3,636	[1]
Allowance for loan losses: individually evaluated for impairment						17
Allowance for loan losses: collectively evaluated for impairment	3,706		3,706			3,619
Loans	434,810		434,810			418,991
Loans: individually evaluated for impairment	4,816		4,816			7,276
Loans: collectively evaluated for impairment	429,994		429,994			411,715
Construction Loan Portfolio Segment [Member] | Residential [Member]
Allowance for loan losses, beginning balance			63		83	83
Allowance for loan losses, charge- offs
Allowance for loan losses, recoveries
Allowance for loan losses, provisions			26			(20)
Allowance for loan losses, ending balance	89		89			63
Allowance for loan losses: individually evaluated for impairment
Allowance for loan losses: collectively evaluated for impairment	89		89			63
Loans	12,278		12,278			10,204
Loans: individually evaluated for impairment
Loans: collectively evaluated for impairment	12,278		12,278			10,204
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Allowance for loan losses, beginning balance			173		187	187
Allowance for loan losses, charge- offs						(2)
Allowance for loan losses, recoveries
Allowance for loan losses, provisions			50			(12)
Allowance for loan losses, ending balance	223		223			173
Allowance for loan losses: individually evaluated for impairment
Allowance for loan losses: collectively evaluated for impairment	223		223			173
Loans	33,915		33,915			27,480
Loans: individually evaluated for impairment
Loans: collectively evaluated for impairment	33,915		33,915			27,480
Real Estate Portfolio Segment [Member] | Residential [Member]
Allowance for loan losses, beginning balance			866		1,047	1,047
Allowance for loan losses, charge- offs						(4)
Allowance for loan losses, recoveries						45
Allowance for loan losses, provisions			4			(222)
Allowance for loan losses, ending balance	870		870			866
Allowance for loan losses: individually evaluated for impairment
Allowance for loan losses: collectively evaluated for impairment	870		870			866
Loans	117,114		117,114			111,626
Loans: individually evaluated for impairment	648		648			770
Loans: collectively evaluated for impairment	116,466		116,466			110,856
Real Estate Portfolio Segment [Member] | Commercial [Member]
Allowance for loan losses, beginning balance			1,516		1,001	1,001
Allowance for loan losses, charge- offs			(436)			(606)
Allowance for loan losses, recoveries			41
Allowance for loan losses, provisions			565			1,121
Allowance for loan losses, ending balance	1,686		1,686			1,516
Allowance for loan losses: individually evaluated for impairment						17
Allowance for loan losses: collectively evaluated for impairment	1,686		1,686			1,499
Loans	173,713		173,713			172,248
Loans: individually evaluated for impairment	4,141		4,141			6,495
Loans: collectively evaluated for impairment	169,572		169,572			165,753
Commercial Industrial and Agricultural Portfolio Segment [Member]
Allowance for loan losses, beginning balance			461		531	531
Allowance for loan losses, charge- offs			(68)			(34)
Allowance for loan losses, recoveries
Allowance for loan losses, provisions			92			(36)
Allowance for loan losses, ending balance	485		485			461
Allowance for loan losses: individually evaluated for impairment
Allowance for loan losses: collectively evaluated for impairment	485		485			461
Loans	61,152		61,152			59,809
Loans: individually evaluated for impairment	27		27			11
Loans: collectively evaluated for impairment	61,125		61,125			59,798
Equity Lines Portfolio Segment [Member]
Allowance for loan losses, beginning balance			338		277	277
Allowance for loan losses, charge- offs						(99)
Allowance for loan losses, recoveries						10
Allowance for loan losses, provisions			(93)			150
Allowance for loan losses, ending balance	245		245			338
Allowance for loan losses: individually evaluated for impairment
Allowance for loan losses: collectively evaluated for impairment	245		245			338
Loans	28,914		28,914			29,956
Loans: individually evaluated for impairment
Loans: collectively evaluated for impairment	28,914		28,914			29,956
Consumer Portfolio Segment [Member]
Allowance for loan losses, beginning balance			97		85	85
Allowance for loan losses, charge- offs			(59)			(103)
Allowance for loan losses, recoveries			17			49
Allowance for loan losses, provisions			44			66
Allowance for loan losses, ending balance	99		99			97
Allowance for loan losses: individually evaluated for impairment
Allowance for loan losses: collectively evaluated for impairment	99		99			97
Loans	7,724		7,724			7,668
Loans: individually evaluated for impairment
Loans: collectively evaluated for impairment	7,724		7,724			7,668
Unallocated Financing Receivables [Member]
Allowance for loan losses, beginning balance			122		$ 87	87
Allowance for loan losses, charge- offs
Allowance for loan losses, recoveries
Allowance for loan losses, provisions			(113)			35
Allowance for loan losses, ending balance	9		9			122
Allowance for loan losses: individually evaluated for impairment
Allowance for loan losses: collectively evaluated for impairment	9		9			122
Loans
Loans: individually evaluated for impairment
Loans: collectively evaluated for impairment

