FORM S-4

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

(Name, address, including zip code, and telephone number, including area code, of agent for service)

No sales of shares are contemplated as part of the Plan and Agreement of Share Exchange which will be adopted by the HomeTown Bank shareholders at the Annual Meeting to be held on May 28, 2009. It is requested that this registration statement be declared effective no later than April 24, 2009 to permit time for printing, mailing and solicitation of shareholders.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

You are cordially invited to attend the annual meeting of stockholders of HomeTown Bank (the “Bank”) to be held at 2:00 p.m. on Thursday, May 28, 2009, in the Theatre (First Floor) of the Taubman Museum of Art, located at 110 Salem Avenue, S.E., Roanoke, Virginia 24011.

At this meeting, you will be asked to vote on a Plan and Agreement of Share Exchange to form a holding company for the Bank. If you approve this proposal at the meeting, HomeTown Bankshares Corporation will become the holding company for the Bank. Each existing share of the Bank’s common stock will be converted into an equal interest in the new holding company in a reorganization transaction. You will also be asked to vote on: (i) a proposal to postpone the meeting, if we believe additional time is necessary to obtain approval of enough shares to complete the reorganization; and (ii) election of directors for the Bank for the coming year.

The financial services industry is changing rapidly in Virginia and throughout our nation. With the current economic crisis, the federal government’s reactions, and with the further erosion of historical distinctions between different types of financial institutions and other financial service providers, community banks like ours are subject to more aggressive competition. While we expected to form a holding company at some point in the future for the greater flexibility and strategic opportunities it provides, we are proposing to do this now to obtain those benefits sooner in this unprecedented and rapidly changing environment for financial institutions.

In addition, forming the holding company will facilitate our participation in the Capital Purchase Program established by the U.S. Department of the Treasury under the Emergency Economic Stabilization Act of 2008. Please review the discussion of the Treasury program beginning on page 5 of the attached proxy statement.

The board of directors has considered and unanimously approved the formation of HomeTown Bankshares Corporation as being in the best interest of the Bank and its stockholders. The formation of the holding company has been approved by both the Federal Reserve and the Virginia Bureau of Financial Institutions. The final step is stockholder approval. The Bank’s board of directors recommends that stockholders vote FOR the Plan, approving the establishment of the holding company.

The accompanying proxy statement and related proxy materials provide detailed information concerning the proposed transaction to establish a holding company. We encourage you to carefully review these materials before completing the enclosed proxy card.

The affirmative vote of more than two-thirds of the Bank’s outstanding common stock is required to approve the reorganization. Not returning a proxy card, not voting in person at the annual meeting or abstaining from voting will have the same effect as voting against the reorganization.

It is important that your shares be represented at the annual meeting regardless of the number you own. Even if you plan to be present at the annual meeting, we urge you to complete, sign, date and return your proxy card promptly in the envelope provided. Any proxy given may be revoked by you in writing or in person at any time prior to the time it is exercised as described in the accompanying proxy statement.

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of HomeTown Bank (“Bank”) will be held at 2:00 p.m. on Thursday, May 28, 2009, in the Theatre (First Floor) of the Taubman Museum of Art, located at 110 Salem Avenue, S.E., Roanoke, Virginia 24011, for the following purposes:

(1) To consider a proposal to approve the reorganization of the Bank into a bank holding company form of ownership by approving a plan and agreement of share exchange, through which

(2) To consider a proposal to allow the Chairman of the meeting to adjourn the meeting to a later date and continue to solicit stockholders if he believes that there are insufficient votes to approve the reorganization;

(3) To elect sixteen (16) directors of the Bank for the ensuing year or until their replacements are qualified and approved; and

(4) To transact any other business that properly comes before the annual meeting or any adjournment of the meeting.

If you held shares of the Bank’s common stock at the close of business on April 21, 2009, you are entitled to notice of the annual meeting and to vote on all matters that properly come before the meeting, including the reorganization.

It is important that your shares be represented at the annual meeting regardless of the number you own. Even if you plan to be present at the annual meeting, we urge you to complete, sign, date and return your proxy card promptly in the envelope provided. If you attend this meeting you may vote in person or by your proxy. Any proxy given may be revoked by you in writing or in person at any time prior to the time it is exercised as described in the accompanying proxy statement/prospectus.

This proxy statement/prospectus incorporates certain business and financial information about HomeTown Bank and HomeTown Bankshares Corporation from other documents filed with the various regulatory authorities that is not included in or delivered with this proxy statement/prospectus. This information is available to you without charge upon oral or written request to:

If you would like to request any documents, please do so by May 22, 2009 in order to receive them before the annual shareholder meeting.

This communication presents only an overview of the more complete proxy materials that are available to you on the internet. We encourage you to assess and review all the important information contained in the proxy materials before voting.

The proxy materials enclosed with this notice are available at www.hometownbankva.com.

Pursuant to Rule 14a-16 of the Securities Exchange Act of 1934, we have adopted the “full set delivery” option and, accordingly, this notice accompanies a full set of proxy materials for the HomeTown Bank 2009 Annual Meeting, including the 2008 annual report, proxy statement and appendices and exhibits listed therein, and a proxy card. If you want to receive additional paper or e-mail copies of these documents, you must request one. There is no charge to you for requesting copies. Please make your request for a copy as instructed below on or before May 22, 2009 to facilitate timely delivery.

The following items are to be voted upon at the 2009 Annual Shareholders Meeting:

(1) To consider a proposal to approve the reorganization of HomeTown Bank (the “Bank”) into a bank holding company form of ownership by approving a plan and agreement of share exchange, through which

(3) To elect sixteen (16) directors of the Bank for the ensuing year or until their replacements are qualified and approved; and

(4) To transact any other business that properly comes before the annual meeting or any adjournment of the meeting.

Shareholders of records as of the close of business on April 21, 2009, will be entitled to vote their shares at the Annual Meeting. Your Proxy Card(s) will state the number of shares held under each of your accounts. Your vote is very important. If you are the record holder of your shares, you may vote either by mail or in person at the meeting.

If you require directions to attend the Annual Meeting in person, please contact the Bank using the contact information listed below.

Please contact HomeTown Bank through the telephone numbers, E-mail or address below to make the following requests:

THIS PROXY STATEMENT/PROSPECTUS IS BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 28, 2009. THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS APRIL , 2009.

The following questions and answers were written to help you understand the reorganization proposal. The remainder of the proxy statement and attached exhibits contain more detailed information. Before you vote, you should give careful consideration to all of the information contained in or incorporated by reference into this document.

The annual meeting (the “Meeting”) of stockholders will be held at 2:00 p.m. on Thursday, May 28, 2009, in the Theatre (First Floor) of the Taubman Museum of Art, located at 110 Salem Avenue, S.E., Roanoke, Virginia 24011.

You will be asked to vote on the proposed reorganization by which HomeTown Bankshares Corporation will become the holding company for HomeTown Bank (the “Bank”) and you will become a common stockholder in HomeTown Bankshares Corporation (the “Company”) instead of the Bank. Also, you will be asked to vote on a proposal that allows the Meeting chairman to postpone the Meeting if he believes we do not have enough votes to approve the reorganization. You will also be asked to vote on the election of directors of the Bank, as we do every annual meeting. Finally, you will vote on any other business as may properly come before the Meeting or any adjournment of the Meeting. You will not vote this year on the directors of the Company. At next year’s annual meeting you will vote on them if the reorganization is approved.

If you held Bank common stock at the close of business on April 21, 2009 you are entitled to vote at the Meeting. You may cast one vote for each share of common stock you held then on each matter properly presented at the meeting.

Please read the entire proxy statement and consider the matters carefully. Then complete the enclosed proxy form and mail it to the Bank in the enclosed return envelope. That proxy will instruct the persons named on the form how to vote your shares at the Meeting. You also may attend the Meeting in person and vote, even if you submit a proxy.

If you wish to change your proxy vote, you may do so by attending the Meeting and notifying the registrar before the Meeting begins, or submitting a proxy bearing a later date. The board of directors recommends that you vote FOR the reorganization, FOR the directors nominated and FOR the proposal to allow postponement of the Meeting.

Under the Bank’s articles of incorporation and bylaws, any stockholder approval must involve at least a quorum of all shares held, which is a majority of shares outstanding. If we have a quorum:

On April 21, 2009, the Bank’s directors and named executive officers, and their affiliates, held 9.21% of the Bank’s outstanding common stock. This represented 13.8% of the affirmative votes needed to approve the reorganization. We expect that all of these shares will be voted in favor of all the proposals submitted to stockholders.

We are proposing that the Bank be reorganized into a holding company structure, with each stockholder of the Bank receiving the same interest in the holding company that he or she now has in the Bank, and the Bank becoming a wholly-owned subsidiary of the holding company.

The Company will be located at the same location that the Bank now is located, 202 South Jefferson Street, Roanoke, Virginia 24011. The telephone number of the Company and the Bank will be (540) 345-6000, and our website will be www.hometownbankva.com.

HomeTown Bank and HomeTown Bankshares Corporation, a wholly owned subsidiary of the Bank formed to serve as the bank holding company after the reorganization (the “Company”).

In the reorganization, the Bank will become the wholly owned subsidiary of the Company through a share exchange in which all of the capital stock of the Bank, namely your shares of Bank common stock, will be acquired from you by the Company in exchange for an equal number of shares of the Company common stock which you will receive. For more information, please see the section of this proxy statement/prospectus captioned “Proposed Reorganization into a Bank Holding Company — Description of the Proposed Reorganization” on page 12.

Immediately after the reorganization takes place, and assuming there are no dissenters: (1) the Company will have outstanding the same number of shares of common stock that the Bank had issued and outstanding immediately prior to the reorganization; and (2) you and the other stockholders will hold the same number of shares of the Company common stock that were held in the Bank immediately prior to the reorganization.

Your rights as a stockholder of the Bank are governed generally by the Virginia Bank Act, a state statute, and the Articles of Incorporation and Bylaws of the Bank. Following the reorganization, your rights as a stockholder of the Company will be governed by Virginia corporate law and the articles of incorporation and bylaws of the Company. This change in applicable law, articles of incorporation and bylaws, will cause some changes in your stockholder rights. The following list highlights principal changes in your rights as a result of the reorganization:

For more information, please see “Proposed Reorganization into a Bank Holding Company — Differences in Stockholder Rights as a Result of the Reorganization” on page 15.

You should not incur U.S. Federal income taxes as a result of exchanging your Bank stock for Company stock. Cash you receive instead of fractional shares or in connection with the exercise of dissenter’s rights may be taxable. For more information about the tax consequences of the reorganization, please see the section of this proxy statement/prospectus captioned “Proposed Reorganization into a Bank Holding Company – Tax Consequences of the Reorganization” on page 18.

The Company’s Articles of Incorporation and the Virginia Stock Corporation Act contain provisions that enhance the ability of the Company to deal with attempts to acquire control of the Company. They may also facilitate the Company’s efforts to acquire additional financial institutions.

While management has no plans at present to engage in any acquisition or affiliation, it is open to opportunities that may develop. These provisions, together with the ability of the Company Board to issue preferred stock and determine its preferences and other terms, also may have an anti-takeover effect and discourage takeover efforts which have not been approved by the Board of Directors. These provisions are discussed on the previous page under “Will the reorganization change my rights as a stockholder?” and in more detail under “Certain Effects of the Reorganization—Comparison of the Rights of Stockholders.”

In addition to facilitating our participation in the Capital Purchase Program established by the U.S. Department of the Treasury under the Emergency Economic Stabilization Act of 2008 (also referred to as the Troubled Asset Relief Program (“TARP”)), the holding company structure will increase our opportunities to diversify our products and services and meet future opportunities to engage in the following, if we choose to do so, which will be facilitated by the adoption of this structure:

We have no specific plans to buy another institution or increase our securities activity, but we do intend to increase our insurance activities. The flexibility of a holding company will allow us to react more quickly to market forces. State tax savings will depend on our ability to move capital into the Company, which, at the state level, is taxed on income, while the Bank is taxed on capital.

As indicated above, it has been part of our plan to adopt a holding company structure in the future. The benefits of participating in the TARP, which will be facilitated by adoption of this structure, have caused us to advance its implementation.

After the reorganization, (1) the Federal Bank Holding Company Act of 1956, as amended, will apply to the Company, and the Board of Governors of the Federal Reserve System will regulate its operations as a bank holding company, (2) the Bank will continue to be regulated by the Virginia Bureau of Financial Institutions (“BFI”) and the Federal Reserve since the Bank will remain a member of the Federal Reserve; and (3) the deposits of the Bank will continue to be insured by the FDIC to the full extent provided by law. For more information, please see the section of this proxy statement/prospectus captioned “Supervision and Regulation” on page 51. In addition, as a participant in the TARP the Company will be subject to additional governmental regulations and controls. Please see the discussion of the Treasury program beginning on page 5.

At a special meeting held on December 11, 2008, the Bank’s board of directors elected eight Bank directors to serve as the Company director’s: George B. Cartledge, Jr., Warner Dalhouse, Victor F. Foti, Daniel D. Hamrick, Edward G. Murphy, William R. Rakes, Susan K. Still, and James M. Turner, Jr. If you approve the reorganization those persons will continue as the directors of the company until the Company’s first annual meeting next year at which time stockholders will elect all directors to the Company to serve for staggered consecutive three year terms.

After careful consideration, the Bank directors have determined that the reorganization is advisable and in the best interests of the Bank and its stockholders. Accordingly, the board unanimously approved the reorganization. The Bank board of directors recommends that you vote FOR approval of the reorganization.

If you do not vote in favor of the reorganization, and it is approved, and you do nothing else, your Bank stock will automatically be converted into Company common stock. However, if you do not vote in favor of the reorganization, you may have dissenters’ rights. Chapter 9, Article 15 of the Virginia Stock Corporation Act will govern the rights of dissenters. If the reorganization takes place, you will be entitled to receive payment of the value of your shares from the Bank if you (1) do not vote in favor of the reorganization, and (2) deliver in writing to the Bank prior to the vote on the reorganization notice of your intent to demand payment for your shares. For more information, including a description of other steps necessary to perfect dissenter’s rights, please see the section of this proxy statement/prospectus captioned “Proposed Reorganization into a Bank Holding Company — Rights of Dissenting Stockholders” on page 18.

Although the Bank’s management anticipates that the reorganization will ultimately facilitate growth within the banking field, the reorganization initially will require approximately $85,000 of expenditures related to operational changes, regulatory requirements, and professional fees. Furthermore, there can be no assurance that the restructure will ultimately benefit stockholders.

What other conditions must be satisfied before the reorganization can occur?

The Bank will not be permitted to complete the reorganization until it satisfies the following conditions:

For more information, please see the section of this proxy statement/prospectus captioned “Proposed Reorganization into a Bank Holding Company—Conditions That Must be Satisfied Before the Reorganization Can Occur” on page 14.

The Company submitted a voluntary application to participate in the U.S. Department of the Treasury’s Capital Purchase Program, of which the Trouble Asset Relief Program (“TARP”) is a part, conditional upon being granted status as a bank holding company by the Federal Reserve. On February 24, 2009, the Treasury preliminarily approved the application for the full amount requested.

As the Treasury program has evolved, the boards of the Bank and the Company have engaged in a deliberative process of evaluating and weighing the advantages and disadvantages of accepting “TARP” funds. The program under which the Company applied is designed for strong community banks. Rather than a “bailout”, it is a program designed to increase the capacity of participating banks to provide credit to qualified businesses and consumers in local markets.

The Company currently intends to participate in the Treasury program but will continue to monitor and evaluate any additional governmental requirements and market conditions up to closing, which is expected to occur within thirty days of the Meeting.

These funds are intended to provide the Company with expanded opportunities resulting from an increased capital base. They will enable the Bank to continue to grow its current business, expand its banking-related activities, take advantage of strategic opportunities as appropriate in the current environment, and provide additional means for the Bank to achieve its longer-term objectives. Because of the uncertainty of its ability to raise additional capital in the short term due to market conditions, the boards of the Bank and the Company are of the opinion that TARP funds could provide protection against conditions that may continue in capital markets and help to ensure continued growth of its services to the communities in which it operates.

If the reorganization is approved, the Company anticipates it will enter into a Letter Agreement (the “Purchase Agreement”) with the Treasury pursuant to which the Company would issue up to $5,979,000 of preferred stock (“Preferred Stock”), and warrants (“Warrants”) to purchase approximately $298,950 of Company preferred stock to the Treasury in a private placement. The additional capital will increase the Company’s total risk-based capital ratio to approximately 13% as of April 6, 2009. The Preferred Stock and Warrants will not be registered with the Securities and Exchange Commission when issued. If the reorganization is not approved, neither the Company nor the Bank will participate in the TARP.

The Preferred Stock will be non-voting senior preferred shares and will pay a dividend of 5% annually for the first five years after issuance and 9% annually after the fifth year, if they are not redeemed. Participation in the TARP is subject to the Treasury’s standard terms and conditions (including statutory requirements imposed in the future, including the executive compensation regulations promulgated under the American Recovery and Reinvestment Act of 2009), and the sale of Preferred Stock and Warrants is subject to the completion and review of necessary documentation.

The Company may not redeem the Preferred Stock during the first three years after the closing date with the Treasury (the “Closing Date”), except with the proceeds from a “qualified equity offering,” which is defined as the sale by the Company after the Closing Date of Tier 1 qualifying perpetual preferred stock or common stock, which results in aggregate gross proceeds of not less than 25% of the issue price of the Preferred Stock (or $5,979,000 in our case). After three years, the Company may, at its option, redeem from any source the Preferred Stock at par value ($5,979,000 in our case) plus accrued and unpaid dividends. The Preferred Stock is generally non-voting.

The Treasury’s consent shall be required for any repurchases of equity securities or trust preferred securities (other than (i) repurchases of the Preferred Stock and (ii) repurchases of junior preferred shares or common shares in connection with any benefit plan in the ordinary course of business consistent with past practice) until the tenth anniversary of the date of this investment unless prior to such tenth anniversary the Preferred Stock and the Warrant Preferred are redeemed in whole or the Treasury has transferred all of the Preferred and the Warrant Preferred to third parties.

Prior to the third anniversary of the Closing Date, unless the Company has redeemed the Preferred Stock or the Treasury has transferred the Preferred Stock to a third party, the consent of the Treasury will be required for the Company to increase its common stock dividend (which means the Company cannot pay any dividends during this period without Treasury consent since no dividends are currently paid) or repurchase its common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the Purchase Agreement. A consequence of participating in the TARP is the imposition of certain restrictions on executive compensation that could limit the tax deductibility of compensation the Company pays to executive management although this appears unlikely to affect the Company in light of its current compensation.

The Warrants will have a 10 year term and permit the holder to purchase, upon net settlement, a number of net shares of preferred stock of the Company (the “Warrant Preferred”) having an aggregate liquidation preference equal to 5% of the Preferred Stock amount on the date of investment. The initial exercise price for the Warrants shall be $0.01 per share or such greater amount as the charter may require as the par value per share of Warrant Preferred. The Treasury intends to immediately exercise the Warrants.

The Warrant Preferred shall have the same rights, preferences, privileges, voting rights and other terms as the Preferred, except that (1) the Warrant Preferred will pay dividends at a rate of 9% per annum and (2) the Warrant Preferred may not be redeemed until all the Preferred Stock has been redeemed.

The Warrants will not be subject to any contractual restrictions on transfer or the restrictions of any stockholders’ agreement or similar arrangement that may be in effect among the Company and its stockholders at the time of this investment or thereafter; provided that the Treasury shall not effect any transfer of the Warrants or underlying Warrant Preferred which would require the Company to become subject to the periodic reporting requirements of Section 13 or 15(d) of the Exchange Act.

The Company can be required to register the Preferred Stock, the Warrants and Warrant Preferred upon the request of the Treasury if and when the Company becomes eligible to file a registration on SEC Form S-3. The Company does not expect to register securities on SEC Form S-3 for at least a year. In addition, the Treasury and its transferees shall have piggyback registration rights for the Preferred Stock, Warrants and the Warrant Preferred. Subject to the above, the Company shall take all steps as may be reasonably requested to facilitate the transfer of the Warrants or the Warrant Preferred.

The Preferred Stock, the Warrants and the Warrant Preferred will be accounted for as components of Tier 1 capital.

Neither the Preferred Stock, the Warrants nor the Warrant Preferred will be subject to any contractual restrictions on transfer or the restrictions of any shareholder agreement or similar arrangement that may be in effect among the Company and its stockholders at the time of the investment or thereafter.

The Purchase Agreement and all related documents may be amended unilaterally by the Treasury to the extent required to comply with any changes in applicable federal statutes after the Closing Date.

As a condition to the closing of the investment, the Company and its senior executive officers covered by the Emergency Economic Stabilization Act (“EESA”) and the American Recovery and Reinvestment Act (“ARRA”) must modify or terminate all benefit plans, arrangements and agreements (including golden parachute agreements) to the extent necessary to be in compliance with these laws, and following the closing and for so long as the Treasury holds any equity or debt securities of the Company, the Company must comply with the executive compensation and corporate governance requirements of the EESA and the ARRA and any guidance or regulations issued by the Secretary of the Treasury on or prior to the date of the investment.

The Bank stockholders should consider, among other matters, the following factors in voting for the reorganization. If completed, the reorganization will result in holders of Bank common stock receiving corresponding shares of holding company common stock.

Applicable laws and Federal banking law restricts the Bank’s ability to pay dividends on its capital stock. The Bank may not have the ability to pay dividends if upon payment it would become undercapitalized under the laws and regulations enforced by the Virginia Bureau of Financial Institutions (“BFI”). The Bank may also be prevented from paying dividends if the BFI determines that the Bank is operating in an unsafe or unsound condition or engaging in an unsafe and unsound practice.

Even if stockholders approve the proposed reorganization into a bank holding company structure, these restrictions on the Bank’s ability to pay dividends will continue. Consequently, because the Company’s principal source of income will consist initially of dividends, if any, from the Bank, the restrictions on the Bank’s ability to pay dividends could restrict the Company’s ability to pay dividends. Moreover, the

Company will be restricted in its ability to pay dividends by constraints generally imposed on Virginia corporations, and may be further restricted by minimum capital requirements imposed by the Board of Governors of the Federal Reserve System. The Federal Reserve Board has issued a policy statement that provides that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. While the Bank has not had operating earnings, to the extent it generates operating earnings in the foreseeable future the Bank expects to retain those earnings to support its current and prospective business. In summary, at present the Bank does not pay dividends on its common stock and does not contemplate doing so in the foreseeable future. The same will be true of the Company.

