HomeTown Bankshares (HMTA) 8-K HomeTown Bankshares Reports Another Year of Record Earnings

Section 2: EX-99.1 (PRESS RELEASE)

News Release

FOR IMMEDIATE RELEASE

For more information contact:

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

Charles W. Maness, Jr., Executive Vice President & CFO, (540) 278-1702

HomeTown Bankshares Reports Another Year of Record Earnings

Roanoke, VA (February 1, 2013)– HomeTown Bankshares Corporation, the parent company of HomeTown Bank, reported another year of record earnings in 2012. Net Income of $4.6 million was achieved in 2012 vs. $1.9 million in 2011. In addition, pre-tax earnings of $850,000 for the fourth quarter ended December 31, 2012 almost doubled the $430,000 in earnings realized in the fourth quarter of 2011.

The recognition of deferred tax assets added income tax benefit of $2.1 million to the pre-tax profit of $2.5 million for net income of $4.6 million for the year ended December 31, 2012 vs. $1.9 million in 2011. After net accumulated dividends on preferred stock of $153 thousand for the quarter and $609 thousand for the year, the Company had net income available to common shareholders of $0.12 per share for the quarter and $1.22 per share for the year ended December 31, 2012, compared to $0.09 per share for the 4^th quarter of 2011 and $.41 per share for year in 2011.

The net interest margin increased throughout the year from 3.48% in 2011 to 3.82% in 2012, contributing to strong core earnings growth during 2012. A 22% increase in non-interest bearing deposits for the twelve months ended December 31, 2012, accompanied by steady reduction in funding costs throughout the year, were the primary contributors to the improved net interest margin. A 35% increase in non-interest income was also a major contributor to the record earnings for 2012. Specifically, mortgage loan brokerage income increased 150% while ATM and interchange revenue increased 28% during 2012.

“We are very pleased with another year of strong operating results in 2012,” stated Susan Still, President. “Our focus during 2013 will remain on earnings growth through increased lending activity and higher non-interest income from deposit account growth and another strong year of anticipated growth in mortgage lending, “she continued.

Balance Sheet

Total assets grew $9.3 million to $370.5 million at December 31, 2012 from $361.2 million at December 31, 2011 due to a 10.6% increase in net loans. Total Loans outstanding increased $25.8 million from $249.1 million at December 31, 2011 to $274.9 million at December 31, 2012. Total Deposits grew from $307.6 million to $310.0 million at December 31, 2012 with total non-interest bearing deposits increasing 22% or $5.8 million to $32.6 million at December 31, 2012 while higher cost interest bearing deposits, specifically retail CD's, declined $3.4 million.

Total Equity increased $3.6 million during the year to $36.7 million at December 31, 2012. HomeTown Bankshares' risk-based and tangible capital ratios continued to increase throughout 2012 with the Company remaining consistently above regulatory standards for well-capitalized banks.

Asset Quality

Loan quality continued to stabilize during 2012 with the level of nonperforming loans amounting to 0.98% of Total Loans at December 31, 2012 and nonperforming assets totaling 3.14% vs. .82% and 3.21%, respectively, at December 31, 2011. The Bank's Other Real Estate Owned (OREO) decreased $624 thousand during 2012. Net charge-offs amounted to $111 thousand for the quarter ending December 31, 2012 and $1.6 million or .61% of Total Loans for the year ended December 31, 2012 vs. $773 thousand and $2.47 million or .96% of Total Loans, respectively, at December 31, 2011. The Company's Allowance for Loan Losses at December 31, 2012 amounted to $3.8 million or 1.38% of Total Loans vs. $4.0 million and 1.60% of Total Loans at December 31, 2011.

“We continue to be very pleased with the progress that has been made with our asset quality throughout 2012,” stated Still. “Strong asset quality along with solid loan and deposit growth will be continue to be our goal during 2013 as we proactively serve our existing customer relationships and the needs of our communities,” she continued.

HomeTown Bank offers a full range of banking services to small and medium-size businesses, real estate investors and developers, private investors, professionals and individuals. The Bank serves the Roanoke and New River Valleys and Smith Mountain Lake through five branches and a loan production office. A high level of responsive and professionalized service coupled with local decision-making is the hallmark of its banking strategy.

* * *

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, 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 the year-to-date and quarter ending December 31, 2012)

HomeTown Bankshares Corporation

Consolidated Balance Sheets

December 31, 2012 and December 31, 2011

In Thousands, Except Share and Per Share Data	12/31/2012			12/31/2011
	(Unaudited)
Assets
Cash and due from banks	$	9,812		$	12,529
Federal funds sold		196			10,363
Securities available for sale, at fair value		63,466			69,207
Restricted equity securities, at cost		2,591			2,390
Loans, net of allowance for loan losses of $3,790 in 2012 and $3,979 in 2011		271,147			245,100
Property and equipment, net		9,754			9,582
Other real estate owned, net of valuation allowance of $575 in 2012 and $331 in 2011		8,938			9,562
Deferred tax asset, net		2,202			-
Accrued income		1,590			1,372
Prepaid FDIC insurance		5			473
Other assets		750			597
Total assets	$	370,451		$	361,175
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	32,627		$	26,822
Interest-bearing		277,370			280,814
Total deposits		309,997			307,636
Short term borrowings		216			449
Federal Home Loan Bank borrowings		22,000			19,000
Accrued interest payable		332			435
Other liabilities		1,187			567
Total liabilities		333,732			328,087
Commitments and contingencies		—			—
Stockholders’ Equity:
Preferred stock, $1,000 par value; 10,000 shares of series A and 374 shares of series B authorized, issued and outstanding at December 31, 2012 and December 31, 2011		10,374			10,374
Discount on preferred stock		(142	)		(217	)
Common stock, $5 par value; authorized 10,000,000 shares, issued and outstanding 3,262,518 (includes 29,178 restricted shares) at December 31, 2012, and 3,241,547 (includes 8,207 restricted shares) at December 31, 2011		16,167			16,167
Surplus		15,487			15,458
Retained deficit		(6,587	)		(9,773	)
Accumulated other comprehensive income		1,420			1,079
Total stockholders’ equity		36,719			33,088
Total liabilities and stockholders’ equity	$	370,451		$	361,175