[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, 2017	Dec. 31, 2016
Loans	$ 434,810	$ 418,991
Pass [Member]
Loans	432,381	416,653
Special Mention [Member]
Loans	352	78
Substandard [Member]
Loans	1,377	1,336
Substandard Nonaccrual [Member]
Loans	700	924
Construction Loan Portfolio Segment [Member] | Residential [Member]
Loans	12,278	10,204
Construction Loan Portfolio Segment [Member] | Residential [Member] | Pass [Member]
Loans	12,278	10,204
Construction Loan Portfolio Segment [Member] | Residential [Member] | Special Mention [Member]
Loans
Construction Loan Portfolio Segment [Member] | Residential [Member] | Substandard [Member]
Loans
Construction Loan Portfolio Segment [Member] | Residential [Member] | Substandard Nonaccrual [Member]
Loans
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member]
Loans	33,915	27,480
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Pass [Member]
Loans	33,915	27,480
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Special Mention [Member]
Loans
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Substandard [Member]
Loans
Construction Loan Portfolio Segment [Member] | Land Acquisition Development And Commercial [Member] | Substandard Nonaccrual [Member]
Loans
Real Estate Portfolio Segment [Member] | Residential [Member]
Loans	117,114	111,626
Real Estate Portfolio Segment [Member] | Residential [Member] | Pass [Member]
Loans	116,240	110,856
Real Estate Portfolio Segment [Member] | Residential [Member] | Special Mention [Member]
Loans	226
Real Estate Portfolio Segment [Member] | Residential [Member] | Substandard [Member]
Loans	189	193
Real Estate Portfolio Segment [Member] | Residential [Member] | Substandard Nonaccrual [Member]
Loans	459	577
Real Estate Portfolio Segment [Member] | Commercial [Member]
Loans	173,713	172,248
Real Estate Portfolio Segment [Member] | Commercial [Member] | Pass [Member]
Loans	172,818	171,369
Real Estate Portfolio Segment [Member] | Commercial [Member] | Special Mention [Member]
Loans	20
Real Estate Portfolio Segment [Member] | Commercial [Member] | Substandard [Member]
Loans	664	543
Real Estate Portfolio Segment [Member] | Commercial [Member] | Substandard Nonaccrual [Member]
Loans	211	336
Commercial Industrial and Agricultural Portfolio Segment [Member]
Loans	61,152	59,809
Commercial Industrial and Agricultural Portfolio Segment [Member] | Pass [Member]
Loans	60,495	59,120
Commercial Industrial and Agricultural Portfolio Segment [Member] | Special Mention [Member]
Loans	106	78
Commercial Industrial and Agricultural Portfolio Segment [Member] | Substandard [Member]
Loans	524	600
Commercial Industrial and Agricultural Portfolio Segment [Member] | Substandard Nonaccrual [Member]
Loans	27	11
Equity Lines Portfolio Segment [Member]
Loans	28,914	29,956
Equity Lines Portfolio Segment [Member] | Pass [Member]
Loans	28,914	29,956
Equity Lines Portfolio Segment [Member] | Special Mention [Member]
Loans
Equity Lines Portfolio Segment [Member] | Substandard [Member]
Loans
Equity Lines Portfolio Segment [Member] | Substandard Nonaccrual [Member]
Loans
Consumer Portfolio Segment [Member]
Loans	7,724	7,668
Consumer Portfolio Segment [Member] | Pass [Member]
Loans	7,721	7,668
Consumer Portfolio Segment [Member] | Special Mention [Member]
Loans
Consumer Portfolio Segment [Member] | Substandard [Member]
Loans
Consumer Portfolio Segment [Member] | Substandard Nonaccrual [Member]
Loans	$ 3