As of the April 21, 2009 record date, the directors and named executive officers of the Bank beneficially own approximately 9.21% of our outstanding common stock. As a result of this percentage ownership, our directors and executive officers as a group can exercise significant control over our management and affairs, including the election of directors and the determination of all other matters requiring stockholder approval. This control is enhanced by the reorganization. Acting as a group, they will retain the power to block business combinations in accordance with the charter documents of both the Bank and the Company. Accordingly, this concentration of ownership may have the effect of delaying or preventing a change of control of the Company that you may favor.

In addition, provisions of the charter documents of the Company, as well as Virginia corporate law, could make it more difficult for a third party to acquire us after the reorganization, even if doing so would provide our stockholders with a “premium” to prevailing market prices or otherwise be beneficial to our stockholders. These provisions in the charter documents include:

The Company itself, and any non-bank subsidiaries it may in the future form or acquire, can engage in activities not permitted to the Bank itself. There is no assurance that the Company will be successful in any such activities.

If the reorganization is not approved, the Bank will be eligible to participate in the TARP program. Participation in the TARP program imposes additional restrictions on the Company and Bank, including the potential for future restructures which are not now known and costs associated with the interest payable on the Preferred Stock and Warrant Preferred while outstanding, and their ultimate redemption. However, the inability to participate in the TARP program if the reorganization is not approved will restrict the Bank’s ability to grow and to support its existing business during these uncertain economic times.

This proxy statement/prospectus and the documents incorporated by reference contain statements that are considered “forward looking statements” within the meaning of United States securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended. In addition, the Bank and the Company and their respective management may make other written or oral communications from time to time that contain forward-looking statements. Forward-looking statements, including statements about industry trends, management’s future expectations and other matters that do not relate strictly to historical facts, are based on assumptions by management, and are often identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” and “goal” or similar statements or variations of such terms. Forward-looking statements may include, among other things,

Although management believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results, performance or achievements of the Bank will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management’s expectations and assumptions at the time the statements are made, and are not guarantees of future results. Management’s expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, the equity, debt, currency and other financial markets, as well as factors specific to the Bank and the Company.

Actual outcomes and results may differ materially from what is expressed in our forward-looking statements and from our historical financial results due to the factors discussed elsewhere in this prospectus or disclosed in our other SEC filings. Forward-looking statements should not be relied upon as representing our expectations or beliefs as of any date subsequent to the time this prospectus is filed with the SEC. The Bank and the Company undertake no obligation to revise the forward-looking statements contained in this prospectus to reflect events after the time it is filed with the SEC. The factors discussed herein are not intended to be a complete summary of all risks and uncertainties that may affect our businesses. Though we strive to monitor and mitigate risk, we cannot anticipate all potential economic, operational and financial developments that may adversely impact our operations and our financial results.

Forward-looking statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate the Bank and the Company. Any investor in the Bank and the Company should consider all risks and uncertainties disclosed in our SEC and other regulatory filings described below under the heading “Where You Can Find More Information,” all of which are accessible on the SEC’s website at http://www.sec.gov, on the Bank’s website at http://www.hometownbankva.com, or upon request with the Bank.

The Bank derived the following information at and for the fiscal years ended December 31, 2005 through December 31, 2008 from its historical audited financial statements for those years. You should read the following selected historical financial information in conjunction with, but which is qualified in its entirety by, the information contained in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2008, including the Bank’s financial statements and the related notes thereto.

If you held Bank common stock at the close of business on April 21, 2009, you are entitled to vote at the Meeting. On April 21, 2009, there were 2,939,400 shares of Bank common stock outstanding. On that day, there were 2,036 holders of record of common stock. Each share of common stock is entitled to one vote on each matter properly presented at the Meeting.

At least a majority of the total number of shares of common stock entitled to vote must attend the Meeting, in person or by proxy, to constitute a quorum for matters to be voted upon by the common stockholders. We will count shares that abstain and broker non-votes as present for purposes of determining the presence of a quorum. If we have not obtained sufficient votes for a quorum, the Meeting may be adjourned or postponed to permit us to further solicit proxies.

We will count abstentions in tabulations of the votes cast to determine whether a proposal has been approved. Broker non-votes will not be counted to determine the number of votes cast for any proposal. You may vote FOR the reorganization, AGAINST the reorganization, or ABSTAIN by checking the appropriate box.

More than two-thirds of the Bank’s outstanding common stock must approve the reorganization for it to be passed. Consequently, the required vote of the Bank’s common stockholders is based on the total number of shares of the Bank’s common stock and not on the number of shares which are actually voted. Not returning a proxy card, not voting in person at the Meeting or abstaining from voting will have the same effect as voting against the Plan and Agreement of Share Exchange.

If a quorum is established, directors will be elected by a plurality of votes cast by shares entitled to vote. “Plurality” means that the individuals who receive the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting. Approval of any other matter that properly comes before the meeting will require the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the particular matter.

Broker-dealer firms holding shares of the Bank in “street name” for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on each proposal before the Meeting. A signed proxy card or other authorization by a beneficial owner of Bank shares that does not specify how the beneficial owner’s shares should be voted on a proposal will be deemed an instruction to vote such shares in favor of the reorganization.

The proxies solicited pursuant to this proxy statement, if properly signed and returned to the Bank, will be voted in accordance with the instructions contained in the proxies, unless revoked prior to their use. Executed proxies with no instructions indicated on the proxy card will be voted for the reorganization and for the nominees for directors. If you properly submit a proxy card, you may revoke it at any time before it is exercised by (1) filing a written notice of revocation with William C. Moses, Corporate Secretary, HomeTown Bank, 202 South Jefferson Street, Roanoke, Virginia 24011, (2) submitting a duly executed proxy card bearing a later date or (3) appearing at the Meeting and giving the Administrative Assistant notice of your intention to vote in person.

Proxies solicited pursuant to this proxy statement will be returned to the proxy solicitors and will be tabulated by inspectors of election designated by the board of directors of the Bank who are employees of the Bank. If any proxies or the tabulation is questioned, three judges, who are not executive officers or directors, will review the matter and make a final determination. After the final adjournment of the Meeting, the proxies will be returned to the board of directors of the Bank for safekeeping. Proxies solicited pursuant to this proxy statement may be used only at the Meeting and any adjournment of the Meeting and will not be used for any other meetings.

In addition to solicitation by mail, directors, officers and employees of the Bank may solicit proxies for the Meeting from stockholders personally or by telephone or telegram without receiving additional compensation for these activities. The Bank will bear the cost of soliciting proxies. The Bank also will make arrangements with brokerage firms and other custodians, nominees and fiduciaries to send proxy materials to their principals and will reimburse those parties for their expenses in doing so.

The reorganization will be accomplished pursuant to the Plan and Agreement of Share Exchange dated as of December 8, 2008 (the “Plan”). We have attached a copy of the Plan to this proxy statement as Appendix A and incorporate the Plan by reference into this proxy statement/prospectus. We urge you to read the entire Plan.

If our stockholders approve the reorganization and all of the other conditions set forth in the Plan are satisfied, on the effective date of the reorganization, other than dissenting shares, each share of the Bank’s common stock that is outstanding immediately prior to the reorganization will automatically by operation of law become one share of Company common stock.

After the reorganization, the former holders of the Bank’s outstanding common stock who do not exercise dissenters’ rights will hold all of the outstanding shares of Company common stock, and the Company will own all of the Bank’s outstanding capital stock.

After the reorganization, the Bank will continue its existing business and operations as a wholly owned subsidiary of the Company and the consolidated (1) capitalization, (2) assets, (3) liabilities, (4) income and (5) financial statements of the Company immediately following the reorganization will be substantially the same as those of the Bank immediately prior to the reorganization. The articles of incorporation and the bylaws of the Bank will continue in effect, and will not be affected in any material manner by the reorganization. The Bank will continue to use the name “HomeTown Bank.”

The board of directors of the Bank believes that the reorganization is in the best interests of the Bank’s stockholders for the reasons described below in the subsection captioned “Reasons for the Reorganization.” The boards of directors of the Bank and Company have approved the Plan. If the Bank’s stockholders approve the Plan and the other conditions described below are satisfied, the reorganization will become effective at the time specified in a Certificate of Share Exchange to be issued by the Virginia State Corporation Commission.

After careful consideration, the Bank’s board of directors has determined that the reorganization is advisable and in the best interests of the Bank and its stockholders and has approved the Plan and the transactions contemplated by the Plan. We recommend that you vote FOR approval of the Plan.

The affirmative vote of at least two-thirds of the shares of HomeTown Bank common stock outstanding and entitled to vote on the record date is required to approve the reorganization.

After the reorganization, the former Bank’s stockholders who do not exercise dissenters’ rights will be entitled to exchange their Bank stock certificates for new certificates representing the same number of shares of Company common stock. Until so exchanged, Bank stock certificates will, for all purposes, represent the same number of Company shares and the holders of Bank certificates who do not exercise dissenters’ rights will have all of the rights of Company stockholders.

After the reorganization takes place, instructions concerning the exchange of stock certificates will be sent to all holders of record as of the effective date of the reorganization. The Company intends to act as its own stock transfer agent.

The stock transfer books of the Bank will be closed immediately after the reorganization and no transfers of shares of the Bank common stock will be made or recorded on the stock transfer books after the reorganization.

If the reorganization takes place, the Bank’s stockholders will become stockholders of HomeTown Bankshares Corporation, a Virginia corporation. Accordingly, their rights will continue to be governed by the Virginia Stock Corporation Act and the articles of incorporation and bylaws of the Company. Due to several distinctions between the articles of incorporation and bylaws of the Bank and the company, there will be some differences in your stockholder rights. The following discussion summarizes the material differences in stockholder rights that will arise as a result of the reorganization. The articles of incorporation and bylaws of the Company and of the Bank are attached to this proxy statement/prospectus at Appendix B. We urge all stockholders to read these documents.

Payment of Dividends. The restrictions on the payment of dividends by the Company are different from the restrictions applicable to the Bank. Under Virginia corporate law, dividends may be paid out only if after making the distribution the corporation can pay its debts and its assets exceed its liabilities. The Company’s ability to pay dividends also may be restricted by minimum capital requirements imposed by the Federal Reserve. The Federal Reserve has issued a policy statement that provides that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. You should note, though, that after the reorganization, the Company’s principal source of income initially will consist of dividends, if any, from the Bank, and the existing restrictions on the Bank’s ability to pay dividends will continue in effect and impact the Company’s ability to pay dividends. The Bank has not paid dividends and does not expect to do so in the foreseeable future. The same will be true of the Company.

Authorized Capital. The Bank’s Articles of Incorporation authorize the issuance of up to 10,000,000 shares of common stock, par value $5.00 per share, of which 2,939,400 shares were issued and outstanding as of April 21, 2009. The Bank is not authorized to issue shares of preferred stock. The Company’s Articles will authorize the issuance of up to 10,000,000 shares of common stock, of which no shares were issued and outstanding as of the date of these proxy materials. If no dissenters’ rights are exercised the Company will have 2,939,400 shares of common stock outstanding after the restructuring is effected. The Company also will be authorized to issue up to 5,000,000 shares of preferred stock on terms set by the Company’s board, which could favor holders of preferred stock over holders of common stock in the payment of dividend, and could also be used to prevent a takeover attempt. Some of the preferred shares may be issued to the Treasury if the Company participates in the TARP. At present the Company expects to issue up to 5,979 shares of preferred to the Treasury in connection with the TARP participation. In addition, if the Company participates in the TARP, the Company will issue the Warrants to purchase 299 shares of the Warrant Preferred. If all Warrants are exercised the number of preferred shares outstanding will be 6,278.

Stockholder Vote Required for Certain Actions. The Bank’s Articles of Incorporation provide that an amendment of its Articles may be approved by stockholders owning a majority of the stock in the Bank, consistent with applicable laws. Other fundamental matters, such as mergers, dissolution, sale of substantially all the assets, etc. must be approved by at least two-thirds of the shares outstanding. The Bank’s Bylaws may be amended at any regular meeting of the board of directors by a two-thirds vote of the directors in office.

The Company’s Articles decrease the stockholder vote required to approve mergers, business combinations and certain other fundamental transactions to a majority of the shares entitled to vote at a meeting if recommended by the board of directors.

The effect of these provisions is to make stockholder approval of certain transactions less difficult to obtain if favored by the board of directors. A lower required stockholder vote will benefit the Company by reducing the cost of soliciting the stockholder vote. If, however, two-thirds of Board does not approve a merger or similar transaction, these provisions will make approval of the transaction subject to the two-thirds affirmative stockholder vote, which may be more difficult to obtain.

Size and Classification of Board of Directors. The Bank’s Articles provide for a board of directors consisting of not less than 7 nor more than 20 individuals, with the exact number to be fixed by a majority of the full Bank Board. Directors are elected at each annual meeting of stockholders.

The Company’s Articles provide for a board of directors the number of which consist of such number of individuals as may be fixed or provided for in the Bylaws of the Company. The directors have the ability to amend the Company’s bylaws and by doing so change the number of directors by up to 30%. New directors, however, are required to stand for reelection at the next annual meeting.

The Company’s Articles provide that directors are divided into three classes as nearly equal as possible, to be elected to consecutive three-year terms, with the first class’ term expiring in 2010. Directors of a class whose term expires, or their replacements, will be elected at the next annual meeting of stockholders. However, at the annual meeting in 2010, all Company directors will stand for re-election to the class in which they presently serve.

Vacancies and Removal of Directors. The Bank’s Bylaws provide that vacancies on the Board of Directors may be filled by a majority vote of the remaining directors. Neither the Virginia Banking Act nor the Bank’s Articles or Bylaws provide for the removal of directors.

The Company’s Articles provide that the directors then in office, whether or not a quorum, may fill a vacancy by majority vote. Company directors may be removed with or without cause with the affirmative vote of at least two-thirds of the outstanding shares entitled to vote.

Director Liability and Indemnification. The Bank’s Articles provide that the Bank may indemnify a director, officer or employee made a party to a proceeding because of being a director, officer or employee of the Bank for reasonable expenses, unless the director or officer engaged in willful misconduct or knowing violation of criminal law.

The Company’s Articles provide that each director and officer shall be indemnified against liabilities, penalties and claims because of serving as a holding company director or officer, serving as an officer, director, employee, agent of another entity at Company request, except as to matters for which he is finally adjudged liable due to willful misconduct or knowing violation of criminal law. The Company’s Articles also eliminate liability to the Company and its stockholders of each director and officer for monetary damages to the full extent permitted by Virginia law, except for liability for willful misconduct or a knowing violation of criminal or securities laws.

Special Meetings of Stockholders. The Bank’s Bylaws provide that special meetings of the stockholders may be called by the Chairman of the Board, the President, the Secretary, a majority of the directors, or by stockholders owning, in the aggregate, at least 10% of the outstanding stock of the Bank.

Company Bylaws provide that special meetings of the stockholders may be called by the board of directors, the Chairman of the Board or the President.

Director Nomination and Stockholder Proposals. It is the practice of the Bank for the board to consider candidates for board election. The entire board then determines which candidates should be recommended to the stockholders for approval at the annual meeting. The Company is expected to follow the same practice. Replacement directors are appointed by the board until the annual meeting and the same would be true with respect to the Company.

Rule 14a-8 of the regulations promulgated by the SEC under the Exchange Act, however, provides that stockholders who own at least 1% or $2,000 of market value of voting securities of a registrant, which will include the Company, may make a proposal for a vote at a stockholders’ meeting if the proposal is received on a timely basis and may not otherwise be omitted by the registrant, all as described in more detail in that rule.

Stockholder Voting Rights in General. You neither have preemptive rights as a Bank stockholder nor do you do have cumulative voting rights in the election of directors. As a Company stockholder, you will have neither preemptive rights nor cumulative voting rights. See “Description of Holding Company Capital Stock” on page 32.

State Anti-takeover Statutes. Virginia corporate law restricts transactions between a corporation and its affiliates and potential acquirers. Virginia corporate law applies to the Company and, except as otherwise provided in the Virginia Banking Act, to the Bank. The summary below is necessarily general and is not intended to be a complete description of all the features and consequences of those provisions.

The provisions governing Affiliated Transactions generally require that, for three years following the date upon which any stockholder acquires at least a 10% voting interest, any Affiliated Transaction must be approved by the affirmative vote of at least two-thirds of the outstanding voting shares, other than the shares of the large stockholder, and by a majority (but not less than two) of the corporation’s board of directors who (i) were members before the date on which the stockholder acquired his 10% interest or (ii) were recommended for election by a majority of such directors. These are called disinterested directors. After the three year period, these provisions require approval of the Affiliated Transaction by the affirmative vote of the holders of at least two-thirds of the outstanding shares of the corporation, other than those of the large stockholder, but not by the disinterested directors; approval by a majority of the corporation’s disinterested directors; or, that the transaction satisfy certain fair price requirements of the statute. In general, the fair price requirements provide that stockholders must receive for their share the higher of the highest per share price paid by the large stockholder attempting to engage in an Affiliated Transaction for his or its shares, or the fair market value of the shares. These provisions were designed to deter certain takeovers of Virginia corporations lacking substantial support among either incumbent directors or stockholders generally. There are no Bank stockholders who would be restricted by the Affiliated Transactions laws as Company stockholders.

Before the reorganization may take place, the Bank must receive an opinion of counsel that the reorganization will qualify as a tax-free exchange within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended. As a tax-free exchange, the reorganization will have the following federal income tax consequences:

(1) No gain, loss or income will be recognized by the Company upon the receipt of Bank common stock solely in exchange for Company common stock;

(2) No gain or loss will be recognized by the stockholders of Bank common stock upon the transfer of their common stock to the Company solely in exchange for Company common stock;

(3) The aggregate basis of Company common stock received by the Bank stockholders in the share exchange will be the same as the aggregate basis of Bank common stock exchanged for it;

(4) The holding period of Company common stock to be received by Bank stockholders will include the period during which Bank common stock surrendered in exchange for it was held, provided Bank common stock was held as a capital asset on the date of the exchange; and

(5) Bank stockholders who exercise their dissenters’ rights generally will recognize gain or loss equal to the difference between the amount of money received and their adjusted basis in their Bank common stock held.

Each Bank stockholder should consult its tax counsel as to the specific federal and state tax consequences of the reorganization, if any, to that stockholder. Gain or loss for United States income tax purposes may be recognized in the case of any Bank stockholder who receives payment in cash for the value of shares as a result of the exercise of rights as a dissenting stockholder.

For the reorganization to occur, the Company and the Bank must receive approvals from the Federal Reserve (which was received on January 6, 2009) and the BFI (which was received on January 28, 2009). In this section, we refer to these approvals as the required regulatory approvals. In reviewing these applications, the BFI considered, among other things, the financial and managerial resources of the Bank, the effect of the reorganization on depositors, creditors and stockholders of the Bank, and the public interest.

Neither the Company nor Bank is aware of any other governmental approvals or actions that are required for the reorganization to take place that are not described above. If any other approval or action is required, Bank and the Company presently contemplate that they would seek the approval or take the required action.

The following summarizes the Virginia law of dissenter’s rights. Chapter 9, Article 15 of the Virginia Stock Corporation Act governs dissenter’s rights and is reproduced in Appendix C. It applies to the share exchange because the Bank is governed by the Virginia corporate governance laws. You should read Appendix C thoroughly.

A Bank stockholder will have the right to receive in cash the fair value of his or her Bank shares immediately prior to the completion of the share exchange if the stockholder properly exercises dissenter’s rights. A stockholder who desires to exercise dissenter’s rights must satisfy all of the following conditions.

(1) Deliver a written notice of intent to demand payment for the stockholder’s Bank shares to the Bank before the vote on the share exchange. Merely voting against, abstaining or failing to vote on the share exchange will not relieve you of giving this notice.

(2) Do not vote for approval of the share exchange. Voting for approval or delivering a proxy for the stockholders’ meeting (unless the proxy specifies a vote against or abstaining from voting on approval of the share exchange) will nullify a notice of intent to demand cash payment. If a stockholder has shares registered in his or her name, some of which are beneficially owned by another person, the stockholder may assert dissenter’s rights as to less than all of the shares registered in his or her name, only if the stockholder (i) dissents with respect to all shares registered in the stockholder’s name which are beneficially owned by any one person; and (ii) notifies the Bank in writing of the name and address of each person. The rights of a partial dissenter are determined as if the shares as to which the stockholder dissents and the stockholder’s other shares are registered in the names of different people. The beneficial owner of shares registered in another name may assert dissenter’s rights if: (i) the beneficial owner gives the written consent of the stockholder of record to the Bank to the dissent not later than the time the beneficial asserts dissenter’s rights; and (ii) the beneficial owner dissents with respect to all shares beneficially owned or over which he or she has the power to vote.

(3) If the share exchange is completed, the Bank would be required, within 10 days after completion, to deliver a notice to all stockholders who properly exercised dissenter’s rights. This notice will give specified information to the stockholder in order to complete the process of demanding cash payment for his or her shares. A stockholder who is sent a dissenter’s notice must send a payment demand to the Bank and take certain other actions within the time period provided in the notice. Failure to do so on time will cause loss of dissenter’s rights.

Generally, within 30 days after receipt of a payment demand from a dissenting stockholder, the Bank is required to pay the dissenting stockholder the amount the Bank estimates to be the fair value of the dissenter’s shares, plus accrued interest. The Bank may choose to withhold payment, however, to dissenters who were not the beneficial owners of the dissenting shares at the earlier of the first publication by the news media or the first announcement to stockholders generally of the share exchange terms. In this case, the Bank will estimate the fair value of the after acquired shares based on then current market trades, plus accrued interest; and will offer to pay that amount to each dissenter who agrees to accept it in full satisfaction of the demand. The Bank will explain to the dissenter how it computed the fair value of the after acquired shares and how it calculated interest.

Within 30 days after the Bank makes the payment to dissenters or offers payment for after acquired shares, a dissenter may notify the Bank in writing of the dissenter’s own estimate of the fair value of his or her shares and the amount of interest due and demand payment of that amount (less what the Bank has already paid) or reject the Bank’s offer to pay and demand payment of the estimate. If any demand remains unsettled, within 60 days after receiving payment demand from the dissenter, the Bank will either ask the court to determine the fair value of the dissenting shares and the interest owed and make all dissenters whose demands remain unsettled parties to the lawsuit or pay the amount demanded.

The expenses of the reorganization, estimated to total approximately $85,000, will be borne by the Bank. No commissions of any kinds and no remuneration to directors will be paid as a result of the reorganization.