HomeTown Bankshares Corporation

Consolidated Statements of Operations

Three and Twelve Months Ended December 31, 2012 and 2011

	For the Three Months Ended December 31,				For the Twelve Months Ended December 31,
In Thousands, Except Share and Per Share Data	2012		2011		2012			2011
	(Unaudited)		(Unaudited)		(Unaudited)
Interest income:
Loans and fees on loans	$	3,517	$	3,430	$	13,797		$	14,013
Taxable investment securities		349		478		1,631			1,894
Nontaxable investment securities		20		-		50			-
Federal funds sold		1		5		9			28
Dividends on restricted stock		28		16		92			63
Other interest income		10		9		40			16
Total interest income		3,925		3,938		15,619			16,014
Interest expense:
Deposits		520		783		2,299			3,831
Preferred stock dividends		-		-		38			-
Other borrowed funds		96		116		402			503
Total interest expense		616		899		2,739			4,334
Net interest income		3,309		3,039		12,880			11,680
Provision for loan losses		-		359		1,408			1,222
Net interest income after provision for loan losses		3,309		2,680		11,472			10,458
Noninterest income:
Service charges on deposit accounts		77		73		283			258
ATM and interchange income		66		51		231			180
Mortgage loan brokerage fees		106		77		368			147
Gain on sales of investment securities		4		-		131			196
Other income		170		58		389			257
Total noninterest income		423		259		1,402			1,038
Noninterest expense:
Salaries and employee benefits		1,265		1,169		4,894			4,753
Occupancy and equipment expense		317		308		1,259			1,286
Data processing expense		176		148		682			599
Advertising and marketing expense		89		142		386			331
Professional fees		72		31		343			295
Bank franchise taxes		34		54		137			204
FDIC insurance expense		121		88		490			539
Loss on sales and writedowns of other real estate owned		420		219		566			333
Other real estate owned expense		65		70		314			240
Directors' fees		59		-		227			-
Other expense		264		280		1,053			997
Total noninterest expense		2,882		2,509		10,351			9,577
Net income before income taxes		850		430		2,523			1,919
Income tax expense (benefit)		293		-		(2,073	)		-
Net income		557		430		4,596			1,919
Dividends accumulated on preferred stock		134		134		534			534
Accretion of discount on preferred stock		19		17		75			70
Net income available to common shareholders	$	404	$	279	$	3,987		$	1,315
Earnings per common share, basic and diluted	$	0.12	$	0.09	$	1.22		$	0.41
Weighted average common shares outstanding, basic and diluted		3,262,518		3,241,547		3,259,424			3,241,547

HOMETOWN BANKSHARES CORPORATION

Financial Highlights

(Unaudited)

	Three			Three			Twelve			Twelve
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	December 31			December 31			December 31			December 31
	2012			2011			2012			2011
PER COMMON SHARE
Earnings per share, basic and diluted	$	0.12		$	0.09		$	1.22		$	0.41
Book value							$	8.12		$	7.07
FINANCIAL RATIOS
Return on average assets		0.59	%		0.48	%		1.25	%		0.54	%
Return on average shareholders' equity		6.04	%		5.58	%		12.69	%		6.57	%
Net interest margin		3.84	%		3.64	%		3.82	%		3.48	%
Efficiency		64.29	%		67.29	%		66.93	%		71.91	%
Net charge-off to average loans (annualized)		0.16	%		1.22	%		0.61	%		0.96	%
Loans to deposits								88.69	%		80.97	%
ALLOWANCE FOR LOAN LOSSES
(in thousands)
Beginning balance	$	3,901		$	4,393		$	3,979		$	5,228
Provision for loan losses		-			359			1,408			1,222
Charge-offs		(129	)		(773	)		(1,616	)		(2,474	)
Recoveries		18			-			19			3
Ending balance	$	3,790		$	3,979		$	3,790		$	3,979
ASSET QUALITY RATIOS
Nonperforming assets to total assets								3.14	%		3.21	%
Nonperforming loans to total loans								0.98	%		0.82	%
Allowance for loan losses to total loans								1.38	%		1.60	%
Allowance for loan losses to nonaccrual loans								140.9	%		195.8	%
COMPOSITION OF RISK ASSETS
(in thousands)
Nonperforming assets:
90 days past due and accruing							$	-		$	-
Nonaccrual loans								2,689			2,032
Other real estate owned								8,938			9,562
Total nonperforming assets							$	11,627		$	11,594
Performing restructured loans							$	6,543		$	8,368
Total restructured loans							$	6,543		$	8,368