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Note 5 - Other Real Estate Owned (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Real Estate Portfolio Segment [Member] | Residential [Member]
Mortgage Loans in Process of Foreclosure, Amount	$ 0	$ 0

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Note 5 - Other Real Estate Owned - Foreclosed Properties Valuation Allowance (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017		Sep. 30, 2016
Other Real Estate Owned, balance at the beginning of the year	$ 4,619		$ 5,657
Other Real Estate Owned, Additions	1,024		481
Other Real Estate Owned, Writedowns
Other Real Estate Owned, Sales	(1,492)		(1,444)
Other Real Estate Owned, balance at the end of the year	4,151		4,694
Valuation Allowance, balance at the beginning of the year	(825)	[1]	(420)
Valuation Allowance, Additions
Valuation Allowance, Writedowns	(380)
Valuation Allowance, Sales	616
Valuation Allowance, balance at the end of the year	(589)		(420)
Balance at the beginning of the year, net	3,794	[2]	5,237
Additions, Net	1,024		481
Writedowns, Net	(380)
Sales, Net	(876)		(1,444)
Balance at the end of the year, net	$ 3,562		$ 4,274

[1] Derived from consolidated audited financial statements.

[2] Derived from consolidated audited financial statements.

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Note 5 - Other Real Estate Owned - Classification of Other Real Estate Owned and Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016		Dec. 31, 2015
Other Real Estate Owned	$ 3,562	$ 4,274	$ 3,562	$ 4,274	$ 3,794	[1]	$ 5,237
Net loss on sales				91
Provision for unrealized losses			380
Operating expenses	28	25	66	72
Total Other Real Estate Owned	28	$ 25	446	$ 163
Residential Lots [Member]
Other Real Estate Owned	1,978		1,978		2,234
Residential Development [Member]
Other Real Estate Owned	22		22		423
Residential Single-family Homes [Member]
Other Real Estate Owned	1,024		1,024
Commercial Lots [Member]
Other Real Estate Owned	90		90		90
Commercial Buildings [Member]
Other Real Estate Owned	$ 448		$ 448		$ 1,047

[1] Derived from consolidated audited financial statements.

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Note 6 - Stock Based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended	9 Months Ended			12 Months Ended
	Jul. 11, 2016	Jun. 30, 2017	Sep. 30, 2017	Sep. 30, 2016		Dec. 31, 2016	Dec. 31, 2009
Allocated Share-based Compensation Expense			$ 109	$ 111
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0	0
Dividends, Common Stock, Stock, Percentge	4.00%
Employee Stock Option [Member]
Allocated Share-based Compensation Expense			$ 53	$ 58
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized			$ 158
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 91 days
Restricted Stock [Member]
Allocated Share-based Compensation Expense			$ 56	$ 53
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized		$ 190
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, Award Vesting Period		5 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			8,258	11,149	[1]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value			$ 9.87	$ 9.09	[1]	$ 9.09

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

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Note 6 - Stock Based Compensation - Stock Option Activity (Details) - USD ($)		9 Months Ended
		Sep. 30, 2017	Sep. 30, 2016
Granted, options outstanding (in shares)		0	0
2005 Stock Option Plan [Member]
Beginning balance, options outstanding (in shares)		201,000
Beginning balance, weighted average exercise price (in dollars per share)		$ 7.80
Granted, options outstanding (in shares)
Granted, weighted average exercise price (in dollars per share)
Exercised, options outstanding (in shares)		(4,000)
Exercised, weighted average exercise price (in dollars per share)		$ 6.90
Expired, options outstanding (in shares)		(5,500)
Expired, weighted average exercise price (in dollars per share)		$ (10)
Forfeited, options outstanding (in shares)
Forfeited, weighted average exercise price (in dollars per share)
Ending balance, options outstanding (in shares)		191,500
Ending balance, weighted average exercise price (in dollars per share)		$ 7.76
Balance, aggregate intrinsic value	[1]	$ 609,025
Balance, weighted average contractual term (Year)		6 years 25 days
Exercisable, options outstanding (in shares)		99,700
Exercisable, weighted average exercise price (in dollars per share)		$ 8.55
Exercisable, aggregate intrinsic value	[1]	$ 246,415
Exercisable, weighted average contractual term (Year)		4 years 332 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, 2017.