Termination. The Plan may be terminated by the unilateral action of either of the board of directors of the Bank or the Company prior to the approval by the stockholders of the Bank, or by the mutual consent of both boards of directors of the Bank and the Company after stockholder approval. The following are some of the reasons why either or both parties might terminate the Plan:

Each party’s decision to terminate the Plan will be made in the sole discretion of its own board of directors and for any or no reason as the respective boards may determine. Upon termination, the Plan will be deemed void and of no further effect. There will be no liability under or on account of the termination on the part of the parties, or the directors, officers, employees, agents or stockholders of any of them, except that the Bank will pay the fees and expenses incurred by the parties in connection with the transactions contemplated in the reorganization.

You are asked to approve, if necessary, allowing the Chairman of the meeting, who probably will be William R. Rakes, Esq., Chairman of the Board, to adjourn the annual meeting and reschedule it for a later date. This would be done if necessary to solicit further votes in favor of the reorganization and any other matters to be voted upon at the meeting. If you do not vote in favor of this proposal, your proxy may not be used by management to vote in favor of an adjournment pursuant to its discretionary authority.

The Bank’s Articles provide for a board of directors consisting of not less than 7 nor more than 20 individuals, with the exact number to be fixed by a majority of the full Bank Board. Directors are elected at each annual meeting of stockholders.

At the meeting, sixteen (16) directors are to be elected to hold office at the Bank. If elected all nominees shall hold office until the 2010 Annual Meeting of Shareholder(s) or until their respective successors are duly elected and qualify. It is the intention of the named proxies, unless otherwise directed, to vote in favor of the election of the sixteen (16) nominees for director named in this paragraph for a one year term.

No director’s employer or business is an affiliate of the Bank. William Rakes, a director, is a partner at Gentry, Locke, Rakes, and Moore LLP a firm which acts as the Bank’s corporate counsel. All nominees for director are independent as defined in Rule 4200(a)(15) of the National Association of Securities Dealers listing standards, except Susan Still, who is employed as President of the Bank.

Each nominee has agreed to serve if elected. In the event any named nominee shall unexpectedly be unable to serve, proxies will be voted for the remaining named nominees and such other person or persons as may be designated by the Bank’s Board of Directors.

The persons named below, all of whom are members of the present Board of Directors, are nominated for, election to serve as directors of the Bank.

The following table sets forth information as of April 21, 2009 indicating the director’s names, ages, principal occupations and the amount and percentage of Bank common stock beneficially owned by each director, those persons owning five percent or more of the Bank’s outstanding shares, together with all shares owned by directors and executive officers of the Bank as a group.

Includes shares which may be deemed beneficially owned by virtue of family relationships, joint ownership, voting power or investment power.

The Board of Directors does not know of any matters to be presented at the Meeting of stockholders other than as set forth above. However, if any other matters come before the meeting, proxies received pursuant to this solicitation will be voted thereon in accordance with the recommendations of the Board of Directors.

Directors of the Bank currently receive no fees for board meetings, and no fees for attending committee meetings.

The Board of Directors held 14 meetings during fiscal year 2008. All incumbent directors attended at least 75 percent of the aggregate number of meetings held by the Board and meetings of committees on which they served.

The Board of Directors has appointed an Audit Committee consisting of the following nonemployee directors: Messrs. Foti (Chairman), David D. Willis and Clifton A. Woodrum, III. The Audit Committee, which met five times during 2008, is responsible for reviewing the financial records and reports of the Bank.

The Audit Committee is responsible for providing independent, objective oversight of the Bank’s accounting functions and internal controls. The Audit Committee is composed entirely of directors who are independent as defined by Rule 4200(a)(15) of the Financial Industry Regulatory Authority (“FINRA”). It acts under a written Charter adopted and approved by the Board of Directors. A copy of the Charter was published in the Proxy Statement for the 2006 Annual Meeting of Shareholders. A copy may be obtained, without charge, upon request from the Corporate Secretary.

The responsibilities of the Audit Committee include appointing, compensating and overseeing the firm to be engaged as the Bank’s independent accountants. Additionally, and as appropriate, the Audit Committee reviews and evaluates, and discusses and consults with management, internal audit personnel and the independent accountants regarding, the following:

The Audit Committee is responsible for recommending to the Board that the Bank’s financial statements be included in the Bank’s annual report. The Committee took a number of steps in making this recommendation for 2008. First, the Audit Committee discussed with the Bank’s independent public accountants those matters the accountant communicated to and discussed with the Audit Committee under applicable auditing standards as required by Independent Standards Board Standard No. 1, including information regarding the scope and results of the audit. These communications and discussions are intended to assist the Audit Committee in overseeing the financial reporting and disclosure process. Second, the Audit Committee discussed the accountant’s independence with that firm and received a letter from the accountant concerning independence as required under applicable independence standards for auditors of public companies. This discussion and disclosure informed the Audit Committee of the accountant’s independence, and assisted the Audit Committee in evaluating such independence. Finally, the Audit Committee reviewed and discussed, with the Bank’s management and the accounting firm, the Bank’s audited balance sheets and statements of income, cash flows and stockholders’ equity for the year then ended December 31, 2008. Based on discussions with the accountants concerning the audit, the independence discussions, and the financial statement review, and such other matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended to the Board that these financial statements be included in the Bank’s 2008 Annual Report on Form 10-K.

A COPY OF THE BANK’S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2008, REQUIRED TO BE FILED WITH THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE IN RICHMOND,

VIRGINIA AND RELATED SCHEDULES THERETO SHALL BE PROVIDED BY THE BANK WITHOUT CHARGE TO EACH SHAREHOLDER UPON HIS WRITTEN REQUEST TO WILLIAM C. MOSES, CORPORATE SECRETARY, 202 SOUTH JEFFERSON STREET, ROANOKE, VIRGINIA 24011.

The Board of Directors has appointed a Corporate Governance Committee (the “Committee”) consisting of the following non-employee directors: Messrs. Cartledge, Dalhouse, Foti, Murphy and Rakes (Chairman). The Committee acts under a written Charter adopted and approved by the Board of Directors. A copy of the Charter was published in the Proxy Statement for the 2006 Annual Meeting of Shareholders. A copy may be obtained, free of charge, upon request from the Corporate Secretary.

The responsibilities of the Committee, which met two times during 2008, include (a) serving as the nominations committee of the Board; (b) serving as the compensation committee of the Board; and (c) performing such other duties and responsibilities relating to governance of the Bank as are described in the Charter or as are assigned to it by the Board.

Currently, the Bank does not consider candidates for election to the Board of Directors recommended by shareholders. This policy is based, among other things, on the fact that the Bank has been an operating entity for less than four years. Thirteen of the sixteen incumbent directors were organizers of the Bank. The three other director nominees (Kenneth S. Bowling, Daniel D. Hamrick, and Shirley Martin) were chosen in 2008 from the New River Valley in connection with the Bank’s joint effort with the New River Valley Bank Development Committee to establish a new community banking operation in the New River Valley. The Bank believes it to be beneficial for the Board of Directors to be comprised of individuals with the types of expertise and scope currently represented on the Board and represented in the three new nominees during these critical first years of the Bank. The Committee and Board believe they are best positioned to identify such individuals who should continue to serve or who may be appropriate to add to the Board when there are expired or otherwise vacant seats. The Committee considers share ownership, business experience and expertise, character, particular goals and needs of the Bank for additional competencies or characteristics, educational background, and board experience in evaluating potential nominees.

The Bank has adopted a Code of Ethics for Directors and Executive Officers. The Code is intended to comply with Section 406 of the Sarbanes-Oxley Act of 2002, and to serve as the code of conduct for directors required by the listing requirements of The NASDAQ Stock Exchange. Any stockholder may receive a copy of the Code of Ethics by writing to the Corporate Secretary.

The Bank has adopted “whistleblower” procedures for the receipt, retention and treatment of reports or complaints to the Audit Committee regarding accounting, auditing, legal and regulatory matters. The procedures also make provision for the confidential, anonymous submission of complaints, reports or concerns regarding accounting or compliance matters. The procedures incorporate the Bank’s policy that it will not discriminate against or take any negative action with respect to any employee with respect to the good faith reporting of complaints, reports or concerns, or otherwise as specified in Section 806 of the Sarbanes-Oxley Act of 2002.

The Board of Directors has determined that all of its members are “independent” directors under FINRA Rule 4200(a)(15), except for Ms. Still who is an officer and full-time employee of the Bank.

The Sarbanes-Oxley Act of 2002 and SEC rules require public companies to disclose whether they have at least one “audit committee financial expert” serving on their audit committee. The Bank’s Board of Directors has determined that Victor F. Foti, the Chairman of the Audit Committee, is “independent” under the standards of the SEC and the applicable rules of the FINRA, and that he qualifies as an audit committee financial expert.

The Board of Directors has adopted a policy with respect to stockholder communications. Stockholders are encouraged to communicate with the Board of Directors, or with individual directors, regarding their concerns, complaints, and other matters pertinent to the Bank’s business. Stockholders should send their communication in writing to the Corporate Secretary, indicating whether it is intended for the Board as a whole, for the Chairman of a committee, or for one or more individual members of the Board. Communications will be reviewed by the Corporate Secretary and forwarded to the directors for whom it appears to be intended. Communications that are directed to the Board or individual directors which involve specific complaints from a customer of the Bank relating to the customer’s deposit, loan or other financial relationship, will be forwarded to the head of the department of the Bank that is most closely related to the subject of the communication, with a copy to the Chairman of the Audit Committee.

Attendance by directors at annual meetings of the Bank’s stockholders benefits the Bank by giving directors an opportunity to meet, talk with and hear the concerns of stockholders who attend those meetings, and by giving those stockholders access to the Bank’s directors that they may not have at any other time during the year. The Board of Directors recognizes that it will not always be possible for every director to be in attendance at annual meetings. However, it is the policy of the Board of Directors that directors are strongly encouraged to attend each annual meeting of the Bank’s stockholders. At the 2008 annual meeting all directors were in attendance.

Based upon a review of beneficial ownership reporting Forms 3 and 4 furnished to the Bank under Rule 16a-3(e) of the SEC, we believe that all reports of initial and subsequent changes in beneficial ownership of the Bank’s stock as required pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, were filed with the Board of Governors of the Federal Reserve on a timely basis during 2008 by all persons who were directors or executive officers of the Bank at any time during the year.

The Corporate Governance Committee serves as the Board’s Compensation Committee and makes recommendations to the Board with respect to compensation of the Executive Officers. The Committee may not delegate its authority. The Committee is responsible to the Board for establishment and oversight of the Bank’s compensation program for officers, including Named Executive Officers. All members of the Committee are “independent” under the current rules of the SEC and the FINRA.

The primary objective of the Bank’s compensation programs is to provide competitive compensation to attract, retain and motivate qualified employees who will contribute to the long-term success of the Bank. In furtherance of this objective, the Bank regularly evaluates the compensation provided to its executive officers to endeavor to ensure that it remains competitive in relation to the compensation paid to similarly situated executive officers at other financial institutions of comparable size and performance. In addition, the Bank endeavors to ensure that the compensation provided to its executive officers is internally equitable based upon the skill requirements and responsibilities associated with each executive position.

The Bank’s compensation programs are designed to reward each executive officer’s job performance and contributions to the Bank. These factors are generally determined in the subjective judgment of the Committee for each of the named executive officers. With the benefit of performance reviews and salary recommendations by the Chief Executive Officer, the Committee also recommends the compensation for the other executive officers to the Board of Directors.

In making compensation decisions, the Committee places significant emphasis on the Bank’s performance as compared to its business plan and as compared to peer financial institutions.

The Bank’s compensation program for its executive officers is generally administered by or under the direction and supervision of the Committee. The Committee is responsible for reviewing and recommending to the independent members of the Board of Directors for approval the salary, bonuses, and all other compensation and benefits to be provided to the Bank’s executive officers.

The Bank’s Committee annually reviews the compensation and performance of each executive officer. The Committee then makes recommended compensation adjustments or makes modifications in its discretion. The Committee then makes its final recommendations to the independent members of the Board of Directors for approval.

In setting salaries for the Bank’s executive officers and other employees, the Committee and Chief Executive Officer (except with respect to herself) establish an appropriate compensation range, primarily based on publicly available market data regarding compensation paid to similarly situated executive officers and employees at other companies. The Committee identifies the compensation range based on information compiled by the salary survey of the Virginia Bankers’ Association and publications of national consulting firms. These resources utilize market data from public information such as proxy statements. Compensation ranges are established and adjusted annually based in part on this information.

For each employee position or category within the Bank, the compensation level that is established is derived from comparable averages, medians, and percentile target ranges of similar sized financial companies in comparable markets. Although the Committee generally does not target a specific point within the compensation range for executive officer salaries, the Committee strives to ensure that its executive officer compensation remains competitive with the compensation provided by other financial institutions with which the Bank competes for executive talent.

There are five general components to the annual compensation that the Bank provides to its executive officers: 1) base salary; 2) performance based incentive compensation; 3) participation in the 2005 Stock Option Plan (the “Plan”); 4) retirement, insurance, and health benefits; and 5) perquisites and other benefits.

Base salary represents the primary component of annual compensation paid to the Bank’s executive officers. When recommending an executive officer’s salary within the relevant compensation range, the Committee primarily considers the executive officer’s job performance and contribution to the objectives of the Bank. As discussed above, these factors are determined in the subjective judgment of the Committee for the Chief Executive Officer and with the benefit of performance reviews and salary recommendations by the Chief Executive Officer for other executive officers of the Bank. The Committee also considers local and national economic conditions as well as future business prospects of the Bank in setting base salary levels.

For the 2008 fiscal year, the Bank had an Incentive Compensation Plan for all employees, including the executive officers. Pursuant to this program, the employees of the Bank are eligible to receive a cash bonus of up to twenty percent of base salaries. Payments to executive officers are based on goals established for the Bank in conjunction with the Bank’s budget. Net income, growth targets and bonus levels under the program are established at the start of each fiscal year through a collaborative effort involving management and the Committee, and are subject to final approval by the Board of Directors. Goals for non-executive officer employees are established relating to the employee’s particular position and role within the Bank.

The Bank believes that its long-term interests are advanced by aligning the interests of its executives and non-executives with the interests of our shareholders. Accordingly, in 2006, the Bank granted options to its executives and other employees pursuant to the Plan, which was approved by shareholders at the 2006 Annual Meeting. Options under the Plan for employees are intended to be qualified stock options granted at an exercise price equal to the then current-market price at the time the option is granted. The options have been awarded with vesting periods ranging from immediate vesting to three years. With certain exceptions, these options expire at the end of ten years from the date of grant. Approximately 44,750 shares remain under the Plan that are available for grant. In light of accounting changes regarding the expensing of options, the Bank is reevaluating whether stock options are the most cost effective way of providing incentive compensation to its employees. The Bank currently has no plans to request that the shareholders approve either a) an amendment to the Plan to increase the number of authorized shares; or b) to approve a new stock option plan.

Option grants are generally recommended by the Chief Executive Officer of the Bank (except with respect to herself). The Committee then evaluates potential grant recipients on a number of objective and subjective factors. Option grants are approved by the Committee and Board of Directors, which administers the Plan. The Board awards grants based on a number of criteria, including the relative rank of the employee within the Bank and his or her specific contributions or potential contributions to the success of the Bank based on subjective criteria.

All full-time employees, including the executive officers of the Bank, are eligible to participate in the Bank’s 401(k) Profit Sharing Plan. For each executive officer or other employee who participates in the 401(k) Profit Sharing Plan, the Bank matches 100% of contributions up to 3% and 50% for the next 3% of the participant’s annual compensation.

Group term life insurance is provided in an amount equal to two times annual salary.

The Bank provides its executive officers with certain perquisites and other benefits that the Committee believes are reasonable to enable the Bank to attract and retain qualified executive officers and to promote business development activities by the executive officers in the communities served by the Bank. The Committee believes that these perquisites and other benefits are reasonable in amount and consistent with those provided by similarly situated financial institutions in the Bank’s market area.

The executive officers of the Bank are also eligible to participate in all of the employee benefit plans, such as medical, dental, group term life insurance, and disability insurance, which are generally available to all employees of the Bank on a non-discriminatory basis.

Susan K. Still. Ms. Still is employed as President and Chief Executive Officer of the Bank pursuant to an Employment Agreement effective as of March 1, 2006. Under the agreement, as amended effective May 22, 2008, she has the duties and responsibilities generally performed by the President and Chief Executive Officer of a community, commercial bank. The agreement has a three-year term with an automatic extension each year of one additional year unless either party gives notice at least 90 days prior to the date of extension that the Employment Agreement shall not be extended. The Employment Agreement provides for a minimum salary level that may be increased (but not decreased) by the Board pursuant to an annual evaluation, as well as group benefits to the extent provided to other executive officers.

The Employment Agreement also contains change-in-control provisions entitling Ms. Still to certain benefits in the event her employment is terminated by either employer or employee within six months of a change-in-control as defined in the Employment Agreement. If a change-in-control followed by such termination occurs, Ms. Still will receive at her option, either a lump sum payment equal to her then annual base salary, reduced to present value, or monthly payments for a period of thirty-six months less one day. During such period, she will continue to be provided insurance benefits (medical, accident and life) on the terms and at levels substantially the same as those existing on the day prior to the date of termination. However, if the Company accepts participation in the TARP, the change-in-control provisions of Ms. Still’s Employment Agreement will not apply so long as the Treasury’s investment in our preferred stock remains outstanding.

The Employment Agreement sets forth certain confidentiality provisions as well as a covenant not to compete. If Ms. Still’s employment is terminated without cause and she is paid the benefits to which she is entitled under the Employment Agreement or it is terminated for cause, or she resigns his position with the Bank, Ms. Still agrees that for a period of two years from the date his employment is terminated, she will not, without the prior express written consent of the Chairman of the Board of Directors, become affiliated within a 40-mile radius of the main office of the Bank as an officer, employee, agent, partner, director, consultant or substantial stockholder (more than 5%) of any entity engaged in the commercial or retail banking, lending or leasing business, or become involved in the process of formation of any entity to engage in the banking business.

William C. Moses and Charles W. Maness, Jr. Mr. Moses, Executive Vice President and Chief Credit Officer, and Mr. Maness, Executive Vice President and Chief Financial Officer, are each employed by the Bank pursuant to Employment Agreements effective as of March 1, 2006 for Mr. Moses, and May 1, 2006 for Mr. Maness. Each of the Employment Agreements for the named Executive Vice Presidents is substantially identical to the agreement between the Bank and the President and Chief Executive Officer.

Ms. Still, Mr. Moses and Mr. Maness are sometimes referred to herein as the “Named Executive Officers.”

Should the Company accept TARP funds, it will be subject to various Treasury rules and regulations while the Preferred and Warrants Preferred are outstanding. Current rules and regulations would require modification of the employment agreements described above. However, there is legislation pending in the U.S. Congress that would permit the Secretary of the Treasury to exempt community banks from the effect of recent rules for executive compensation. The affected employees and the Company intend to fully comply with such Treasury rules and regulations as are applicable.

The following table shows the compensation paid by the Bank for the years ended December 31, 2008 and 2007 to the Named Executive Officers of the Bank who served in such capacities as of December 31, 2008 for services rendered to the Bank during the year ended December 31, 2008.

The following table shows for each of the named executive officers (1) the number of stock options that are outstanding, (2) the number and percentage of options granted to the named executive officers individually and as a group, (3) the total number and percentage of options granted to all employees as a group, (4) the exercise price, and (5) the expiration date.

The options awarded to the Named Executive Officers were vested and exercisable as of December 31, 2006. No stock options have been exercised by any of the Named Executive Officers.

HomeTown Bank is a Virginia chartered commercial bank, headquartered in Roanoke, Virginia. Its deposits are insured by the FDIC. The Bank has operated as a full service commercial bank since 2005, offering a broad range of banking products.

Historically, the Bank’s banking operations have focused on the Roanoke Valley, New River Valley and Smith Mountain Lake regions of Virginia. The Bank has experienced growth, with total assets increasing from $38.4 million at December 31, 2005 to $233.6 million at December 31, 2008, and total deposits increasing from $13.8 million at December 31, 2005 to $188.4 million at December 31, 2008.

The Bank’s interest earning assets are comprised primarily of loans and investment and mortgage-related securities. At December 31, 2008, loans, net, were $208.4 million and investment securities available for sale were $9.5 million. This compares to net loans of $132.3 million and investment securities available for sale of $8.0 million at December 31, 2007. For additional information on the Bank’s loan portfolio, see the Management Discussion and Analysis of Financial Condition and Results of Operations section beginning on page 35.

At December 31, 2008, nonaccrual loans totaled $2,328,000, and the Bank’s total allowance for loan losses was $2,862,000 or 1.35% of loans net of unearned income and 122.9% of nonaccrual assets at that date.

Deposits in the Bank are insured to the maximum extent provided by law by the FDIC, and the Bank is a member of the Federal Home Loan Bank System. The FDIC and BFI examine and regulate the Bank’s operations. As a member of the Federal Reserve System, the Bank also is subject to regulations of the Federal Reserve Board that are applicable to member banks. If the reorganization is approved and completed, the Company will be regulated as a bank holding company by the Federal Reserve Board and the BFI.

The Bank’s executive offices are located at 202 South Jefferson Street, Roanoke, Virginia 24011; its telephone number is (540) 345-6000; and its home page on the Internet is at: www.hometownbankva.com.

The Bank is the first independent bank organized in the City of Roanoke in nearly ten years. The Bank’s primary service areas are the Roanoke Valley, New River Valley and the Smith Mountain Lake regions of Virginia. Located in the Roanoke Valley in western Virginia, this market is diversified but has not grown in recent years as fast as the northern and eastern portions of the state. The Bank competes mainly with other commercial banks and credit unions in attracting and retaining savings and transaction deposits and in making consumer, real estate and commercial loans. Competition for deposits is intense.

There are several other banks operating in the Roanoke Valley. The Bank competes for loans with other banks, most of which are larger and have available resources greater than those of the Bank. In addition, the Bank competes with credit unions, small loan companies, and savings institutions.

Management believes that the Bank has been able to compete effectively for deposits and loans by:

The Bank’s ability to originate loans depends primarily on the rates and fees charged and the service it provides to its borrowers in making prompt determinations as to whether it will fund particular loan requests. The Bank’s ability to attract deposits depends on its ability to offer competitive rates and its active participation in the CDARs program through which the Bank obtains larger certificates of deposit.

As of December 31, 2008, the Bank owned two branch locations and leased three locations for its main office, branches and loan production office. The Bank’s properties are well maintained and are suitable for the Bank’s business as presently conducted. All of the Bank’s properties are listed below.

