HMTA - HomeTown Bankshares Corporation Reports Strong Third Quarter and Year-To-Date Earnings; Announces Quarterly Cash Dividend of $0.04 per Share

Q3 Earnings Up 45% and 65% YTD

ROANOKE, Va., Oct. 31, 2018 (GLOBE NEWSWIRE) --

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

Operating Performance Highlights

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

Continued Strong Loan and Stable Deposits

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

Credit Quality Remains Sound

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

The Board of Directors declared a cash dividend of $0.04 per common share, payable November 30, 2018, to shareholders of record as of November 15, 2018.

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

"We are very pleased with our continued, strong earnings growth during the third quarter and for the first nine months of 2018. Solid growth in loans and core deposits, increases in interest rates, an improved net interest margin, and a reduction in the provision for loan losses contributed to a 45% increase in net income for the quarter. Non-recurring income and an improvement in the corporate tax rate for both quarters, contributed to a 65% increase in net income for the first nine months of 2018," said Susan K. Still, President and CEO.  "With continued strength in the economy, strong credit quality, and control of non-interest expenses, we would anticipate a favorable lending environment and successful access to core deposits for the remainder of the year," she continued.

Revenue

Core revenues increased 9% during third quarter of 2018 and 6% for the first nine months of 2018 due to solid loan growth and rising interest rates. Core revenue amounted to $6.5 million during the third quarter and $18.9 million for the first nine months of 2018, before non-recurring income of $702,000, which compared to $6.0 million and $17.8 million, respectively, in 2017. Higher core revenues were generated predominantly from commercial lines and loans, commercial real estate loans, personal lines and loans, private banking loans as well as non-interest income from credit and debit card interchange, treasury, and merchant services. Year to date mortgage revenue of $587,000 trailed 2017 mortgage revenue by 19% due to the significant drop in refinancing mortgages due to a rising rate environment over the past year. 

Net Interest Income

Net interest income increased 7% or $331,000 for the third quarter while year-to-date in 2018 grew $879,000 to $14.0 million at September 30, 2018. Higher loan volume and an increase in interest rates, offset by a smaller increase in deposit costs, also resulted in a 10 basis point increase in the Net Interest Margin for the third quarter of 2018 over 2017 and a 7 basis point improvement for the first nine months of 2018 over 2017. Net interest income should continue to grow with higher loan volume and increasing interest rates along with the growth in lower-cost core deposits and controlled mix of deposits, resulting in continued improvement in the net interest margin.

Noninterest Income
 
Total noninterest income amounted to $764,000 in Q3 2018 vs. $757,000 for the same period in 2017 due primarily to higher ATM and interchange income slightly offset by lower mortgage income.  Year-to-date noninterest income amounted to $2.9 million at September 30, 2018, up from $2.5 million for a comparable period in 2017 due primarily to non-recurring income from the recognition of a gain on bank owned life insurance.

New account growth, ATM and interchange income as well as credit card and merchant service income were the primary contributors to non-interest income for the first nine months of 2018.

Noninterest Expense

Noninterest expense during the nine months increased 3% over 2017 due primarily to an increase in OREO related expenses, and higher data processing costs. We also experienced increased personnel costs with the transition of a new Chief Credit Officer due to the retirement of our former Chief Credit Officer as well as the addition to staff of a new Chief Risk Officer.

Non-interest expense increases slowed to 1% during the third quarter of 2018 with strong improvement in our efficiency ratio to 69.7% at September 30, 2018 vs. 73.2% in 2017. A return to normalized overhead and core operating costs are anticipated for the remainder of 2018 following our core conversion and related expenses in 2017.

Net Income

Net Income was up $415,000 to $1.3 million or 45% for the third quarter and up $1.4 million or 65% to $3.5 million for the nine months ended September 30, 2018.  Return on average assets amounted to 0.94% and return on average shareholders' equity was 10.04% for the third quarter of 2018, compared to 0.84% and 9.03% for the nine months ended September 30, 2018. Improved profitability was due to a combination of increased loan volume at higher interest rates, controlled deposit mix and non-interest expenses as well as a lower provision for loan losses through the third quarter. 

Core earnings were up $385,000 or 28% for the third quarter and up $302,000 or 7% for the first nine months over similar periods in 2017.  Core earnings consist of pre-tax earnings less non-recurring income plus non-recurring expenses.

Loans

Total loans were $466 million at September 30, 2018, up $32 million or 7% from the third quarter of 2017 and up $22 million or 7% on an annualized basis for the nine months since December 31, 2017.  Loan growth was driven by commercial real estate, commercial and industrial lines and term loans, consumer lines and loans as well as private client loans.

Deposits

Core deposit growth for the first nine months ended September 30, 2018 was up 2% and 3% on an annualized basis since September 30, 2017.  Total deposits were $483 million, up $4.6 million over Q3 2017. Stable core deposits maintained thus far in 2018 were supported by continued growth in new banking relationships and a 14% increase in non-interest bearing deposits since 2017.  In addition, liquidity from stable core deposit growth resulted in a continued year over year reduction in our wholesale funding to less than 1% of total deposits. Significantly lower interest expense associated with wholesale funding will continue to reduce the costs of growing core deposits. 

Capital

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

Credit Quality

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

Nonperforming Assets

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

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

Allowance for Loan Losses

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

Forward-Looking Statements:

Certain statements in this press release may be “forward-looking statements.”  Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results that are not statements of historical fact and that involve significant risks and uncertainties.  Although the Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results will not differ materially from any future results implied by the forward-looking statements.  Actual results may be materially different from past or anticipated results because of many factors, some of which may include changes in economic conditions, the interest rate environment, legislative and regulatory requirements, new products, and competition, changes in the stock and bond markets and technology.  The Company does not update any forward-looking statements that it may make.
 
(See Attached Financial Statements for quarter ended September 30, 2018)

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