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Note 6 - Stock Based Compensation - Restricted Stock Awards Activity (Details) - Restricted Stock [Member] - $ / shares	9 Months Ended			12 Months Ended
	Sep. 30, 2017	Sep. 30, 2016		Dec. 31, 2016
Nonvested at beginning of year, shares (in shares)	31,546	39,352	[1]	39,352	[1]
Nonvested at beginning of year, weighted-average grant date fair value (in dollars per share)	$ 7.03	$ 6	[1]	$ 6	[1]
Granted, shares (in shares)	8,258	11,149	[1]
Granted, weighted-average grant date fair value (in dollars per share)	$ 9.87	$ 9.09	[1]	$ 9.09
Vested, shares (in shares)	(11,125)	(11,371)	[1]
Vested, weighted-average grant date fair value (in dollars per share)	$ 6.03	$ 5.44	[1]
Forfeited, shares (in shares)		(6,788)	[1]
Forfeited, weighted-average grant date fair value (in dollars per share)		$ 6.99
Nonvested at the end of the period, shares (in shares)	28,679	32,342	[1]	31,546
Nonvested at the end of the period, weighted-average grant date fair value (in dollars per share)	$ 8.23	$ 7.06	[1]	$ 7.03

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

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Note 7 - Fair Value Measurement (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Liabilities, Fair Value Disclosure, Nonrecurring	$ 0	$ 0
Minimum [Member]
Federal Funds Maturity	1 day
Maximum [Member]
Federal Funds Maturity	3 days

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Note 7 - Fair Value Measurement - Fair Value of Financial Assets and Liabilities Measured on Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Available-for-sale securities	$ 53,594	$ 52,975	[1]
US Government Agencies Debt Securities [Member]
Available-for-sale securities	13,356	12,444
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale securities	13,356	12,444
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities	21,193	19,768
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale securities	21,193	19,768
Corporate Debt Securities [Member]
Available-for-sale securities	6,558	5,066
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale securities	6,558	5,066
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities	12,487	15,697
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale securities	$ 12,487	$ 15,697

[1] Derived from consolidated audited financial statements.

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Note 7 - Fair Value Measurement - Fair Value of Financial Assets and Liabilities Measure on Non-recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016		Sep. 30, 2016	Dec. 31, 2015
Loans held for sale	$ 1,013	$ 678	[1]
Other real estate owned	3,562	3,794	[1]	$ 4,274	$ 5,237
Impaired loans, net of valuation allowance		98
Fair Value, Inputs, Level 1 [Member]
Loans held for sale	1,013	678
Other real estate owned
Impaired loans, net of valuation allowance
Fair Value, Inputs, Level 2 [Member]
Loans held for sale
Other real estate owned	$ 3,562	3,794
Impaired loans, net of valuation allowance		$ 98

[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, 2017	Dec. 31, 2016
Other Real Estate Owned [Member] | Discounted Appraised Value [Member]
Nonrecurring assets	$ 1,378	$ 1,560
Other Real Estate Owned [Member] | Discounted Appraised Value [Member] | Minimum [Member]
Fair value measurements, range	6.00%	6.00%
Fair value measurements, range	4.00%	4.00%
Other Real Estate Owned [Member] | Discounted Appraised Value [Member] | Maximum [Member]
Fair value measurements, range	6.00%	6.00%
Fair value measurements, range	13.00%	12.00%
Other Real Estate Owned [Member] | Discounted Appraised Value [Member] | Weighted Average [Member]
Fair value measurements, range	6.00%	6.00%
Fair value measurements, range	12.00%	10.00%
Other Real Estate Owned [Member] | Internal Evaluations [Member]
Nonrecurring assets	$ 2,184	$ 2,234
Other Real Estate Owned [Member] | Internal Evaluations [Member] | Minimum [Member]
Fair value measurements, range	4.00%	4.00%
Other Real Estate Owned [Member] | Internal Evaluations [Member] | Maximum [Member]
Fair value measurements, range	95.00%	54.00%
Other Real Estate Owned [Member] | Internal Evaluations [Member] | Weighted Average [Member]
Fair value measurements, range	22.00%	24.00%
Impaired Loans [Member] | Discounted Appraised Value [Member]
Impaired loans		$ 98
Impaired Loans [Member] | Discounted Appraised Value [Member] | Minimum [Member]
Fair value measurements, range		6.00%
Impaired Loans [Member] | Discounted Appraised Value [Member] | Maximum [Member]
Fair value measurements, range		6.00%
Impaired Loans [Member] | Discounted Appraised Value [Member] | Weighted Average [Member]
Fair value measurements, range		6.00%