The Bank has only one class of common stock (par value of $5 per share). There is no active trading market for the shares. As of December 31, 2009, there were 2,036 stockholders of record holding 2,939,400 shares of the authorized 10,000,000 shares. On April 8, 2009 (the most recent practicable date prior to printing proxy statement/prospectus), there were 2,036 holders of record of Bank’s common stock.

The declaration and payment of dividends by the Company on its common stock will depend upon its earnings and financial condition and upon other factors that are not presently determinable. The Bank’s ability to pay dividends may be restricted by federal banking law and the regulations of the BFI. In addition the Bank expects to retain its earnings to support its business operations and growth for an extended period of time. For more information, please see the section of this proxy statement/prospectus captioned “Proposed Reorganization into a Bank Holding Company—Differences in Stockholder Rights—Payment of Dividends” on page 15. Company expenses, to the extent attributable to services provided to the Bank, would be charged to the Bank at no more than market rates.

For information in connection with the beneficial ownership of the capital stock of the Bank please refer to the “Beneficial Ownership of Securities” section of this proxy statement/prospectus.

HomeTown Bankshares Corporation was incorporated on December 8, 2008 in Virginia to serve as a bank holding company in the reorganization. The Company has no prior operating history. Its principal office is located at 220 South Jefferson Street, Roanoke, Virginia 24011, and its telephone number is (540) 345-6000.

The Company is authorized to issue 10,000,000 shares of common stock, $5.00 par value, and 5,000,000 shares of preferred stock. The Bank currently owns 10 shares of Company common stock, which constitute all of the issued and outstanding capital stock of the Company immediately prior to the reorganization. On the effective date of the reorganization, all of the Company stock held by the Bank will be cancelled.

On the effective date of the reorganization, the outstanding shares of the Bank common stock will be acquired from Bank stockholders through a statutory share exchange. The Bank shares will be converted into the equivalent number of shares of Company common stock, and the Company will own all of the outstanding capital stock of the bank.

As of the date of this proxy statement/prospectus, the Company does not employ any persons but has three officers listed below. If the reorganization is approved, the Company will employ these three officers and may employ several other persons in management positions.

Management—Information about the HomeTown Bankshares Corporation Board of Directors

The initial directors of the Company, all of whom are members of the Board of Directors of HomeTown Bank, are: George B. Cartledge, Jr., Warner Dalhouse, Victor F. Foti, Daniel D. Hamrick, Edward G. Murphy, William R. Rakes, Susan K. Still, and James M. Turner, Jr.

Company directors will be divided into three classes and initially elected for one, two and three year terms at the first meeting of the stockholders of the Company. It is our intention that all initial directors will stand for re-election to their respective class by the stockholders at the Company’s 2010 annual stockholder meeting.

Certain officers of the Bank hold similar positions with the Company. The names of these officers and their titles are shown below. After the reorganization takes place, these officers will continue to be officers of the Company in the same capacity.

The following summary of the terms of Company capital stock is not complete and is subject to the applicable provisions of Virginia law and Company articles of incorporation and bylaws which are attached to this proxy statement/prospectus at Appendix B.

HomeTown Bankshares Corporation Common Stock. The holders of Company common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Each share of Company common stock has the same relative rights as, and is identical in all respects to, each other share of Company common stock. Without stockholder approval, Company board of directors can issue preferred stock with voting, conversion and other rights which could adversely affect the voting power of the common stockholders. See “Holding Company Preferred Stock” below on this page.

If the Company is liquidated or dissolved or distributes all of its assets, after the preferential rights of Company preferred stock, if any, are satisfied, holding company common stock holders will share ratably in the assets of the Company legally available for distribution.

Company common stock holders are entitled to receive dividends on an equal per share basis when, as, and if declared by the board of directors out of funds legally available. Company common stock shares to be issued as part of the reorganization when issued will be duly authorized, validly issued, fully paid and nonassessable.

Holding Company Preferred Stock. The Company articles of incorporation authorize its board of directors to provide, when it deems necessary, for the issuance of preferred stock in one or more series. The Company board of directors may establish by resolution the terms of any newly created series of preferred stock. Terms that may be established include:

(3) whether the shares of the series will be redeemable by the Company, and if so, on what terms and conditions;

(4) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of the series;

(5) whether the shares of the series will be convertible and if so, the terms of conversion;

(6) the extent, if any, to which the holders of the shares will be entitled to vote;

(7) the restrictions and conditions, if any, upon the issue or re-issue of any additional preferred stock ranking evenly with or senior to the shares as to dividends or upon dissolution; and

The rights of the holders of shares upon dissolution, or distribution of the assets of the Company, which may be different in the case of a voluntary dissolution.

As approved under the TARP, the Company intends to enter into a Letter Agreement with the Treasury pursuant to which the Company would issue up to $5.79 million of preferred stock, to be designated as Series A/1, and warrants to purchase approximately $289,950 of Company Series A/1 Preferred Stock to the Treasury. The additional capital will increase the Company’s total risk-based capital ratio to approximately 13% as of April 6, 2009. See the discussion of the Treasury program beginning on page 5 for further information on the TARP and the issuance of the Preferred Stock, Warrants and Warrant Preferred.

Company common stock holders may be adversely affected by issuances of holding company preferred stock, since preferred stock may be designated with special rights or preferences superior to those of holding company common stock as to dividends, liquidation rights and voting rights. For example, the Company board of directors could designate a new class of preferred stock with a separate class right to approve a merger or sale of substantially all the assets of the Company or other matters. Consequently, the issuance of preferred stock may have the effect of delaying or preventing a change in control of the Company. See “Risk Factors—Provisions of the holding company charter and applicable law may prevent a change in control” on page 7.

Several provisions of holding company articles of incorporation and bylaws may discourage unilateral tender offers or other attempts to take over and acquire the business of the Company. The following summarizes those provisions of holding company articles of incorporation and bylaws which might have a potential “anti-takeover” effect. You should refer in each case to the Company articles of incorporation and bylaws which are attached to this proxy statement/prospectus at Appendix B.

(3) a transaction involving the sale of all or substantially all the Corporation’s assets other than in the regular course of business;

These reduced voting requirements apply only if a proposed transaction has been approved and recommended by at least two-thirds of the directors in office at the time of such approval and recommendation. If the transaction is not so approved and recommended, then the transaction must be approved by the vote of more than two-thirds of all votes entitled to be cast on such transactions by each voting group entitled to vote on the transaction.

These provisions have the effect of making it difficult to change the Company articles without the approval of the board of directors, particularly provisions of the Company articles of incorporation which relate to board composition and increased stockholder approval requirements for mergers and similar transactions not approved by the board. The effect of these provisions may be to make it more difficult for a person who desires to acquire control of the Company to do so without the cooperation of the incumbent board.

For restrictions on acquisitions of the Company imposed by law or regulation, please see the section of this proxy statement/prospectus captioned “Supervision and Regulation—Acquisition of the Holding Company,” on page 54.

The following is management’s discussion and analysis of the financial condition and results of operations of the Bank as of and for the years ended December 31, 2008 and 2007. The discussion should be read in conjunction with the Bank’s Financial Statements and Notes thereto.

The financial condition and results of operations presented in the financial statements, accompanying notes to the financial statements and management’s discussion and analysis are, to a large degree, dependent upon the Bank’s accounting policies. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.

Presented below is discussion of those accounting policies that management believes are the most important accounting policies to the portrayal and understanding of the Bank’s financial condition and results of operations. These critical accounting policies require management’s most difficult, subjective and

complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood. See also Note 1 of the Notes to Financial Statements located in the Annual Report attached as Exhibit 13.

Management monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan. Management maintains policies and procedures that address the systems of controls over the following areas of maintenance of the allowance: the systematic methodology used to determine the appropriate level of the allowance to provide assurance they are maintained in accordance with accounting principles generally accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the loan portfolio; and the loan grading system.

Management evaluates various loans individually for impairment as required by Statement of Financial Accounting Standards (SFAS) 114, Accounting by Creditors for Impairment of a Loan, and SFAS 118, Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures. Loans evaluated individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured loans and other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment. If a loan evaluated individually is not impaired, then the loan is assessed for impairment under SFAS 5, Accounting for Contingencies, with a group of loans that have similar characteristics.

For loans without individual measures of impairment, we make estimates of losses for groups of loans as required by SFAS 5. Loans are grouped by similar characteristics, including the type of loan, the assigned loan classification and the general collateral type. A loss rate reflecting the expected loss inherent in a group of loans is derived based upon estimates of default rates for a given loan grade, the predominant collateral type for the group and the terms of the loan. The resulting estimate of losses for groups of loans is adjusted for relevant environmental factors and other conditions of the portfolio of loans, including: borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and depth of lending management; and national and local economic conditions.

The amount of estimated impairment for individually evaluated loans and groups of loans is added together for a total estimate of loan losses. This estimate of losses is compared to our allowance for loan losses as of the evaluation date and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates. If the estimate of losses is below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision for loan losses. We recognize the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high. If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would be made, which amount may be material to the Financial Statements.

Management’s discussion and analysis is intended to assist the reader in evaluating and understanding the financial condition and results of operations of the Bank for the years ending December 31, 2008 and 2007. This discussion should be read in connection with the Bank’s Financial Statements and the accompanying Notes thereto included in this proxy statement/prospectus.

The Bank initiated its banking operations on November 14, 2005 with the opening of its main office at 202 S. Jefferson Street, Roanoke, Virginia. The bank has experienced consistent growth over the last three years.

Many new banks experience a period of operating losses until the growth and balancing of interest income from loans and investments and interest expense from deposits and borrowings along with cost control, generate an operating income. As a new Bank we have been going through the same process.

The primary source of the Bank’s revenue is net interest income, which represents the difference between interest income on earning assets and interest expense on liabilities used to fund those assets. Earning assets are comprised of loans, investment securities and federal funds sold. Interest bearing liabilities are comprised of interest bearing deposit accounts, federal funds purchased, securities sold under agreements to repurchase, and Federal Home Loan Bank borrowings.

The Bank provides a full complement of consumer and commercial banking services to its primary service area which includes the City of Roanoke, Roanoke County, and the City of Salem, Virginia and contiguous counties, including Bedford, Franklin and Montgomery, Virginia. We place an emphasis on personal service and offer 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, lines and letters of credit. In addition to its main office, the Bank has branch offices in Franklin County, Virginia at Westlake, in Roanoke County at the intersection of Colonial Avenue and Virginia Route 419, in Roanoke City on Franklin Road in South Roanoke. In July 2008, the Bank opened two offices in Christiansburg, Virginia, a branch office and a loan production and administrative support office for operations in the New River Valley market. These two offices operate under the name NewRiver Bank, a branch of Hometown Bank.

The Bank currently operates five deposit offices and one loan production office. The main office and South Roanoke office in Roanoke City, the Colonial Avenue at 419 office in Roanoke County, the Smith Mountain Lake office in Franklin County at the Westlake community, and the branch office and loan production and administrative office of NewRiver Bank in Christiansburg, Virginia.

The Bank operates in a highly competitive market for commercial banking and financial services as the Roanoke Valley is a banking and financial services hub for much of southwest Virginia.

The Bank has grown aggressively over the last three years with five new offices opened in that time period. The Bank planned to expand its infrastructure rapidly to best serve its customer base and build its geographic footprint. In order to utilize the capacity of our offices generated by this growth, the Bank has also aggressively grown loans and deposits and maintained a loan to deposit ratio in excess of 100% for much of this time. At December 31, 2008, the loan to deposit ratio was 110.6 percent. As a result of this rapid growth, liquidity has been reduced. In addition to asset sources of liquidity, the Bank has $22 million of federal funds lines of credit and $8.5 million in Federal Home Loan Bank lines of credit immediately available. The Bank is approved to borrow 20% of total assets from the Federal Home Loan Bank provided qualifying collateral is pledged. In 2009, loan growth will be moderated and asset based liquidity sources increased.

The Bank recorded losses of $(2,175,000), or $(.80) per basic and diluted share, and $(1,662,000), or $(.66) per basic and diluted share, for the years ended December 31, 2008 and 2007, respectively. Several factors contributed to the level of the loss in 2008.

In the second quarter of 2008, the Bank took advantage of the opportunity to expand into the New River Valley market and in June opened two offices in Christiansburg, Virginia. The increase in operating costs associated with this expansion totaled $550,000 in 2008 and were partially offset by $5.5 million of new capital raised to support the growth into this new market.

$973,000 of the 2008 loan loss provision of $1,648,000 was due to specific reserves on two loans in the portfolio. These loans were granted in 2006 and were for residential real estate development purposes outside of our local market. The projects were well underwritten at the time and the loans were performing. The decline in collateral values caused by to the overall economic crisis and the dramatic decline in real estate values in the markets where these projects are located resulted in the need to establish specific reserves on these two loans. Both of these loans are participation loans purchased from one of our correspondent banks. As of December 31, 2008, $11,948,000 or 5.7% of the loan portfolio was comprised of participation loans purchased from other banks with these two loans being the only loans that are for residential real estate development included in this segment of the loan portfolio.

In May of 2008, the Bank entered into a severance agreement with its former President and Chief Executive Officer and agreed to pay severance benefits totaling $312,000.

Total assets at December 31, 2008 were $233,635,000 an increase of $78,814,000 or 51%, from $154,821,000 at December 31, 2007. This increase in assets was primarily funded almost entirely through an increase in deposits (see below).

The largest increase in assets was in loans. Loans, net of allowance for loan losses, increased from $132,332,000 at December 31, 2007 to $208,391,000 as of December 31, 2008, an increase of $76,059,000 or 57%. This sizeable increase reflects the Bank’s growth in all loan categories including commercial, real estate and consumer loans. Loans held for investment as a percentage of assets and deposits were 89% and 111%, respectively, as of December 31, 2008, compared to 85% and 111% as of December 31, 2007. We expect loan growth to moderate in light of the Bank’s focus on liquidity.

Cash and cash equivalents increased by $746,000 to $3,186,000 at December 31, 2008, an increase of 31%.

Securities available-for-sale increased $1,480,000 to $9,488,000 at December 31, 2008 from $8,008,000 at December 31, 2007.

Bank premises and equipment, net of accumulated depreciation increased $952,000, or 12%, to $8,607,000 due to the completion and opening of the permanent Colonial Avenue at 419 branch in May, 2008 and the NewRiver Bank branch and loan production office in Christiansburg in July, 2008.

Total liabilities at December 31, 2008 were $209,137,000, an increase of $74,973,000, or 56%, from $134,164,000 at December 31, 2007. Total deposits, the primary component of total liabilities, were $188,411,000 at December 31, 2008, an increase of $68,721,000 or 57%, from $119,690,000 as of December 31, 2007. This increase in deposits is attributed to the Bank’s continuing marketing initiatives implemented during the year, as well as our entry into the New River Valley market with our branch and loan production offices that opened in July 2008. Competition for deposits became more intense throughout 2008 as banks became more concerned about liquidity. In spite of this competition we were able to substantially grow our deposit base to support our loan demand as a result of the expansion of our branch network and our entry into the New River Valley market.

Total stockholders’ equity amounted to $24,498,000 at December 31, 2008 compared to $20,657,000 at December 31, 2007, an increase of $3,841,000 or 19%. Stockholders’ equity has been reduced by net losses, and increased by other comprehensive income and a private placement stock offering in 2008. Net losses were $(2,175,000) and $(1,662,000) for the years ended December 31, 2008 and 2007, respectively. The increase in net losses reflect the impact of the recessionary environment in 2008.

Management believes the Bank has sufficient capital to fund its operations until the Bank begins to generate profits on a consistent basis, but there can be no assurance that this will be the case.

At December 31, 2008, the Bank was in compliance with all regulatory capital requirements. Management believes that the Bank has sufficient liquidity on a short-term basis to meet any funding needs it may have, and expects that its long term liquidity needs can be achieved through deposit growth, however there can be no assurance that such growth will develop.

Non-performing assets consist of loans past-due ninety days or more, non-accrual loans and repossessed and foreclosed assets. The Bank had $3,281,000 in non-performing assets at December 31, 2008. Loans classified as impaired totaled $2,328,000 at December 31, 2008 and the Bank established a valuation allowance of $1,053,000 for these impaired loans. Impaired loans at December 31, 2007 were $207,000 and the Bank established a valuation allowance of $30,000 for these impaired loans.

At December 31, 2008, $1,897,000 of the impaired loans was comprised of two loans in the portfolio. These loans were granted in 2006 and were for residential real estate development purposes outside of our local market. The projects were well underwritten at the time the loans were made and the loans were performing until the decline in collateral values caused by to the overall economic crisis. The continued decline in real estate values in the markets where these projects are located resulted in the need to establish specific reserves on these two loans. Specific reserves on these two impaired loans totaled $973,000 at December 31, 2008. Both of these loans are participation loans purchased from one of our correspondent banks. As of December 31, 2008, $11,948,000 or 5.7% of the loan portfolio was comprised of participation loans purchased from other banks with these two loans being the only loans that are for residential real estate development included in this segment of the loan portfolio.

The allowance for loan losses is increased by charges to income and decreased by charge-offs, net of recoveries. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’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.

Net interest income, the primary source of the Bank’s earnings, is the excess of interest income, derived from earning assets classified as loans, securities, certificates of deposit and federal funds sold, over and above interest expense, which are amounts due from the Bank’s interest bearing liabilities including customer deposits, time certificates and federal funds purchased. The amount of net interest income is primarily dependent upon the volume and mix of these earning assets and interest bearing liabilities. Interest rate changes can also impact the amount of net interest income, but usually to a lesser extent. Management develops pricing and marketing strategies to maximize net interest income while maintaining related assets and liabilities accounts within guideline policies as established by the Bank’s Board of Directors. Sources of non-interest income include service charges on deposit accounts, mortgage brokerage fees and other miscellaneous income.

The net interest margin represents net interest income divided by average earning assets. It reflects the average effective rate that the Bank earned on its earning assets. Net interest margin is affected by changes in both average interest rates and average volumes of interest earning assets and interest bearing liabilities.

Net interest income, increased 56% to $5,238,000 in 2008, from $3,367,000 in 2007. The increase was due primarily to the increase in the Bank’s loan portfolio. The loan portfolio maintained strong ratios as a percentage of assets and deposits of 89% and 111%, respectively, at December 31, 2008, as compared to 85% and 111%, respectively, at December 31, 2007. The net interest margin decreased to 2.95% for 2008

from 3.32% for 2007. The average rate on earning assets decreased 108 basis points from 7.15% for 2007 to 6.07% for 2008. As a new bank we must price loans competitively to grow our loan porfolio. Declining rates reduced loan profitability as new loans were made at lower rates. Repricing of existing loans at lower rates was not as much a factor because we are a young financial institution but could be in the future as our loan portfolio matures. The average rate on interest-bearing liabilities decreased 110 basis points from 4.72% in 2007 to 3.62% in 2008.

Competition for deposits has been strong in 2008, especially in certificate of deposit products. Through August of 2008, larger institutions in our market priced certificates of deposit very aggressively to obtain funding which kept certificate of deposit rates from falling as much as the rates on other deposit products. Certificates of deposit comprise the major source of our funding and thus we were compelled by our local market to pay competitive rates to keep existing certificate of deposit customers and to attract new customers as well. We were able to compensate for this to a degree by increasing our Federal Home Loan Bank (FHLB) borrowings and utilizing more out of market brokered CD funding. While both sources were lower in cost than our local market, the rates paid for these funds are still higher than our other non-certificate of deposit core products. Our reliance on higher cost certificates of deposit (both local and out of area brokered CDs) and FHLB borrowings increased in 2008 compared to 2007. Certificates of deposit and FHLB borrowings comprised 54% of our funding sources in 2008 compared to 42% in 2007. As a result of this increased reliance on our higher cost funding sources, our interest expense to average earning assets of 3.12% in 2008 declined just 71 basis points from 3.83% in 2007. At the same time, our yield on earning assets declined 108 basis points from 7.15% in 2007 to 6.07% in 2008. In 2008 our yield on earning assets declined in response to the drop in interest rates experienced during the year but was not entirely offset by a like drop in interest expense as our funding mix shifted more to higher rate certificates of deposit and FHLB borrowings.

In 2008, the prime rate dropped 400 basis points from 7.25% at the beginning of the year to 3.25% at year end, one of the largest drops in history. The dramatic drop in the prime rate and in corresponding short term rates such as LIBOR, caused the rates on our loans and lines of credit tied to these indexes to fall reducing interest income earned on these loans. At the same time, much of our deposit funding is from certificates of deposit and we were committed to the rates paid on these deposits until they matured. This was the primary reason for the drop in the net interest margin from 3.32% in 2007 to 2.95% in 2008.

The following table illustrates average balances of total interest-earning assets and total interest bearing liabilities for 2008 and 2007, showing the average distribution of assets, liabilities, shareholders’ equity and related income, expense and corresponding weighted-average yields and rates. The average balances used in these tables and other statistical data were calculated using daily average balances. We have no tax exempt assets for the periods presented.

Non-interest income includes service charges on deposit accounts, brokerage fees on non-portfolio mortgage loans, and rental income from tenants leasing offices at the Colonial Avenue at 419 location. Noninterest income increased to $511,000 in 2008 from $364,000 in 2007. The increase in noninterest income was due primarily to increased service charge income on deposit accounts and increased other income. As the real estate market softened in 2008, mortgage loan brokerage fees declined. Other income includes ATM and debit card transaction fees, checking order fees, safe deposit box income and merchant account income. The substantial increase in other income occurred primarily because of our growth of checking accounts and the increased use of ATM and debit cards. The Bank continues to identify and evaluate new sources of noninterest income.

Non-interest expense includes, among other things, salaries and benefits, occupancy costs, professional fees, depreciation, data processing, telecommunications and miscellaneous expenses.

Total noninterest expense increased $1,740,000, from $4,536,000 in 2007 to $6,276,000 in 2008. Salaries and employee benefits expense increased $1,149,000 from 2007 due to severance benefits of $312,000 paid to the Bank’s former Chief Executive Officer that left the Bank in May 2008 and the additions to the Bank’s staff for the opening of the two offices in the New River Valley in 2008. The addition of these two offices in 2008 and the completion of the permanent office at Colonial Avenue is the primary factor in the increase in occupancy and equipment expense from $727,000 in 2007 to $972,000 in 2008 and the increase in data processing expense of $93,000 for 2008 compared to 2007. Other expenses include primarily stationary, printing and supplies, auto, travel and entertainment, courier and ATM expense, check printing, federal reserve servicing fees, FDIC insurance and state examination expense. The increase in other expenses was largely attributable to our overall growth in customers and in the volume of transactions we process due to the increased customer base. FDIC assessments have increased substantially as our deposits have grown and in light of the current economic environment and various programs adopted by the FDIC in connection with it such assessments are expected to increase further. The Bank’s management and staff monitor and control operating expenses to provide adequate operational support and enable growth opportunities.

Salaries and employee benefits expense includes non-cash expense for stock based compensation of $28,000 and $10,000 in 2008 and 2007, respectively. See footnote 11 to the financial statements in the Annual Report attached as Exhibit 13 for additional information.

The Bank did not record in its current provision for income tax expense for 2008 or 2007 any income tax benefits due to the operational losses incurred in both years. The tax benefit of these operational losses may be reflected as a reduction of future current tax provisions in future time periods if and when the Bank achieves operational profitability. As a Bank we are not subject to state income taxes. A bank in Virginia is required to pay a franchise tax based on its capital.

Our primary source of income is our lending activities. The following table presents the composition of the Bank’s loan portfolio at the dates indicated:

Included in the construction and land development category above are residential real estate acquisition, development and home construction loans which comprised $23,985,000 or 11.2% of the portfolio at December 31, 2008 compared to $13,334,000 or 10.0% at December 31, 2007. The remainder of this category is comprised of commercial construction and commercial property loans.

As the above reflects we experienced substantial loan growth in 2008. We will continue to service our customers and markets but it is unlikely that the level of loan growth experienced since we opened will continue. A large percentage of our loan portfolio is real estate related and the real estate market has softened considerably. Credit markets have tightened. These and other facts indicate diminished economic activity and lower loan demand particularly in real estate related loans. Our loan to deposit ratio at December 31, 2008 was 110.6%. This degree of leverage also affects our ability to grow the loan portfolio.

Provisions for loan losses amounted to $1,648,000 in 2008 and $857,000 in 2007. The accumulated provision represented 1.35% and 1.10% of total outstanding loans at December 31, 2008 and 2007, respectively. The increased provision in 2008 over 2007 was due to the increase in nonperforming assets as a result primarily of two nonperforming loans discussed below. The provision for loan losses is based upon management’s estimate of the amount needed to maintain the allowance for loan losses at an adequate level to cover known and inherent risk of loss in the loan portfolio. In determining the provision amount, management gives consideration to current and anticipated economic conditions, the growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, and other factors. As a new bank, we do not have a seasoned loan portfolio which affects to some degree our ability to apply historical factors with respect to the allowance. Management also classifies loans as impaired when, based on current

information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans classified as impaired totaled $2,328,000 at December 31, 2008 and the Bank established a valuation allowance of $1,053,000 for these impaired loans compared to loans classified as impaired at December 31, 2007 of $207,000 with a valuation allowance of $30,000 for these impaired loans.

The following table presents an analysis of the changes in the allowance for loan losses for the periods indicated.

Interest is accrued on outstanding loan principal balances, unless the Bank considers collection to be doubtful. Commercial and unsecured consumer loans are designated as non-accrual when payment is delinquent 90 days or at the point which the Bank considers collection doubtful, if earlier. Mortgage loans and most other types of consumer loans past due 90 days or more may remain on accrual status if management determines that concern over our ability to collect principal and interest is not significant. When loans are placed in non-accrual status, previously accrued and unpaid interest is reversed against interest income in the current period and interest is subsequently recognized only to the extent cash is received. Interest accruals are resumed on such loans only when in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

As of December 31, 2008, the Bank had $3,030,000 in non-performing loans, comprised of $2,328,000 in non-accrual loans and $702,000 in loans past due 90 days and still accruing interest, compared to no non-performing loans at December 31, 2007. The increase in non-performing loans is due primarily to two loans totaling $1,897,000 at December 31, 2008, that were performing loans in 2007. These loans were granted in 2006 and were for residential real estate development purposes outside of our local market. The projects were well underwritten at the time the loans were made and the loans were performing until the dramatic decline in real estate values in the markets where these projects are located. These declines caused the projects to become impaired, resulting in the need to establish specific reserves on these two loans. Both of these loans are participation loans purchased from one of our correspondent banks. As of December 31, 2008, $11,948,000 or 5.7% of the loan portfolio was comprised of participation loans purchased from other banks with these two loans being the only loans that are for residential real estate development included in this segment of the loan portfolio. Overall, residential real estate acquisition, development and home construction loans comprised 11.2% of the portfolio at December 31, 2008 compared to 10.0% at December 31, 2007. Loans of these types as well as other real estate related loans which together form a substantial percentage of our loan portfolio have been more affected by the current recession than many other types of loans. We have considered this in evaluating the adequacy of our allowance but the length and depth of the current recession are unpredictable.

At December 31, 2008, 2007, 2006 and 2005 all of the Bank’s securities were classified as available-for-sale. The following table presents the composition of the investment portfolio as of December 31, 2008.

Table 7: Securities Available for Sale, Maturity Distribution and Average Yields

The Bank’s primary source of funds is deposit accounts. The Bank’s deposit base is comprised of demand deposits, savings and money market accounts, and time deposits. The Bank’s deposits are provided primarily by individuals and businesses located in the Bank’s market area. At December 31, 2008, brokered time deposits totaling $25,102,000 were from sources outside of the Bank’s market area. The level and mix of deposits are influenced by a number of factors such as customer service, interest rates paid, and convenience of banking locations. Competition for deposits in our markets is strong. This affects the availability and ultimately the pricing of our deposits. We are a member of the Certificate of Deposit Account Registry Service (“CDARS”). This allows us to provide our depositors with up to $50 million in FDIC insurance. We receive certificates of deposit and exchange them with other banks in the CDARS network. This is called a reciprocal transaction. We can also obtain deposits through CDARS without exchanging any of our certificates of deposit in return. CDARS deposits are considered brokered deposits. Obtaining brokered time deposits from outside our market area assists us in obtaining deposits which are not dependent on the highly competitive conditions in our market.

Total deposits increased by 57% from $119,690,000 at December 31, 2007 to $188,411,000 at December 31, 2008. The Bank’s ability to attract and retain deposits, and our cost of funds, has been, and will continue to be, significantly affected by market conditions. Our growth in deposits between 2007 and 2008, in a highly competitive market was achieved by our expansion into the New River Valley market and our Colonial Avenue and South Roanoke offices being open for a full year in 2008 compared to only half of the year in 2007.

The following table is a schedule of average balances and average rates paid for each deposit category for the periods presented:

The following table is a schedule of maturities for time deposits of $100,000 or more at the dates indicated:

Table 9: Maturities of Certificates of Deposits with Balances of $100,000 or More

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 Bank’s management of liquid assets and the ability to generate liquidity through liability funding, management believes the Bank maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

The Bank’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 Bank maintains an adequate level of liquidity at all times. This ensures that the Bank’s sources of funds, primarily net fluctuations in customer deposits, investments, securities and correspondent banking relationships, must be balanced with the Bank’s obligations, commitments, and operational requirements, to maintain overall liquidity in conjunction with the maximization of interest rate spreads.

At December 31, 2008, the Bank had commitments to originate $25,338,000 of loans. Certificates of deposit scheduled to mature in the 12 month period ending December 31, 2008 total $115,726,000. Management believes that a significant portion of such deposits will remain with the Bank. Even if this is not the case we have $22 million of federal funds lines of credit and $8.5 million in Federal Home Loan Bank lines of credit available and we have been approved to borrow 20% of our total assets from the Federal Home Loan Bank subject to providing qualifying collateral.

A financial institution can be exposed to several market risks that may impact its value or future earnings capacity. These risks include interest rate risk, foreign currency exchange risk, commodity price risk and equity market price risk. Our primary market risk is interest rate risk. Interest rate risk is inherent because as a financial institution, we derive a significant amount of our operating revenue from customer deposits and possible borrowings at various terms and rates. These funds are then invested into earning assets (loans and investments) at various terms and rates.

Interest rate risk is the exposure to fluctuations in our future earnings (earnings at risk) and value (value at risk) resulting from changes in interest rates. This exposure results from differences between the amounts of interest earning assets and interest bearing liabilities that reprice within a specific time period as a result of scheduled maturities and repayment and contractual interest rate changes.

The primary objective of our asset/liability management process is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent and appropriate. The goal is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.

Management strives to control the exposure to interest rate volatility and operates under policies and guidelines established by the Board of Directors, who set the level of acceptable risk, by understanding, reviewing and making decisions based on our risk position. In addition, pricing, promotion and product development activities are assessed in an effort to emphasize the loan and deposit term or repricing characteristics that best meet current interest risk objectives. We use a variety of analytical systems and balance sheet tools to manage interest rate risk.

Gap analysis tools monitor the “gap” between interest-sensitive assets and interest-sensitive liabilities. We use simulation modeling to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable and falling interest rate scenarios and by understanding the dynamic nature of our balance sheet components, the Bank can position itself to take advantage of anticipated interest rate movements. We evaluate the securities, loans and deposit portfolios to manage our interest rate risk position.

Table 10 “Interest Sensitivity” indicates that, on a cumulative basis through twelve months, rate sensitive liabilities exceeded rate sensitive assets, resulting in an liability sensitive position at December 31, 2008 of $63.2 million for a cumulative gap ratio of -28.94%, which benefits us in a falling rate environment but hurts us in a rising rate environment. An asset interest sensitivity gap results when interest-sensitive assets exceed interest-sensitive liabilities for a specific repricing “horizon.” The gap is negative when interest-sensitive liabilities exceed interest-sensitive assets, as was the case at December 31, 2008, with respect to the one year time horizon. For a bank with a negative gap, such as us, falling interest rates would be expected to have a positive effect on net interest income and rising rates would be expected to have the opposite effect. The table below reflects the balances of interest earning assets and interest bearing liabilities at the earlier of their repricing or maturity dates. Amounts of fixed rate loans are reflected at the earlier of their contractual maturity date or their contractual repricing date. Time deposits are reflected in the deposits’ maturity dates. Borrowed funds are reflected in the earliest contractual repricing interval. Interest bearing liabilities with no contractual maturity, such as interest bearing transaction accounts and savings deposits, are reflected in the earliest repricing interval due to contractual arrangements which give management the opportunity to vary the rates paid on these deposits within a thirty day or shorter period. However, we are under no obligation to vary the rates paid on those deposits within any given period. Fixed rate time deposits are reflected at their contractual maturity dates.

To enable future growth of the Bank, there must be an adequate level of capital. Management reviews the Bank’s capital to ensure that the amount, composition and quality of the Bank’s assets and liabilities satisfy regulatory requirements, meet or exceed industry standards, and support projected Bank growth.

Stockholders’ equity increased $3,841,000 during 2008 to $24,498,000 at December 31, 2008 due primarily to $5,493,000 raised from a private placement offering, net of stock issuance costs of $53,000, offset by the 2008 net loss of $2,175,000 and a gain on securities available-for-sale of $548,000 and the addition of $28,000 from stock based compensation costs added to surplus.

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The contractual amounts of these instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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

HomeTown Bankshares Corporation is to exchange 2,939,400 shares of HomeTown Bankshares Corporation common stock (no par value) for each share of HomeTown Bank common stock. The pro forma reflects the proposed exchange as if it had occurred for balance sheet presentation on December 8, 2008, assuming the pooling-of-interests method of accounting will be used.

The Bank is a Virginia state chartered bank, and its deposit accounts are insured up to applicable limits by the FDIC. The Bank is subject to extensive regulation by the BFI as its chartering authority. The reorganization will not change this. The discussion that follows of the regulations that currently apply to the Bank will apply to the same extent to the Bank after the reorganization.

The Bank must file reports with the BFI concerning its activities and financial condition, and it must obtain regulatory approval prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions and opening or acquiring branch offices. The BFI conducts periodic examinations to assess the Bank’s compliance with regulatory requirements as well as its safety and soundness as a financial institution. The Federal Reserve also examines and requires reports from the Bank periodically because it is a member institution and, as such, is subject to the numerous requirements imposed on Federal Reserve member banks As insurer, the FDIC may also conduct examinations of and require reporting by the Bank. This regulation and supervision is intended primarily for the protection of the deposit insurance funds and depositors, not stockholders. The regulatory authorities have extensive discretion in the exercise of their supervisory and enforcement activities, including the setting of policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. The FDIC is authorized to prohibit the Bank from engaging in any activity that the FDIC determines will pose a threat to the insurance fund. The FDIC also may initiate enforcement actions.

The Company, as a bank holding company, also will be required to file reports with, and otherwise comply with, the rules and regulations of the Federal Reserve and the BFI and with the rules and regulations of the Securities and Exchange Commission under the federal securities laws. Compliance with these additional regulations will impose additional costs on the Company not currently borne by the Bank.

Any change in the laws governing the Bank or the Company, whether by a bank regulatory agency or through legislation, could have a material adverse impact on the Bank and the Company and their operations and stockholders. In this respect, due to the current financial and economic climate, additional regulation of financial institutions is likely.

The following is a summary of the laws and regulations that apply to the Bank and the Company. This summary is not complete. The operations of the Bank and the Company may be affected by legislative and regulatory changes as well as by changes in the policies of various regulatory authorities.

Following the completion of the reorganization, the Company will be subject to examination, regulation and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Board of Governors of the Federal Reserve System.

As a bank holding company, the Company will be required to file with the Federal Reserve annual and semi-annual reports and information regarding its business operations and those of the Bank. The Company also must provide the BFI with information regarding itself and the Bank. The Company (as a bank holding company) will be examined by the Federal Reserve and by the BFI.

A bank holding company is required by the Federal Bank Holding Company Act to obtain approval from the Federal Reserve prior to acquiring control of any bank that it does not already own or engaging in any business other than banking or managing, controlling or furnishing services to banks and other subsidiaries authorized by the statute. Similarly, approval of the BFI is required for certain acquisitions of other banks and bank holding companies. The Federal Reserve would approve a bank holding company owning shares in a company involved in activities the Federal Reserve has determined to be closely related to banking or to managing or controlling banks.

Some of the principal activities that the Federal Reserve Board has already determined to be closely related to banking are:

The Company would be compelled by the Federal Reserve to invest additional capital in the Bank in the event the Bank experiences either significant loan losses or rapid growth of loans or deposits. The Federal Reserve requires a bank holding company to act as a source of financial strength and to take measures to preserve and protect its bank subsidiaries.

As a bank holding company, the Company will operate under the consolidated capital adequacy guidelines established by the Federal Reserve. Under the Federal Reserve’s current risk-based capital guidelines for bank holding companies, the minimum required ratio for total capital to risk weighted assets the Company will be required to maintain is 8%, with at least 4% consisting of Tier 1 capital. Tier 1 capital consists of common and qualifying preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets. These risk-based capital guidelines establish minimum standards and bank holding companies generally are expected to operate well above the minimum standards. The amount of capital a bank holding company is required to hold can adversely affect its profitability and its ability to expand.

The Company will be required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, will be equal to 10% or more of the Company’s consolidated net worth. The Federal Reserve Board may disapprove any purchase or redemption under certain circumstances. Such notice and approval is not required for a bank holding company that, as we believe the Company will be, would be treated as “well capitalized” under applicable regulations of the Federal Reserve Board, that has received a composite “1” or “2” rating at its most recent bank holding company inspection by the Federal Reserve Board, and that is not the subject of any unresolved supervisory issues. Notwithstanding the foregoing, any redemption of holding company preferred stock will require the prior approval of the Federal Reserve Board and is subject to the requirements under the TARP.

The Federal Reserve Board is empowered to initiate cease and desist proceedings and other supervisory actions for violations of the Bank Holding Company Act, or the regulations, orders, conditions or agreements of or with the Federal Reserve Board.

The status of the Company as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including certain provisions of the federal securities laws.

The Bank is examined and regulated by the BFI and by the Federal Reserve as a member of the Federal Reserve System. The BFI regulates and monitors all significant aspects of the Bank’s operations. The BFI, as the primary regulator, has enforcement authority over the Bank. The BFI requires quarterly reports on the Bank’s financial condition and conducts periodic examinations of the Bank. The cost of complying with these regulations and reporting requirements can be significant. In addition, some of these regulations impact stockholders directly. For example, the Bank may pay dividends only out of its undivided profits after deducting expense, including losses and bad debts. In addition, the Bank may not pay dividends at all until its surplus equals its stated capital. The only exception is if the Bank has transferred to surplus no less than 10% of its net profits for the preceding two consecutive half year periods (for annual dividends) or of the preceding half year period (for quarterly or half year dividends).

The Bank’s loan operations, particularly for consumer and residential real estate loans, are also subject to numerous legal requirements as are its deposit activities. In addition to regulatory compliance costs, these laws may create the risk of liability to the Bank for noncompliance.

The Bank’s deposits will be insured by the FDIC for a maximum of $250,000 per depositor. For this protection, the Bank will pay a semi-annual statutory assessment and will have to comply with the rules and regulations of the FDIC. These assessments can go up or down, affecting the Bank’s costs, depending on the solvency of the banking industry as a whole. In light of the current state of the banking industry, substantial increases in these assessments are likely. Also, the FDIC has a Temporary Liquidity Guarantee Program (“TLGP”) in which the Bank participates. Generally the TLGP has two components. One guarantees newly issued senior unsecured debt issued before October 14, 2008 and June 30, 2009. The Bank participates in this component but does not have any debt outstanding. The other provides full coverage for non interest bearing transaction deposit accounts regardless of dollar amounts until December 31, 2009. The Bank participates in this component and pays a fee for the coverage. In addition, the FDIC may examine the Bank and has authority to initiate enforcement actions against the Bank. The FDIC may also terminate or suspend a Bank’s deposit insurance if the institution is or is thought to be engaging in unsafe or unsound practices and under other circumstances.

In case of member banks like the Bank, the Federal Reserve has the authority to prevent the continuance or development of unsound and unsafe banking practices and to approve conversions, mergers and consolidations.

Under the Federal Reserve’s current risk-based capital guidelines for member banks, the Bank is required to maintain a minimum ratio of total capital to risk weighted assets of 8%, with at least 4% consisting of Tier 1 capital. In addition, the Federal Reserve requires its member banks to maintain a minimum ratio of Tier 1 capital to average assets. This capital measure is generally referred to as the leverage capital ratio. The minimum required leverage capital ratio is 4% if the Federal Reserve determines that the institution is not anticipating or experiencing significant growth and has well-diversified risks, including no undue interest rate exposure, excellent asset quality, high liquidity and good earnings and, in general, is considered a strong banking organization. If the Bank does not satisfy any of these criteria in the future, it may be required to maintain a ratio of total capital to risk-based assets of 10% and a ratio of Tier 1 capital to risk-based assets of at least 6%. The Bank would then be required to maintain a 5% leverage capital ratio. This would mean that the Bank would have to hold more capital, and its ability to expand would be impaired and its profitability diminished.

Banking profitability depends on interest rate differentials. The difference between the interest rates paid by the Bank on its deposits and other borrowings and the interest rate received on loans extended to its customers and on securities held in its portfolio comprises the major portion of the Bank’s earnings.

The earnings and growth of the Bank are affected not only by general economic conditions, both domestic and foreign, but also by the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve implements national monetary policy by its open market operations in United States government securities, adjustments in the amount of reserves that banks and other financial institutions are required to maintain and adjustments to the discount rates applicable to borrowings by banks from the Federal Reserve The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest rates charged and paid on deposits. Due to the recent turbulence in the financial markets and the economic downturn, the Federal Reserve has been very active in carrying out these responsibilities. In addition, in order to address these same issues and to stabilize the banking industry the U. S. Treasury Department has proposed innovative programs in which the Bank may participate.

The Bank has restrictions on its investment and lending authorities. Loans are subject to limitations on amount based upon the Bank’s capital. Additional limitations are imposed on the aggregate amount of loans that a Virginia bank may make to any one borrower, including relating entities. These restrictions can affect the ability of the Bank to make larger loans.

The requirements of the Community Reinvestment Act (“CRA”) affect the Bank. The CRA imposes on financial institutions an affirmative obligation to help meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. Each financial institution’s efforts in helping meet community credit needs currently is evaluated as part of the examination process pursuant to a new regulation recently adopted by the banking regulatory agencies. Under the regulation, a financial institution’s efforts in helping meet its community’s credit needs are evaluated according to a three-pronged test (lending, investment and service). The grade received by a bank is considered in evaluating mergers, acquisitions and applications to open a branch or facility as well as the eligibility of the institution to participate in TARP. The Bank was last examined for CRA compliance on January 30, 2007 and received a “satisfactory” rating. To the best knowledge of the Bank, it continues to meet its obligations under the CRA.

Federal Restrictions. Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person or entity, or group acting in concert, seeks to acquire 10% or more of holding company common stock. The Federal Reserve Board takes into consideration certain factors, including the financial and managerial resources of the acquirer, the convenience and needs of the communities served by the Company and the Bank, and the competitive effects of the acquisition.

Under the Bank Holding Company Act, any company would be required to obtain prior approval from the Federal Reserve Board before it could acquire “control” of the Company within the meaning of the Bank Holding Company Act. Control generally is defined for these purposes to mean the ownership, control or power to vote at least 25% (although there is a presumption of control at 10%) or more of any class of voting securities of the Company, the ability to control in any manner the election of a majority of holding company directors, or to otherwise have the power to exercise a controlling influence over the management or policies of the Company.

Virginia Restrictions. Virginia law prohibits any person or entity from acquiring control (generally defined as at least 25% of the voting shares) of a Virginia financial institution holding company without the approval of the BFI. The same restriction applies to an existing Virginia financial institution holding company acquiring more than 5% of the voting shares of any other Virginia financial institution holding company. In deciding whether to approve such acquisitions the BFI generally must consider whether the acquisition would be detrimental to the safety and soundness of either party, the suitability of the applicant and its officers and directors, the interests of depositors, creditors, stockholders and others, and the general public interest. These restrictions will apply to the Company.

The Bank is subject to the information reporting requirements of the Securities Exchange Act of 1934, and in accordance with that law files reports, proxy statements and other information with the Federal Reserve Board. Reports, proxy statements and other information filed by the Bank are available from the Federal Reserve.

The Company will not be subject to the information requirements of the Securities Exchange Act of 1934 until after the reorganization takes place. After the reorganization takes place, the Company will be subject to the information requirements of the Securities Exchange Act of 1934, and the Company will file reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).

The Company has filed a registration statement on Form S-4 relating to the reorganization with the SEC. This proxy statement/prospectus does not contain all of the information included in the registration statement. We have omitted parts of the registration statement in accordance with the rules and regulations of the SEC. For the further information, we refer you to the registration statement on Form S-4, including its exhibits. Statements contained in this proxy statement/prospectus about the provisions or contents of any agreement or other document are not necessarily complete. If SEC rules and regulations require that any agreement or document be filed as an exhibit to the registration statement, please see the filed copy of the agreement or document for a complete description of these matters. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of each document.