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Note 7 - Fair Value Measurement - Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Financial assets
Securities available for sale	$ 53,594	$ 52,975	[1]
Reported Value Measurement [Member]
Financial assets
Cash and due from banks	34,755	18,229
Federal funds sold	132	42
Securities available for sale	53,594	52,975
Restricted equity securities	2,371	2,213
Loans held for sale	1,013	678
Loans, net	431,104	415,355
Bank owned life insurance	8,115	7,469
Accrued income	2,619	2,289
Financial liabilities
Total deposits	478,944	450,848
FHLB borrowings	11,361	8,000
Subordinated notes	7,247	7,224
Other borrowings	992	1,117
Accrued interest payable	508	386
Estimate of Fair Value Measurement [Member]
Financial assets
Cash and due from banks	34,755	18,239
Federal funds sold	132	42
Securities available for sale	53,594	52,975
Restricted equity securities	2,371	2,213
Loans held for sale	1,013	678
Loans, net	433,652	415,039
Bank owned life insurance	8,115	7,469
Accrued income	2,619	2,289
Financial liabilities
Total deposits	479,777	451,385
FHLB borrowings	11,386	8,031
Subordinated notes	7,954	8,012
Other borrowings	992	1,117
Accrued interest payable	508	386
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets
Cash and due from banks	34,755	17,479
Federal funds sold	132	42
Securities available for sale
Restricted equity securities
Loans held for sale
Loans, net
Bank owned life insurance
Accrued income
Financial liabilities
Total deposits
FHLB borrowings
Subordinated notes
Other borrowings
Accrued interest payable
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets
Cash and due from banks		760
Federal funds sold
Securities available for sale	53,594	52,975
Restricted equity securities	2,371	2,213
Loans held for sale	1,013	678
Loans, net
Bank owned life insurance	8,115	7,469
Accrued income	2,619	2,289
Financial liabilities
Total deposits	479,777	451,385
FHLB borrowings	11,386	8,031
Subordinated notes	7,954	8,012
Other borrowings	992	1,117
Accrued interest payable	508	386
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets
Cash and due from banks
Federal funds sold
Securities available for sale
Restricted equity securities
Loans held for sale
Loans, net	433,652	415,039
Bank owned life insurance
Accrued income
Financial liabilities
Total deposits
FHLB borrowings
Subordinated notes
Other borrowings
Accrued interest payable

[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, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Tax expense related to realized gains on securities sold	$ 413	$ 416	$ 930	$ 1,203
	917	903	2,116	1,928
Reclassification out of Accumulated Other Comprehensive Income [Member]
	12	28	40	170
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Realized gains on sales of securities held for sale during the period consider available for sale	18	43	60	257
Tax expense related to realized gains on securities sold	$ 6	$ 15	$ 20	$ 87

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Note 9 - Earnings Per Common Share (Details Textual) - shares	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	33,000	49,500

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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, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Earnings per common share, basic (in shares)	5,770,175	5,763,944	5,767,602	4,279,821
Earnings per common share, basic	$ 917	$ 903	$ 2,116	$ 1,520
Earnings per common share, basic (in dollars per share)	$ 0.16	$ 0.16	$ 0.37	$ 0.36
Convertible preferred stock (in shares)				1,486,669
Convertible preferred stock (in dollars per share)				$ (0.10)
Dilutive stock options (in shares)	24,602	10,142	24,602	10,142
Earnings per common share, diluted (in shares)	5,794,777	5,774,086	5,792,204	5,776,632
Earnings per common share, diluted	$ 917	$ 903	$ 2,116	$ 1,520
Earnings per common share, diluted (in dollars per share)	$ 0.16	$ 0.16	$ 0.37	$ 0.26