After the reorganization, the Company will file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings will be available to the public over the Internet at the SEC’s website at http:/www.sec.gov. Copies of certain information filed by us with the SEC are also available on our website at http://www.hometownbankva.com, or by contacting the Company and requesting a copy. Our website is not a part of this prospectus. You may also read and copy any document we file at the SEC’s public reference room, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.

Any statement contained in a document incorporated by reference into this proxy statement/prospectus will be deemed to be modified or superseded for all purposes to the extent that a statement contained in this proxy statement/prospectus or in any other subsequently filed document which is also incorporated by reference modifies or replaces such statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this proxy statement/prospectus.

If you call or write to us, we will send to you without charge a copy of any or all of the documents described above, other than exhibits to those documents that are not incorporated by reference into such documents.

To request documents, call or write to William C. Moses, Corporate Secretary, HomeTown Bankshares Corporation, 202 South Jefferson Street, Roanoke, Virginia 24011, telephone number (540) 345-6000.

William R. Rakes, a Director and General Counsel of the Bank, and the law firm with which he is associated, provides legal services to the Bank. Mr. Rakes and his firm have been approved by the Board of Directors as legal counsel for the Bank and all statements for services rendered and expenses incurred are approved by the Executive Committee of the Board of Directors, upon the recommendation of the Chief Executive Officer. Mr. Rakes does not participate in consideration of such statements by the Executive Committee.

The Bank’s officers, directors and other corporations, business entities and persons with which some of the Bank’s officers and directors are associated, have banking transactions with the Bank. All such transactions are made in the ordinary course of business on substantially the same terms, including interest rates and security for loans, as those prevailing at the time in comparable transactions with others and did not involve more than the normal risk of collectability or present other unfavorable features.

Yount, Hyde & Barbour, P.C. (“YHB”) served as independent registered public accounting firm for the Bank for the years 2005, 2006 and 2007, and was selected to serve as the independent registered public accounting firm for 2008. Representatives from YHB are expected to be present at the annual meeting with the opportunity to make a statement and to answer appropriate questions you may have.

YHB has advised the Bank that neither it nor any of its members have any direct financial interest or material indirect financial interest in the securities of the Bank or in connection with the Bank and/or the Company in the capacity of promoter, underwriter, voting trustee, director, officer or employee.

Fees Paid to Independent Registered Public Accounting Firm for 2008 and 2007 Fiscal Years

For the fiscal years ended December 31, 2008 and 2007, YHB audited the financial statements included in the Bank’s Annual Report on Form 10-KSB or Form 10-K; reviewed the Bank’s quarterly reports on Form 10-QSB or Form 10-Q; and provided certain tax services including tax compliance, tax advice, and tax planning.

The following table presents the aggregate fees paid or to be paid by the Bank for professional services rendered by YHB for the years 2008 and 2007:

Other than that set forth above, YHB did not bill the Bank for any other fees during either of the past two (2) years.

It is the policy of the Audit Committee that the Bank’s independent auditor may provide only those services that have been pre-approved by the Audit Committee. Unless a type of service to be provided by the independent auditor has received general pre-approval, it requires specific pre-approval by the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee or a related engagement letter specifically provides for a different period. The Audit Committee will annually review and pre-approve the services that may be provided by the independent auditor without obtaining specific pre-approval.

Requests or applications to provide services that require specific approval by the Audit Committee must be submitted to the Audit Committee by both the independent auditor and the Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the Securities and Exchange Commission’s rules on auditor independence.

If the Reorganization is not completed, any nomination for election of a person to serve as a director or other stockholder proposal that a stockholder wished to have included in the Bank’s proxy statement and form of proxy relating to the 2010 annual meeting of stockholders must be received by the Bank’s Corporate Secretary, at our main office, 202 South Jefferson Street, Roanoke, Virginia 24011, no later than December 31, 2009, pursuant to the proxy soliciting regulations of the Securities and Exchange Commission. Nothing in this paragraph shall be deemed to require the Bank to include in its proxy statement and form of proxy for such meeting any stockholder proposal which does not meet the requirements of the Securities and Exchange Commission in effect at that time.

If the Reorganization is completed, you will no longer be a stockholder of the Bank but you will be a stockholder of the Company. Therefore, any proposal that a stockholder of the Company wishes to have presented at the first annual meeting of the Company that will take place after the reorganization, which will be held in 2010, must be received at the main office of the Company not later than December 31, 2009, for proposals that a stockholder wishes to have included in next year’s proxy statement and set forth in the form of proxy for the Company. If a proposal that a stockholder wishes to have included in next year’s proxy statement and set forth in the form of proxy is received by December 31, 2009 and is in compliance with all the requirements of Rule 14a-8 of the Securities and Exchange Commission, it will be included in the proxy statement and set forth in the form of proxy issued for the first annual meeting of stockholders of the Company. We urge you to send all proposals of this kind by certified mail, return receipt requested, to the attention of the Corporate Secretary, HomeTown Bankshares Corporation, 202 South Jefferson Street, Roanoke, Virginia 24011. Any other proposal for consideration by stockholders at the Company’s 2010 annual meeting must be delivered not earlier than the close of business on the 90^th day prior to such annual meeting and not later than the close of business on the later of the 60^th day prior to such annual meeting or the close of business on the 10^th day following the day on which public announcement of the date of such meeting is first made by the Company. For more information about the information that must be included in your proposal, please refer to the bylaws of the Company which are attached to this proxy statement/prospectus at Appendix B.

The proxy being solicited hereby provides discretionary authority to vote on any matter if the Bank did not receive notice of the matter 45 days before the date of this proxy statement/prospectus. The Bank has not received any such notices.

As of the date of this proxy statement/prospectus, management is not aware of any business to come before the annual meeting other than the matters that are described in this proxy statement/prospectus. However, if any other matters properly come before the annual meeting, we intend that the proxies solicited by this proxy statement/prospectus will be voted on those other matters in accordance with the judgment of the persons voting the proxies.

The validity of the Company stock to be issued in the reorganization of certain federal tax matters will be passed upon by Gentry Locke Rakes & Moore, LLP, P.O. Box 40013, Roanoke, Virginia 24002.

THE ACCOMPANYING PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND COST OF SAME IS BORNE BY THE BANK. IT MAY BE REVOKED IN WRITING DIRECTED TO THE SECRETARY OF THE BOARD AT ANY TIME PRIOR TO ITS EXERCISE.

THIS PLAN AND AGREEMENT OF SHARE EXCHANGE is made and entered into as of December 8, 2008, by and among HomeTown Bankshares Corporation, a proposed bank holding company organized under the laws of Virginia, with its principal office in Roanoke, Virginia (the “Holding Company”), and HomeTown Bank, a banking corporation organized under the laws of the Commonwealth of Virginia, with its main office in Roanoke, Virginia (the “Bank”).

Whereas, Holding Company is a Virginia corporation formed for the purpose of engaging in a share exchange transaction with Bank by which Holding Company will, on the effective date of the share exchange, own 100% of the outstanding shares of the common stock ($5.00 par value) of Bank (“Bank Common Stock”) by virtue of an exchange of shares of the common stock (no par value) of Holding Company (“Holding Company Common Stock”) for all of the issued and outstanding shares of Bank Common Stock excluding only the “Excluded Shares” as hereinafter defined.

Whereas, the respective Boards of Directors of Holding Company and Bank consider the Share Exchange to be in the best interest of each corporation.

NOW, THEREFORE, in consideration of the mutual agreements set forth herein, Holding Company and Bank agree as follows:

1. The Share Exchange. At the Effective Date (as hereinafter defined), the Bank shall become a wholly owned subsidiary bank of Holding Company by virtue of a share exchange in which all of the capital stock of Bank as represented by all of the issued and outstanding shares of Bank Common Stock (excluding only the Excluded Shares) shall be the only class or series of Bank stock outstanding as of the Effective Date and shall be acquired from the holders thereof through a statutory share exchange in which each outstanding share of Bank Common Stock shall be converted into the right to receive the consideration specified in Section 2 (the “Share Exchange”).

2. Share Exchange Rights. Upon, and by reason of, the Share Exchange becoming effective pursuant to the issuance of a Certificate of Share Exchange by the Virginia State Corporation Commission (the “Effective Date”):

(a) Each of the issued and outstanding shares of Bank Common Stock or fraction thereof (excluding shares held by Bank or Holding Company, in each case other than in a fiduciary capacity or as a result of debts previously contracted, and excluding shares held by stockholders who perfect their dissenters’ rights, if any, (the “Excluded Shares”)) shall be automatically converted into the right to receive the equivalent number of shares of Holding Company Common Stock. Outstanding certificates representing shares of Bank Common Stock will thereafter represent the right to receive an equal number of shares of Holding Company Common Stock (the “Exchange Rights”). As soon as practicable thereafter, the Holding Company will issue new stock certificates representing the shares of Holding Company Common Stock received in the Share Exchange. Each holder of Bank Common Stock, upon the surrender of his stock certificates for the Bank Common Stock to the Holding Company duly endorsed for transfer, will be entitled to receive in exchange therefor a certificate or certificates representing an equivalent number of shares of Holding Company Common Stock.

(b) On the Effective Date, holders of Bank Common Stock will cease to be, and shall have no rights as stockholders of the Bank other than the Exchange Rights, and there shall be no transfer on the stock transfer book of Bank of the shares of Bank Common Stock which were outstanding immediately prior to the Effective Date.

(c) Any holder of Bank Common Stock who perfects his dissenters’ rights of appraisal in accordance with and as contemplated by the applicable provisions of Article 15 of the Virginia Stock Corporation Act (Va. Code § 13.1-729, et seq.) shall be entitled to receive the value of such shares in cash as determined pursuant to such provision of law; provided, however, that no such payment shall be made to any dissenting stockholder unless and until such dissenting stockholder has complied with the applicable provisions of Article 15 of the Virginia Stock Corporation Act (Va. Code § 13.1-729, et seq.) and duly surrendered the certificate or certificates representing the shares for which payment is being made. In the event that a dissenting stockholder of Bank having dissenters’ rights as a matter of law fails to perfect or effectively withdraws or loses his right to appraisal and of payment for his share, after the Effective Date, Holding Company will issue and deliver the consideration to which such holder was entitled (without interest) on surrender by such holder of the certificates) representing shares of Bank Common Stock held by him.

(d) As promptly as practicable after the Effective Date, Holding Company shall send or cause to be sent to each former stockholder of Bank of record immediately prior to the Effective Date transmittal materials for use in exercising his Exchange Rights. Any dividends paid on any shares of Holding Company Common Stock that such stockholder shall be entitled to receive prior to the delivery to Holding Company of such stockholder’s certificates representing all of such stockholder’s shares of Bank Common Stock will be delivered to such stockholder only upon delivery to Holding Company of the certificates representing all of such shares (or indemnity satisfactory to Holding Company in its judgment, if any of such certificates are lost, stolen or destroyed). No interest will be paid on any such dividends which the holder of such shares shall be entitled to receive upon such delivery. After the Effective Date, to the extent permitted by law, former stockholders of record of Bank Common Stock shall be entitled to vote at any meeting of holders of Holding Company Common Stock, the number of whole shares of Holding Company Common Stock to which they have Exchange Rights, regardless of whether such holders have exchanged their certificates representing Bank Common Stock for certificates representing Holding Company Common Stock in accordance with the provisions of this Agreement.

(e) Each of the shares of Bank Common Stock held by Bank or by Holding Company, in each case other than in a fiduciary capacity or as a result of debts previously contracted, shall be cancelled and retired at the Effective Date and no consideration shall be issued in exchange therefor.

3. Capital of the Bank. The capital, surplus and undivided profits of the Bank at the Effective Date will be equal to the capital structure of the Bank immediately prior to the Effective Date.

4. Board of Directors; Officers. (a) At the Effective Date, the boards of directors of the Bank and the Holding Company shall continue to serve as the directors of the Bank and the Holding Company, respectively, except as otherwise determined in the discretion of the Boards prior to the Effective Date, until the expiration of their term or until such time as their successors have been elected and qualified.

(b) At the Effective Date, the respective officers of the Bank and the Holding Company shall continue to serve in their then current positions until such time as their successors have been elected or appointed.

5. Conditions to the Merger. Consummation of the Share Exchange is conditioned upon (i) the approval of this Agreement by the affirmative vote of the stockholders owning more than two-thirds of the outstanding shares of the common stock of the Bank at a meeting to be held on the call of the Bank’s board of directors, (ii) the receipt of the required regulatory approvals, (iii) the effectiveness of the registration of the shares of Holding Company Common Stock to be issued in the Share Exchange and compliance with all Blue Sky law requirements so that such shares may be lawfully issued, and (iv) the receipt of an opinion of counsel as to the tax-free nature of the transaction. Upon the satisfaction of the foregoing conditions, the Share Exchange shall become effective at the time specified in a Certificate of Share Exchange to be issued by the Virginia State Corporation Commission.

6. Termination. This Agreement may be terminated by the unilateral action of either of the boards of directors of the Bank or the Holding Company prior to the approval of the Agreement by the stockholders of Bank or by the mutual consent of the respective boards of directors of the Bank and the Holding Company after any stockholder group has taken the requisite affirmative action. Upon termination for any reason, this Agreement shall be void and of no further effect, and there shall be no liability by reason of this Agreement or the termination thereof on the part of the Bank or the Holding Company or any of their directors, officers, employees, agents or stockholders.

WITNESS, the following signatures and seals for the parties, each hereunto set by its President and attested by its Secretary, pursuant to duly authorized resolutions of its Board of Directors.

The purpose for which the Corporation is organized is to act as a bank holding company and to transact any and all lawful business, not required to be specifically stated in the Articles of Incorporation, for which corporations may be incorporated under the Virginia Stock Corporation Act.

Section 1. The total number of shares of capital stock that the Corporation shall have authority to issue is 15,000,000, of which 10,000,000 shares shall be shares of common stock, par value $5.00 per share (“Common Stock”), and 5,000,000 shares shall be shares of preferred stock, no par value per share (“Preferred Stock”).

Section 2. Shares of Preferred Stock may be issued in one or more series. Subject to applicable laws, the Board of Directors of the Corporation may determine the preferences, limitations and relative rights of any series of Preferred Stock before the issuance of any shares of that series. Such determination may include, without limitation, provisions with respect to voting rights (including rights with respect to any transaction of a specified nature), redemption, exchangeability, convertibility, distribution and preference on dissolution or otherwise. Each series shall be appropriately designated by a distinguishing designation prior to the issuance of any shares thereof. The Preferred Stock of all series shall have preferences, limitations and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of shares of other series of the same class.

Section 3. Subject to the rights of holders of Preferred Stock and subject to any other provisions of these Articles of Incorporation or any amendment hereto, holders of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation as may be declared by the Board of Directors from time to time.

Section 4. Subject to the rights of holders of Preferred Stock, in the event of any liquidation, dissolution or winding up (whether voluntary or involuntary) of the Corporation, after the payment or provision for payment in full for all debts and other liabilities of the Corporation, the remaining net assets of the Corporation shall be distributed ratably among the holders of the shares at the time outstanding of Common Stock.

Section 5. The holders of Common Stock shall be entitled to one vote per share on all matters as to which a stockholder vote is taken.

No holder of capital stock of the Corporation of any class shall have any preemptive right to subscribe to or purchase (i) any shares of capital stock of the Corporation, (ii) any securities convertible into such shares, or (iii) any options, warrants or rights to purchase such shares or securities convertible into any such shares.

Section 1. The Board of Directors shall consist of such number of individuals as may be fixed or provided for in the Bylaws of the Corporation.

Section 2. The Board of Directors shall be divided into three classes, Class I, Class II and Class III, as nearly equal in number as possible. The classification of directors of this Corporation shall be implemented as follows: directors of the first class (Class I) shall be elected to hold office for a term expiring at the 2009 annual meeting of the stockholders; directors of the second class (Class II) shall be elected for a term expiring at the 2010 annual meeting of the stockholders; and directors of the third class (Class III) shall be elected to hold office for a term expiring at the 2011 annual meeting of stockholders. The successors to the class of directors whose terms expire shall be identified as being of the same class as the directors they succeed and elected to hold office for a term expiring at the third succeeding annual meeting of stockholders when directors are elected and qualified. When the number of directors is changed, any newly created directorship shall be apportioned among the classes by the Board of Directors as to make all classes as nearly equal as possible.

Section 3. Directors of the Corporation may be removed with or without cause upon the affirmative vote of at least two-thirds of the outstanding shares entitled to vote.

Section 4. If the office of any director shall become vacant, the directors at the time in office, whether or not a quorum, may, by majority vote of the directors then in office, choose a successor who shall hold office until the next annual meeting of stockholders. Vacancies resulting from the increase in the number of directors shall be filled in the same manner and any successor director filling such vacancy shall hold office until the next annual meeting of stockholders.

Any amendment of the Corporation’s Articles of Incorporation, a plan of merger or share exchange, a transaction involving the sale of all or substantially all the Corporation’s assets other than in the regular course of business and a plan of dissolution shall be approved by the vote of a majority of all the votes entitled to be cast on such transactions by each voting group entitled to vote on the transaction at a meeting at which a quorum of the voting group is present in person or by proxy, provided that the transaction has been approved and recommended by at least two-thirds of the directors in office at the time of such approval and recommendation. If the transaction is not so approved and recommended, then the transaction shall be approved by the vote of more than two-thirds of all votes entitled to be cast on such transactions by each voting group entitled to vote on the transaction.

Section 1. To the full extent that the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors or officers, a director or officer of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages.

Section 2. To the full extent permitted and in the manner prescribed by the Virginia Stock Corporation Act, the Corporation shall indemnify each director or officer of the Corporation against liabilities, fines, penalties and claims imposed upon or asserted against him (including amounts paid in settlement) by reason of having been such director or officer, whether or not then continuing so to be, and against all expenses (including counsel fees) reasonably incurred by him in connection therewith, except in relation to matters as to which he shall have been finally adjudged liable by reason of his willful misconduct or a knowing violation of criminal law in the performance of his duty as such director or officer. The Board of Directors is hereby empowered, by majority vote of a quorum of disinterested directors, to contract in advance to indemnify any director or officer.

Section 3. The Board of Directors is hereby empowered, by majority vote of a quorum of disinterested directors, to cause the Corporation to indemnify or contract in advance to indemnify any person not specified in Section 2 of this Article against liabilities, fines, penalties and claims imposed upon or asserted against him (including amounts paid in settlement) by reason of having been an employee, agent or consultant of the Corporation, whether or not then continuing so to be, and against all expenses (including counsel fees) reasonably incurred by him in connection therewith, to the same extent as if such person were specified as one to whom indemnification is granted in Section 2 of this Article.

Section 4. The Corporation may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article and may also procure insurance, in such amounts as the Board of Directors may determine, on behalf of any person who is or was a director, officer, employee, agent or consultant of the Corporation against any liability asserted against or incurred by any such person in any such capacity or arising from his status as such, whether or not the Corporation would have power to indemnify him against such liability under the provisions of this Article.

Section 5. In the event there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification and advancement of expenses with respect to any claim for indemnification made pursuant to Sections 2 or 3 of this Article VII shall be made by special legal counsel agreed upon by the Board of Directors and the proposed indemnitee. If the Board of Directors and the proposed indemnitee are unable to agree upon such special legal counsel, the Board of Directors and the proposed indemnitee each shall select a nominee, and the nominees shall select such special legal counsel.

Section 6. No amendment, modification or repeal of this Article shall diminish the rights provided hereby or diminish the right to indemnification with respect to any claim, issue or matter in any then pending or subsequent proceeding that is based in any material respect on any alleged action or failure to act occurring before the adoption of such amendment, modification or repeal.

Section 7. Every reference herein to director, officer, employee, agent or consultant shall include (i) every director, officer, employee, agent, or consultant of the Corporation or any corporation the majority of the voting stock of which is owned directly or indirectly by the Corporation, (ii) every former director, officer, employee, agent, or consultant of the Corporation, (iii) every person who may have served at the request of or on behalf of the Corporation as a director, officer, employee, agent, consultant or trustee of another corporation, partnership, joint venture, trust or other entity, and (iv) in all of such cases, his executors and administrators.

The Corporation’s initial registered office shall be located at 10 Franklin Road, S.E., Roanoke, Virginia 24011, in the City of Roanoke, Virginia. The Corporation’s initial registered agent shall be William R. Rakes, whose address is the same as the Corporation’s registered office and who is a resident of Virginia and a member of the Virginia State Bar.

/s/ William R. Rakes

William R. Rakes, Incorporator

Section 1. Certificates. All shares issued by the Corporation shall, when fully paid, be represented by certificates in such form as may be required by law and approved by the Board of Directors. Share certificates shall, subject to the provisions of Section 2 of this Article, be signed by the Chairman of the Board of Directors or the President and by the Treasurer or the Secretary or any other officer authorized by resolution of the Board of Directors. Each share certificate may, but need not, be sealed with the seal of the Corporation or a facsimile thereof.

Section 2. Signatures. The signatures of the officers upon a share certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If any person who signed, either manually or by facsimile, a share certificate no longer holds office when such certificate is issued, the certificate is nevertheless valid.

Section 3. Duplicate Certificates. In case of the loss, mutilation or destruction of a share certificate, a duplicate may be issued upon such terms, and bearing such legend, if any, as the Board of Directors may lawfully prescribe.

Section 4. Transfer of Shares. A transfer of shares shall be made on the share transfer books of the Corporation only upon surrender of the certificates representing the shares transferred, endorsed or accompanied by a written assignment signed by the holder of record or by his duly authorized attorney-in-fact. The Board of Directors may from time to time make such reasonable regulations governing the transfer of shares as it may deem necessary or proper.

Section 5. Restrictions on Transfer. A transfer of shares shall be made only in accordance with any provision of the articles of incorporation or these bylaws.

Section 1. Holders of Shares. Only shareholders of record on the share transfer books of the Corporation shall be entitled to be treated by the Corporation as the holders of the shares standing in their respective names, and, except to the extent, if any, required by law, the Corporation shall not be obligated to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice hereof.

Section 2. Meetings Generally. Meetings of shareholders shall be held at the registered office or the principal office of the Corporation or at such other place, within or without the Commonwealth of Virginia, as the Board of Directors may designate from time to time. At least ten days before each meeting, the officer or agent having charge of the share transfer books of the Corporation shall prepare a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address and number of shares held by each, arranged by voting group and within each voting group by class or series of shares. For a period of ten days prior to the meeting the list of shareholders kept on file at the registered office or the principal office of the Corporation or at the office of its transfer agent or registrar shall be subject to inspection by any shareholders at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof.

Section 3. Annual Meetings. An annual meeting of the shareholders shall be held on the Monday before the last Thursday in May of each year, or on such other date set by the Board of Directors, for the purpose of electing directors and transacting such other business as may properly come before the meeting. At the annual meeting, no business shall be transacted and no corporate action shall be taken other than standard annual corporate actions, actions stated in the notice of the meeting, and actions which the chairman of the meeting has accepted for action.

Section 4. Special Meetings. A special meeting of the shareholders shall be held on the call of the Chairman of the Board of Directors, the President, a majority of the Board of Directors or by the holders of twenty percent (20%) of the outstanding shares of the Corporation. At a special meeting, no business shall be transacted and no corporate action shall be taken other than actions stated in the notice of the meeting, or actions accepted for action by the chairman of the meeting.

Section 5. Notice. Written notice of the date, time and place of the meeting and, in the case of a special meeting (or if required by law, the articles of incorporation or these bylaws), the purpose or purposes for which the meeting is called shall be given to each shareholder entitled to vote at the meeting. Such notice shall be given either by personal delivery or by mail, by or at the direction of the officer or persons calling the meeting, not more than 60 days nor less than ten days before the date of the meeting (except that such notice shall be given to each shareholder, whether or not entitled to vote, not less than 25 days before a meeting called to act on an amendment to the articles of incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange or other disposition of all, or substantially all, of the property of the Corporation other than in the usual and regular course of business, or the dissolution of the Corporation, which notice shall be accompanied by a copy of the proposed amendment, plan of merger or share exchange, agreement of sale or plan of dissolution, as the case may be). Notice to a shareholder shall be deemed given when mailed postage prepaid, correctly addressed, to the shareholder at his address as shown in the current record of shareholders of the Corporation.

Section 6. Waiver of Notice. Notice of any meeting may be waived before or after the date and time of the meeting in a writing signed by the shareholder entitled to notice and delivered to the Secretary for inclusion in the minutes of the meeting or filing with the corporate records.

Section 7. Determination of Shareholders of Record. The share transfer books may be closed by order of the Board of Directors for not more than 70 days for the purpose of determining shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof (or entitled to receive any distribution or in order to make a determination of shareholders for any other purpose). In lieu of closing such books, the Board of Directors may fix in advance as the record date for any such determination a date not more than 70 days before the date on which such meeting is to be held (or such distribution made or other action requiring such determination is to be taken). If the books are not thus closed or the record date is not thus fixed, the record date shall be the close of business on the day before the effective date of the notice to shareholders.

Section 8. Conduct of Meetings. The Chairman of the Board of Directors, or in his absence, the Vice Chairman, shall act as chairman of and preside over meetings of the shareholders. In the event both the Chairman and the Vice Chairman are unavailable, the President shall act as chairman of and preside over meetings of the shareholders. If no such officer is present, the meeting shall elect a chairman. The Secretary, or in his absence, the Assistant Secretary, shall act as the secretary of such meetings. If no such officer is present, the chairman shall appoint a secretary of the meeting. The order of business at the annual meeting of shareholders and as far as is practicable at any other meetings of the shareholders shall be determined by the chairman.

Section 9. Proxies. A shareholder may appoint a proxy to vote or otherwise act for him by signing and dating an appointment form, either personally or by his attorney-in-fact. No appointment of proxy shall be valid after the expiration of 11 months from the date of its execution, unless otherwise provided therein. Every appointment of proxy shall be revocable by the shareholder executing it, unless the appointment form conspicuously states that it is irrevocable and that it is coupled with an interest in accordance with law.

Section 10. Procedure at Meetings. The procedure at meetings of the shareholders shall be determined by the chairman, and (subject to the provisions of Section 8 of this Article) the vote on all questions before any meeting shall be taken in such manner as the chairman prescribes. However, upon the demand of the holders in the aggregate of at least twenty percent of all the votes entitled to be cast on any issue proposed to be considered at the meeting, such vote shall be by ballot.

Section 11. Quorum and Voting. A quorum at any meeting of shareholders shall be a majority of the votes entitled to be cast, represented in person or by proxy. If a quorum exists, action on a matter is approved by a majority of the votes cast within the voting group, unless a greater vote is required by law or the articles of incorporation (except that in elections of directors those receiving the greatest number of votes shall be elected even though less than a majority).

Section 12. Adjournments. A majority of the votes entitled to be cast at any meeting, represented in person or by proxy, even though less than a quorum, may adjourn the meeting to a fixed time and place. If a meeting of the shareholders is adjourned to a date more than 120 days after the date fixed for the original meeting, notice of the adjourned meeting shall be given as in the case of the original meeting. If a meeting is adjourned for less than 120 days, no notice of the date, time or place of the adjourned meeting or, in the case of a special meeting, the purpose or purposes for which the meeting is called, need be given other than by announcement at the meeting at which the adjournment is taken, prior to such adjournment. If a quorum shall be present at any adjourned meeting, any business may be transacted which might have been transacted if a quorum had been present at the meeting as originally called.

Section 1. General Powers. Except as expressly provided in the Articles of Incorporation or these bylaws, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, the Board of Directors.

Section 2. Number and Qualifications. The Board of Directors shall consist of a minimum of 5 and a maximum of 15 individuals. Directors need not be residents of Virginia but must be shareholders of the Corporation. Directors shall be elected at each annual meeting of the shareholders and may be elected at any special meeting of the shareholders.

Section 3. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at the registered office or principal office of the Corporation or at such other place, within or without the Commonwealth of Virginia, as the Board of Directors may designate from time to time. A regular meeting of the Board of Directors shall be held as soon as practicable after each annual meeting of the shareholders for the purpose of appointing officers and transacting such other business as may properly come before the meeting.

Section 4. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors, the Vice Chairman, the President, or by a majority of the Board of Directors.

Section 5. Notice. Written notice of the date, time and place of special meetings shall be given to each director either by personal delivery or by mail, by or at the direction of the officer or directors calling the meeting, to the address of such director as it appears in the records of the Corporation not less than ten days before the date of the meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or any waiver of notice of such meeting.

A director’s attendance at or participation in a meeting waives any required notice to him of the meeting unless he at the beginning of the meeting or promptly upon his arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to the action taken at the meeting.

Section 6. Waiver of Notice. Notice of any meeting may be waived before or after the date and time of the meeting in a writing signed by the director entitled to notice and delivered to the Secretary of the Corporation for inclusion in the minutes of the meeting or filing with the corporate records.

Section 7. Action Without Meeting. Any action required or permitted by law to be taken at a meeting of the Board of Directors may be taken without a meeting if the action is taken by all of the members of the Board of Directors. The action shall be evidenced by one or more written consents stating the action taken, signed by each director either before or after the action taken, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this section is effective when the last director signs the consent unless the consent specifies a different effective date, in which event the action taken is effective as of the date specified therein provided the consent states the date of execution by each director. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.

Section 8. Conduct of Meetings. The Chairman of the Board of Directors, or in his absence, the Vice Chairman, shall act as chairman of and preside over meetings of the Board of Directors. In the event both the Chairman and the Vice Chairman are unavailable, the President shall act as chairman of and preside over meetings of the Board of Directors. The Chairman shall appoint a clerk for the meetings.

Section 9. Procedure at Meetings. The procedure at meetings of the Board of Directors shall be determined by the chairman, and (subject to the provisions of Section 19 of this Article) the vote on all matters before any meeting shall be taken in such manner as the chairman may prescribe.

Section 10. Participation by Conference Telephone. The Board of Directors may permit any or all directors to participate in a meeting of the directors by, or conduct the meeting through the use of, conference telephone or any other means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by such means shall be deemed to be present in person at the meeting.

Section 11. Quorum. A quorum at any meeting of the Board of Directors shall be a majority of the number of directors fixed or prescribed by these bylaws or, if no number is prescribed, the number of directors in office immediately before the meeting begins. The affirmative vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 12. Executive Committee. The Board of Directors, by resolution adopted by a majority of the number of directors fixed by these bylaws, may elect an Executive Committee which shall consist of not less than 3 directors, including the Chairman of the Board and the Chief Executive Officer. When the Board of Directors is not in session, the Executive Committee shall have all power vested in the Board of Directors by law, by the Articles of Incorporation, or by these bylaws, provided that the Executive Committee shall not have power to declare dividends, to approve an amendment to the Articles of Incorporation or a plan of merger or consolidation, or to take any action prohibited by express resolution of the Board of Directors. The Executive Committee shall report at the next regular or special meeting of the Board of Directors all action which the Executive Committee may have taken on behalf of the Board since the last regular or special meeting of the Board of Directors.

Section 13. Other Committees. The Board of Directors may create one or more committees and appoint two or more members of the board to serve on them at the pleasure of the Board of Directors. Any such committee, to the extent specified by the Board of Directors, may exercise the authority that may be exercised by the Board of Directors except to the extent prohibited or restricted by law, the articles of incorporation or these bylaws.

The provisions of Sections 3 through 12 of this Article, which provide for, among other things, meetings, action without meetings, notice and waiver of notice, quorum and voting requirements of the Board of Directors, shall apply to committees and their members as well.

Section 14. Removal. Directors of the Corporation may be removed with or without cause and with the affirmative vote of at least two-thirds of the outstanding shares entitled to vote.

Section 15. Vacancies. If the office of any director shall become vacant, the directors at the time in office, whether or not a quorum, may, by majority vote of the directors then in office, choose a successor who shall hold office until the next annual meeting of shareholders.

Section 16. Nominations of Director Candidates. The Board of Directors may nominate directors by resolution at any time prior to solicitation of proxies for the annual shareholders’ meeting. Any shareholder entitled to vote in the election of directors generally may nominate one or more persons at a meeting, but only if written notice of such shareholder’s intent to make such nomination(s) has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not less than one hundred twenty (120) days prior to the first anniversary date of the initial notice given to shareholders of record on the record date for the previous annual meeting by or at the direction of the Board of Directors, provided, however, that if the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, such notice shall be required to be given not less than ninety (90) days nor more than one hundred twenty (120) days prior to the date set for such annual meeting of shareholders. Each such notice of a shareholder’s intention to make nomination(s) shall set forth: (a) the name and address of the shareholder who intends to make the nomination of the person(s) and of the person(s) to be nominated; (b) a representation that the shareholder is the owner of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person(s) specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee for director and any other person(s) (naming such (person(s)) pursuant to which the nomination(s) are to be made by the shareholder; (d) such other information regarding such nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors, including, but not limited to, the amount and nature of his beneficial ownership of the Corporation’s securities, his principal occupation for the past five years and his age; and (e) the written consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer at any meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing sentence.

Section 17. Shareholder Proposals. (a) Eligible shareholders shall submit proposals for inclusion in the proxy materials for consideration at annual meetings of the Corporation in accordance with the rules and regulations of the Securities and Exchange Commission as set forth in the Securities Exchange Act of 1934 (the “1934 Act”). A proponent may submit no more than one proposal that, with a supporting statement, shall not exceed in the aggregate 500 words. At the time of submitting any such proposal, the proponent shall set forth his name and address and shall be a record or beneficial owner of the lesser of 1% of $1,000 in market value of securities entitled to be voted at the meeting. The proponent shall have held such securities for at least one year, and he shall continue to own such securities through the date on which the meeting is held. At the time of submission of the proposal, the Corporation shall receive from the proponent documentary evidence which supports such beneficial ownership in the form prescribed under Rule 14a-8 of the 1934 Act, as amended, of any successor statute or regulation.

(b) Such proposal must be by written notice, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not less than one hundred twenty (120) days prior to the first anniversary date of the initial notice given to shareholders of record on the record date for the previous annual meeting by or at the direction of the Board of Directors, provided, however, that if the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, such notice shall be required to be given not less than ninety (90) days nor more than one hundred twenty (120) days prior to the date set for such annual meeting of shareholders.

(c) The Corporation shall not be required to include the proposal in its proxy statement or form of proxy unless the proponent has complied with the requirements of the 1934 Act and this section. In addition, the presiding officer at the meeting may refuse to acknowledge the proposal by any person that is not made in compliance with the foregoing.

Section 18. Resignation. A director may resign at any time by delivering written notice to the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman, the President or the Secretary. A resignation shall be effective when delivered, unless the notice specifies a later effective date.

Section 19. Conflicts of Interest. No transaction with the Corporation in which a director has a direct or indirect personal interest shall be void or voidable solely because of the director’s interest in the transaction if: (i) the material facts of the transaction and the director’s interest are disclosed or known to the Board of Directors or a committee of the Board of Directors, and the transaction was authorized, approved or ratified by the affirmative vote of a majority of the directors on the Board of Directors, or on the committee, who have no direct or indirect personal interest in the transaction; provided, however, that a transaction shall not be authorized, approved or ratified by a single director; or (ii) the material facts of the transaction and the director’s interest are disclosed to the shareholders entitled to vote, and the transaction is authorized, approved or ratified by the vote of a majority of the shares other than shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction; or (iii) the transaction is fair to the Corporation.

Section 1. Generally. The officers of the Corporation shall be a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President, such Executive Vice Presidents, Vice Presidents or Assistant Vice Presidents as the Board of Directors may appoint, a Secretary and a Treasurer, each of whom shall be appointed by the Board of Directors at a regular meeting of the directors held as soon as may be practicable after each annual meeting of the shareholders or, if a vacancy shall exist in any such office, at a special meeting of the directors held as soon as may be practicable after the resignation, death or removal of the officer theretofore holding the same. The Board of Directors may, from time to time, appoint other officers and assistant officers and fill any vacancy that may exist in any such office as a result of the resignation, death or removal of the officer theretofore holding the same. Any officer may hold more than one office and may, but need not, be a director. Each officer shall have the authority and shall perform the duties which pertain to the office held by him, or as set forth in these bylaws or, to the extent consistent with these bylaws, such duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman or the President.

Section 2. Chairman of the Board of Directors. The Chairman of the Board of Directors shall act as chairman of and preside over meetings of the shareholders and directors. Except as otherwise provided in these bylaws or in the resolutions establishing such committees, he shall be ex officio a member of all committees of the Board unless it is designated otherwise in the appointment of the committee, entitled to vote on any matter before a committee as a member thereof, and shall perform all such other duties as are incident to his office or as he may be directed to perform by the Board of Directors. In the absence or disability of the Chairman of the Board, the Vice Chairman shall perform such duties, including serve as ex officio member of the Company’s committees.

Section 3. Vice Chairman of the Board of Directors. The Vice Chairman of the Board of Directors shall act as chairman of and preside over meetings of the shareholders and directors in the absence of the Chairman. In the absence or disability of the Vice Chairman, the President shall perform such duties.

Section 4. President. The President shall be the chief executive officer of the Corporation. The President shall have general supervision over, responsibility for and control of the other officers, agents and employees of the Corporation. The President shall, during the absence, disqualification or inability to act of both the Chairman of the Board of Directors and the Vice Chairman, exercise all the functions and perform all the duties of the Chairman of the Board of Directors, or in his absence the Vice Chairman (except he may not vote as a director if not elected or appointed as such).

Section 5. Vice Presidents. Each Vice President shall perform, to the extent consistent with these bylaws, such duties as may be prescribed by the Board of Directors or the President. In the event of and during the absence, disqualification or inability to act of the President, the Vice Presidents, in the order designated by the Board of Directors, shall have the authority and perform the duties of the President.

Section 6. Secretary. The Secretary shall have the responsibility for preparing and maintaining custody of minutes of meetings of the shareholders and directors in a book or books kept for that purpose and the responsibility for authenticating records of the Corporation. The Secretary shall maintain a record of shareholders of the Corporation, giving the names and addresses of all shareholders and the numbers, classes and series of the shares held by each and, unless otherwise prescribed by the Board of Directors, shall maintain the share transfer books of the Corporation.

Section 7. Treasurer. The Treasurer shall be the chief financial officer of the Corporation. The Treasurer shall have the custody of all monies and securities of the Corporation and shall deposit the same in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors and, unless otherwise prescribed by the Board of Directors or the President, shall maintain the books of account and financial records.

Section 8. Delegation of Power. In the event of and during the absence, disqualification or inability to act of any officer other than the President, such other officers or employees as may be designated by the Board of Directors or by the President shall have the authority and perform the duties of such officer.

Section 9. Term of Office. Each officer shall be appointed to hold office until the first regular meeting of the Board of Directors held after each annual meeting of the shareholders, or for such longer or shorter term as the Board of Directors may specify, and until his successor shall have been appointed or such earlier time as he shall resign, die or be removed.

Section 10. Resignation. An officer may resign at any time by delivering written notice to the Board of Directors, the President or the Secretary. A resignation shall be effective when delivered unless the notice specifies a later effective date.

Section 11. Removal. Any officer may be removed, with or without cause, at any time by the Board of Directors and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer.

Section 12. Execution of Instruments. Checks, drafts, notes and orders for the payment of money shall be signed by such officer or officers or such other individual or individuals as the Board of Directors may from time to time authorize, and any endorsement of such paper in the ordinary course of business shall be similarly made, except that any officer or assistant officer of the Corporation may endorse checks, drafts or notes for collection or deposit to the credits of the Corporation. The signature of any such officer or other individual may be a facsimile when authorized by the Board of Directors.

Section 13. Proxies. Unless otherwise prescribed by the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman or the President may from time to time himself, by such proxy or proxies, attorney or attorneys, agent or agents of the Corporation as he shall designate in the name and on behalf of the Corporation, cast the votes to which the Corporation may be entitled as a shareholder or otherwise in any other corporation, at meetings, or consent in writing to any action by any such other corporation; and he may instruct the individual or individuals so appointed as to the manner of casting such votes or giving such consent, and execute or cause to be executed on behalf of the Corporation such written proxies, consents, waivers or other instruments as he may deem necessary or desirable.

Section 1. The seal of the Bank shall be a flat-face circular die, of which there may be any number of counterparts or facsimiles, in such form as the Board of Directors shall from time to time adopt.

Section 2. Amendments. These bylaws may be amended or repealed by the Board of Directors except to the extent that: (i) this power is reserved exclusively to the shareholders by law or the articles of incorporation; or (ii) the shareholders in adopting or amending particular bylaws provide expressly that the Board of Directors may not amend or repeal the same. These bylaws may be amended or repealed by the shareholders even though the same also may be amended or repealed by the Board of Directors.

Section 3. Fiscal Year and Accounting. The fiscal year of the Corporation shall be the calendar year ending December 31. On an annual basis the Board of Directors shall select a qualified, independent accounting and audit firm to audit the books and records of the Corporation in accordance with applicable laws and regulations. The Board will acknowledge the report of examination in the minutes of the meeting of the Board of Directors.

Section 4. Interpretative Matters. Pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter.

The purpose of the Bank is to conduct the business of banking, including any and all activities relating thereto and permitted by law. It shall be entitled to exercise all powers incidental to banking, including without limitation those set forth in Section 6.1-11 of the Code of Virginia. In addition, the Bank is specifically authorized (a) to conduct business as an insurance agent or agency with respect to any and all classes of insurance to the full extent permitted by applicable law, including without limitation the sale of life, health, accident, disability, property, casualty and worker’s compensation insurance; and (b) to conduct the business of selling investment products to the full extent permitted by applicable law, including without limitation the sale of mutual funds, annuities, and real estate participations.

The aggregate number of shares which the Bank shall have the authority to issue is as follows:

No holder of shares now or hereafter issued by the Bank shall be entitled as a matter of right to subscribe for or purchase any part of the authorized but unissued shares of the Bank of any class whatsoever, or to subscribe for or purchase any additional shares of any class whatsoever to be issued hereafter by reason of any increase in the number of shares authorized to be issued, or to subscribe for or purchase any bonds, certificates of indebtedness, debentures, or other securities of any kind or class convertible into or carrying a right to subscribe for or acquire shares of the Bank.

The Board of Directors of the Bank shall consist of not less than seven nor more than 15 persons, the exact number to be fixed and determined from time to time within the range pursuant to the bylaws. Each Director shall own not less than the amount of capital stock in the Bank or in a bank holding company controlling the Bank as may be required by Virginia law.

“applicant” means the person seeking indemnification pursuant to this Article.

“Bank” means Hometown Bank, or any bank holding company owning or controlling the Bank.

“liability” means the obligation to pay a judgment, settlement, penalty, fine, including any excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding.

“party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.

“proceeding” means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal.

(2) In any proceeding brought by or in the right of the Bank or brought by or on behalf of shareholders of the Bank, no director or officer of the Bank shall, to the extent permitted by the applicable banking laws, be liable to the Bank or such shareholders for monetary damages with respect to any transaction, occurrence or course of conduct, whether prior or subsequent to the effective date of this Article, except for liability resulting from such person’s having engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law.

(3) The Bank shall, to the extent permitted by the applicable banking laws, indemnify (i) any person who was or is a party to any proceeding, including a proceeding brought by a shareholder in the right of the Bank or brought by or on behalf of shareholders of the Bank, by reason of the fact that he or she was a director or officer of the Bank, or (ii) any director or officer who is or was serving at the request of the Bank as a director, trustee, member, partner or officer of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, against any liability incurred by him or her in connection with such proceeding unless he or she engaged in willful misconduct or a knowing violation of the criminal law. A person is considered to be serving an employee benefit plan at the Bank’s request if his duties to the Bank also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. The Board of Directors is empowered by a majority vote of a quorum of disinterested Directors, to enter into a contract to indemnify any director or officer in respect of any proceedings arising from any act or omission, whether occurring before or after the execution of such contract.

(4) The provisions of this Article shall be applicable to all proceedings commenced after the adoption hereof by the shareholders of the Bank, arising from any act or omission, whether occurring before or after such adoption. No amendment or repeal of this Article shall have any effect on the rights provided under this Article with respect to any act or omission occurring prior to such amendment or repeal. The Bank shall promptly take all such actions, and make all such determinations, as shall be necessary or appropriate to comply with its obligation to make any indemnity under this Article and shall promptly pay or reimburse all reasonable expenses including attorneys’ fees, incurred by any such director or officer in connection with such actions and determinations or proceedings of any kind arising therefrom.

(5) The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the applicant did not meet the standard of conduct described in Section (2) or (3) of this Article.

(6) Any indemnification under section (3) of this Article (unless ordered by a court) shall be made by the Bank only as authorized in the specific case upon a determination that indemnification of the applicant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in section (3).

(a) By the Board of Directors by a majority vote of a quorum consisting of Directors not at the time parties to the proceeding;

(b) If a quorum cannot be obtained under subsection (a) of this section, by a majority vote of a committee duly designated by the Board of Directors (in which designation Directors who are parties may participate), consisting solely of three or more Directors not at the time parties to the proceeding;

(i) Selected by the Board of Directors or its committee in the manner prescribed in subsection (a) or (b) of this section; or

(ii) If a quorum of the Board of Directors cannot be obtained under subsection (a) of this section and a committee cannot be designated under subsection (b) of this section, selected by majority vote of the full Board of Directors, in which selection Directors who are parties may participate; or

(d) By the shareholders, but shares owned by or voted under the control of Directors who are at the time parties to the proceeding may not be voted on the determination.

Any evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is appropriate, except that if the determination is made by special legal counsel, such evaluation as to reasonableness of expenses shall be made by those entitled under subsection (c) of this section (6) to select counsel.

Notwithstanding the foregoing, in the event there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification and advancement of expenses with respect to any claim for indemnification made pursuant to this Article shall be made by special legal counsel agreed upon by the Board of and the applicant. If the Board of Directors and the applicant are unable to agree upon such special legal counsel the Board of Directors and the applicant each shall select a nominee, and the nominees shall select such special legal counsel.

(7) (a) To the extent permitted by applicable banking laws and regulations, the Bank shall pay for or reimburse the reasonable expenses incurred by any applicant who is a party to a proceeding in advance of final disposition of the proceeding or the making of any determination under section (6) if the following conditions are met:

(B) in the event the director does not prevail, he or she will have the financial capability to reimburse the Bank; and

To the extent required by applicable banking laws and regulations, if at any time the Board believes or should reasonably believe that either conditions (A), (B) or (C) are no longer met, the Bank shall cease paying such expenses or premiums. The Board shall enter into a written agreement with the director specifying the conditions under which he or she will be required to reimburse the Bank, which agreement shall require reimbursement for expenses already paid, if and to the extent the Board finds that the director willfully misrepresented factors relevant to the Board’s determination of conditions (A) or (B), or if a final decision assessing penalties or requiring payments is returned. The Bank shall ensure that it complies with all applicable laws and regulations affecting loans to directors, officers and employees, in the event reimbursement is required.

(A) a written statement of good faith belief that he or she has met the standard of conduct described in section (3); and

(B) a written undertaking, executed personally or on his or her behalf to repay the advance if it is ultimately determined that he or she did not meet such standard of conduct.

(b) Authorizations of payments under this section shall be made by the persons specified in section (6).

(8) The Board of Directors is hereby empowered, by majority vote of a quorum consisting of disinterested Directors, to cause the Bank to indemnify or contract to indemnify any person not specified in section (2) or (3) of this Article who was, is or may become a party to any proceeding by reason of the fact that he or she is or was an employee or agent of the Bank, or is or was serving at the request of the Bank as director, officer, employee, member or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, to the same extent as if such person were specified as one to whom indemnification is granted in section (3). The provisions of sections (4) through (7) of this Article shall be applicable to any indemnification provided hereafter pursuant to this section (8).

(9) The Bank may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article and may also produce insurance, in such amounts as the Board of Directors may determine, on behalf of any person who is or was a director, officer, employee or agent of the Bank, or is or was serving at the request of the Bank as a director, officer, employee or agent of another corporation, partnership joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by him or her in any such capacity or arising from his status as such, whether or not the Bank would have power to indemnify him against such liability under the provisions of this Article.

(10) Every reference herein to directors, officers, employees or agents shall include former directors, officers, employees and agents and their respective heirs, executors and administrators. The indemnification hereby provided and provided hereafter pursuant to the power hereby conferred by this Article on the Board of Directors shall not be exclusive of any other rights to which any person may be entitled, including any right under policies of insurance that may be purchased and maintained by the Bank or others, with respect to claims, issues or matters in relation to which the Bank would not have the power to indemnify such person under the provisions of this Article. Such rights shall not prevent or restrict the power of the Bank to make or provide for any further indemnity, or provisions for determining entitlement to indemnity, pursuant to one or more indemnification agreements, bylaws, or other arrangements (including, without limitation, creation of trust funds or security interests funded by letters of credit or other means) approved by the Board of Directors (whether or not any of the directors of the Bank shall be a party to or beneficiary of any such agreements, bylaws or arrangements); provided, however, that any provision of such agreements, bylaws or other arrangements shall not be effective if and to the extent that it is determined to be contrary to this Article or applicable laws of the Commonwealth of Virginia.

(11) Each provision of this Article shall be severable, and an adverse determination as to any such provision shall in no way affect the validity of any other provision.

These Articles of Incorporation may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of this Bank, unless the vote of the holders of a greater amount of stock is required by law, and in that case by the vote of the holders of such greater amount.

The Bank’s initial registered office shall be located at 10 Franklin Road, S.E., Roanoke, Virginia 24011, in the City of Roanoke, Virginia. The Bank’s initial registered agent shall be William R. Rakes, whose address is the same as the Bank’s registered office and who is a resident of Virginia and a member of the Virginia State Bar.

/s/ William R. Rakes

William R. Rakes, Incorporator

The undersigned corporation, pursuant to Title 13.1, Chapter 9, Article 11 of the Code of Virginia, hereby executes the following articles of amendment and sets forth:

The Board of Directors of the Bank shall consist of not less than seven nor more than 20 persons, the exact number to be fixed and determined from time to time within the range pursuant to the bylaws. Each Director shall own not less than the amount of capital stock in the Bank or in a bank holding company controlling the Bank as may be required by Virginia law.

The principal office of the Bank shall be in the City of Roanoke, Virginia, but the Bank may open such branch offices within or without the Commonwealth as the Board of Directors deems advisable from time to time.

Sec. 1. All meetings of the stockholders shall be held at the principal office of the Bank unless the notice of the meeting, with the approval of the Board of Directors, states otherwise. Meetings may be held either within or without the Commonwealth of Virginia.

Sec. 2. The annual meeting of the stockholders of the Bank commencing with the year 2006 shall be on the fourth Thursday in April in each year or, if such date falls on a legal holiday, the next business day, at which meeting the stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.

Sec. 3. Notice of the annual or a special meeting of stockholders shall be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Bank, not less than ten days nor more than 60 days prior to the meeting, or in the case of a merger, sale of assets or similar transaction, not less than 25 days nor more than 60 days prior thereto. Notice may be waived in accordance with Section 13.1-659 of the Code of Virginia (1950), as amended, or any successor statute; or action may be taken by the stockholders without a meeting in accordance with Section 13.1-657 of the Code, or any successor statute. Special meetings of the stockholders may be called by the Chairman of the Board, the President, the Secretary, a majority of the Directors, or by the holders of not less than one-tenth of all the shares entitled to vote at the meeting.

Sec. 4. For the purpose of determining stockholders entitled to notice of or vote at any stockholders’ meeting, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to determine stockholders for any other proper purpose, the Board may close the stock transfer books for a stated period not to exceed seventy days. If the stock transfer books are closed to determine stockholders entitled to notice of or vote at a stockholders’ meeting, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board may fix in advance a date as the record date for a determination of stockholders, such date to be not more than seventy days, and in case of a stockholders’ meeting, not less than ten days, prior to the date on which the particular action requiring a determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or vote at a stockholders’ meeting or stockholders entitled to receive payment of a dividend, the day before the notice of the meeting is mailed or the date on which the resolution of the Board declaring such dividend is adopted, as the case may be, shall be the record date for the determination of stockholders. Any determination of stockholders entitled to vote at a stockholders’ meeting made as provided in this Section shall apply to any adjournment thereof, unless the Board fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.

Sec. 5. If a meeting is adjourned for lack of a quorum, any matter which might have properly come before the original meeting may come before the adjourned meeting.

Sec. 6. Each share of stock shall have one vote on all matters on which stockholders are entitled to vote. Upon request of any stockholder, voting shall be by secret ballot.

Sec. 7. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If a quorum is present, the affirmative vote of the holders of a majority of the shares present on the subject matter shall be the act of the stockholders unless the vote of a greater number is required by law, except that in election of directors, those receiving the greatest number of votes shall be deemed elected even though not receiving a majority. At each election for directors, every stockholder entitled to vote at

such election shall have the right to vote in person or by proxy the number of shares owned by him or her for as many persons as there are directors to be elected at the time and for whose election he or she has a right to vote. A stockholder may vote, either in person or by proxy executed in writing by the stockholder or by his or her duly authorized attorney-in-fact. Shares standing in the name of a corporation may be voted by an officer of the corporation or by any individual duly appointed by proxy.

Sec. 8. No business shall be transacted at any meeting of stockholders, except such business as shall be (a) specified in the notice of meeting given as provided in Section 3 of this Article II; (b) otherwise brought before the meeting by or at the direction of the Board; or (c) otherwise brought before the meeting by a stockholder of record of the Corporation entitled to vote at the meeting in compliance with the procedure set forth in this Section 8. For business to be brought before a meeting by a stockholder pursuant to (c) above, the stockholder must have given timely notice in writing to the President of the Corporation. To be timely, a stockholder’s notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty days nor more than ninety days prior to the meeting; provided, however, in the event that less than seventy days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting or such public disclosure was made. Notice shall be deemed to have been given more than seventy days in advance of an annual meeting of stockholders if the annual meeting is called on the date indicated by Section 2 of this Article II without regard to when public disclosure thereof is made. Notice of actions to be brought before a meeting pursuant to (c) above shall set forth, as to each matter the stockholder proposes to bring before the meeting: a brief description of the business desired to be brought before the meeting and the reasons for bringing such business before the meeting; and as to the stockholder giving the notice, (i) the name and address, as they appear on the Corporation’s books, of such stockholder, (ii) the classes and number of shares of the Corporation which are owned of record and beneficially by such stockholder, and (iii) any material interest of such stockholder in such business other than his interest as a stockholder of Corporation. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted on a stockholder proposal or nomination except in accordance with the provisions set forth in this Section 8. The requirements of this Section are in addition to any other requirements established by law and do not impair the effect of the requirements of Section 3 of Article II of these Bylaws relating to business permitted to be transacted at special stockholders’ meetings. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that any business was not properly brought before the meeting in accordance with the provisions prescribed by these Bylaws and, if he should so determine, he shall so declare to the meeting and any such business not so properly brought before the meeting shall not be transacted.

Sec. 1. The number of Directors shall be a minimum of seven and a maximum of 20, with the number to be established for its Board of Directors by resolution of the Board of Directors of the Bank from time to time. Directors shall be elected at each annual meeting of stockholders or at a special meeting of stockholders called for the purpose. Directors shall be elected for terms of one year and shall serve until their successors are elected and qualified. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board. A quorum at meetings of the board shall be a majority of the directors serving, and the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Sec. 2. The organizational meeting of the Board of Directors shall be held in each year, beginning in 2006, immediately following the annual meeting of the stockholders. The directors shall hold regular monthly meetings at the main banking office of the Bank, or at such other location as the Chairman of the Board shall designate. The regular monthly Board meeting shall be held on the fourth Thursday of each month at 2:00 p.m. or, if such date falls on a legal holiday, the next business day, except for the month of November when the meeting shall be held on the third Thursday of that month. Special meetings of the Board may be called by the Chairman of the Board, the President, any director or resolution of the Board. No notice shall be required in connection with regular monthly meetings of the Board. Notice of any other meeting shall be given in writing at least two days prior to the meeting.

Sec. 3. Directors may participate in meetings of the Board and committees of the Board by, and such meetings may be conducted through, the use of any means of communication by which all directors participating may simultaneously hear each other during the meeting. Directors so participating are deemed to be present in person at the meeting and will be counted in determining whether a quorum is present.

Sec. 4. Each person elected or appointed a director of the Bank shall take the oath of office on the form prescribed by the Bureau of Financial Institutions for the Commonwealth of Virginia no later than the time the Bank opens for business, and shall own by such date the number of shares of the Bank’s common stock required by law. No person serving, elected or appointed a director after such date shall exercise any function of such office until he or she has taken and subscribed to such oath and the same has been transmitted to the Bureau, and until he or she acquired director’s qualifying shares.

Sec. 5. No person shall stand for election to the Board who has reached the age of 72 years prior to the date of the regular annual meeting of the stockholders, at which an election of Directors is held, except for members of the Initial Board who had reached 65 years when they came on the Board, in which case the age limit for election would be extended to 75 years.

The Directors, may, by appropriate resolution, designate committees, consisting of at least three directors as the Board may deem proper; and such committees, if so designated, shall exercise such powers of the Board in the management of the business and affairs of the Bank that may be lawfully delegated to such committees.

The Board of Directors, by resolution, shall from time to time fix the compensation of the members of the Board.

Sec. 1. The officers of the Bank shall be elected by the Board of Directors and shall be a President, Cashier and Treasurer, Trust Officer (if and when trust services are provided) and Secretary. There may also be a Chairman and a Vice Chairman of the Board, one or more Executive Vice Presidents, one or more Senior Vice Presidents and Vice Presidents, one or more Assistant Cashiers, one or more Assistant Trust Officers (if trust services are provided) and an Assistant Secretary. All officers shall be elected for a term of one year and until their successors are elected. The Chairman of the Board may not be elected to more than three successive one-year terms in any ten year period. There is no limitation on the number of successive one-year terms to which any other officer may be elected. Any combination of offices may be held by the same person except the offices of President and Secretary, or President and Cashier.

Sec. 2. All officers of the Bank shall be elected by the Board at its organizational meeting immediately following the annual meeting of the stockholders. The President of the Bank shall be a member of the Board of Directors.

The Chairman of the Board shall preside at all meetings of the Board of Directors and stockholders.

Sec. 1. The President shall be the Chief Executive Officer of the Bank and shall have general responsibility for the business of the Bank except as may be limited by the Board. The President shall have power to carry into effect all legal directions of the Board of Directors.

Sec. 2. Any Executive Vice President designated by the President or the Board of Directors shall exercise all of the functions of the President when the President is incapacitated, absent, or otherwise unavailable to act, and shall have such other duties as may be, from time to time, placed upon him or her by the Board of Directors.

Sec. 3. Each Vice President shall have such duties as may be, from time to time, placed upon him or her by the Board of Directors.

The Cashier/Treasurer of the Bank shall be responsible for all assets and documents of the Bank, and shall keep proper records of all transactions of the Bank. The Cashier shall assist in preparation of the annual and monthly financial statements, and at any other time or times as required by law or ordered by the Board of Directors.

The Secretary of the Bank shall issue notices of all meetings of stockholders and Directors (except the regular monthly meeting of Directors), shall keep their minutes, shall have charge of the seal of the Bank and the corporate minute books, shall sign such instruments as require the signature of the Secretary, and shall make such reports and perform such other duties as are incident to his or her office, or are properly required by the Board of Directors.

Sec. 1. If and when the Bank offers trust services, Trust Officers shall be elected who shall be responsible for all assets and documents held by the Bank in connection with trust matters. Their duties shall be to manage, supervise and direct all activities of the Trust Department, subject to the orders and directions of the Board of Directors. They shall do and perform all actions necessary to be done or to be performed, and shall conduct all business of the Trust Department in accordance with the statutes for such cases made and provided, regulations of appropriate governmental agencies and the orders of the Board of Directors. If deemed proper, the Trust Officers shall act pursuant to the opinion of legal counsel, which opinion of legal counsel shall be in writing and shall be retained on file in the Trust Department in connection with such matters.

Sec. 2. The Assistant Trust Officers shall exercise all functions of the Trust Officers when the Trust Officers are incapacitated, absent or otherwise unavailable to act, and shall have such duties as may be, from time to time, placed upon them by the Board of Directors.

Sec. 3. The Trust Officers shall maintain in the Trust Department a file containing original instruments creating each trust or authenticated copies thereof; properly receipted vouchers evidencing payments and distributions under each trust agreement; properly evidenced settlements and reports to courts, commissioners of accounts or others, accounting for all trust funds received and distributed under such trust; and properly authenticated copies of all court orders in connection with all trust matters.

Sec. 4. No trust funds shall be invested in any securities in which corporate fiduciaries located in the State of Virginia may not lawfully invest, except in accordance with express instructions contained in any trust instrument, or pursuant to court order, or where the trust instrument creating the trust expressly provides that investments be made without regard to applicable laws governing investments by fiduciaries.

The certificates of stock of the Bank shall be numbered and entered in the books of the Bank as they are issued. They shall be signed by the President and countersigned by the Secretary or Cashier. They shall bear the corporate seal or a facsimile thereof.

The Bank may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Bank alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates the Bank, may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his or her legal representatives, to execute bond in such sum as it may direct, to indemnify the Bank against any claim that may be made against the Bank with respect to the certificate alleged to have been lost or destroyed.

Sec. 1. Upon surrender to the Bank or to the transfer agent of the Bank of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Bank to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

Sec. 2. The Bank shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof, and accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, and shall not be liable for registering any transfer of shares which are registered in the name of a fiduciary unless made with actual knowledge that the fiduciary is committing a breach of his or her obligation as fiduciary in making the transfer, or with the knowledge of such facts that its action in registering the transfer amounts to bad faith.

The Board of Directors may declare dividends from time to time from funds legally available therefor, in such amounts as they shall judge expedient. Without limiting the foregoing, all payments of dividends shall be in accordance with the requirements of Section 6.1-56 of the Code of Virginia or any successor statute.

Sec. 1. The corporate seal shall consist of two concentric circles between which is the name of the Bank, “HomeTown Bank.”

Sec. 2. The secretary or cashier shall have the authority to affix the seal of the Bank to any instrument requiring such seal and to attest the same.

All transfers and conveyances of real estate, title to which shall be vested in this Bank, including all real estate held in a fiduciary capacity, shall be by written instrument under the seal of the Bank, duly executed by the President or any Vice President.

All contracts on behalf of the Bank shall be executed by the Chairman of the Board, President, any Executive Vice President, any Vice President, Cashier or Trust Officer, subject to such limits as the Board of Directors may establish by resolution.

These Bylaws may be amended from time to time by the Board of Directors, provided that the notice of meeting at which any amendment is to be considered shall be accompanied by a copy of the proposed amendment. This requirement may be waived by any director who did not receive the required notice. These Bylaws may also be amended by the stockholders, subject to the same notice requirement. If such amendment expressly so provides, an amendment by the stockholders may only be amended or rescinded by action of the stockholders.

I, William C. Moses, certify that (1) I am the duly constituted Secretary of HomeTown Bank and Secretary of its Board of Directors, and as such officer am the official custodian of its records; and (2) the foregoing Bylaws, as amended, are the Bylaws of the Bank, and all of them are now lawfully in force and effect.

I have hereunto affixed my official signature and the seal of the Bank, in the City of Roanoke, Virginia, on this 24th day of April, 2008.

/s/ William C. Moses

Secretary

“Affiliate” means a person who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with another person or is a senior executive officer thereof.

“Beneficial stockholder” means a person who is the beneficial owner of shares held in a voting trust or by a nominee on the beneficial owner’s behalf.

“Corporation” means the issuer of the shares held by a stockholder demanding appraisal and, for matters covered by §§ 13.1-734 through 13.1-740, includes the surviving entity in a merger.

a. Immediately before the effectuation of the corporate action to which the stockholder objects;

b. Using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal; and

c. Without discounting for lack of marketability or minority status except, if appropriate, for amendments to the articles pursuant to subdivision A 5 of § 13.1-730.

“Interest” means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.

“Interested transaction” means a corporate action described in subsection A of § 13.1-730, other than a merger pursuant to § 13.1-719 or 13.1-719.1, involving an interested person in which any of the shares or assets of the corporation are being acquired or converted. As used in this definition:

1. “Beneficial owner” means any person who, directly or indirectly, through any contract, arrangement, or understanding, other than a revocable proxy, has or shares the power to vote, or to direct the voting of, shares; except that a member of a national securities exchange is not deemed to be a beneficial owner of securities held directly or indirectly by it on behalf of another person solely because the member is the record holder of the securities if the member is precluded by the rules of the exchange from voting without instruction on contested matters or matters that may affect substantially the rights or privileges of the holders of the securities to be voted. When two or more persons agree to act together for the purpose of voting their shares of the corporation, each member of the group formed thereby is deemed to have acquired beneficial ownership, as of the date of the agreement, of all voting shares of the corporation beneficially owned by any member of the group.

2. “Interested person” means a person, or an affiliate of a person, who at any time during the one-year period immediately preceding approval by the board of directors of the corporate action:

a. Was the beneficial owner of 20% or more of the voting power of the corporation, excluding any shares acquired pursuant to an offer for all shares having voting power if the offer was made within one year prior to the corporate action for consideration of the same kind and of a value equal to or less than that paid in connection with the corporate action;

b. Had the power, contractually or otherwise, to cause the appointment or election of 25% or more of the directors to the board of directors of the corporation; or

c. Was a senior executive officer or director of the corporation or a senior executive officer of any affiliate thereof, and that senior executive officer or director will receive, as a result of the corporate action, a financial benefit not generally available to other stockholders as such, other than:

(1) Employment, consulting, retirement, or similar benefits established separately and not as part of or in contemplation of the corporate action;

(2) Employment, consulting, retirement, or similar benefits established in contemplation of, or as part of, the corporate action that are not more favorable than those existing before the corporate action or, if more favorable, that have been approved on behalf of the corporation in the same manner as is provided in § 13.1-691; or

(3) In the case of a director of the corporation who will, in the corporate action, become a director of the acquiring entity in the corporate action or one of its affiliates, rights and benefits as a director that are provided on the same basis as those afforded by the acquiring entity generally to other directors of such entity or such affiliate.

“Preferred shares” means a class or series of shares whose holders have preference over any other class or series of shares with respect to distributions.

“Record stockholder” means the person in whose name shares are registered in the records of the corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with the corporation.

“Senior executive officer” means the chief executive officer, chief operating officer, chief financial officer and anyone in charge of a principal business unit or function.

A. A stockholder is entitled to appraisal rights, and to obtain payment of the fair value of that stockholder’s shares, in the event of any of the following corporate actions:

1. Consummation of a merger to which the corporation is a party (i) if stockholder approval is required for the merger by § 13.1-718 and the stockholder is entitled to vote on the merger, except that appraisal rights shall not be available to any stockholder of the corporation with respect to shares of any class or series that remain outstanding after consummation of the merger, or (ii) if the corporation is a subsidiary and the merger is governed by § 13.1-719;

2. Consummation of a share exchange to which the corporation is a party as the corporation whose shares will be acquired if the stockholder is entitled to vote on the exchange, except that appraisal rights shall not be available to any stockholder of the corporation with respect to any class or series of shares of the corporation that is not exchanged;

3. Consummation of a disposition of assets pursuant to § 13.1-724 if the stockholder is entitled to vote on the disposition;

4. An amendment of the articles of incorporation with respect to a class or series of shares that reduces the number of shares of a class or series owned by the stockholder to a fraction of a share if the corporation has the obligation or right to repurchase the fractional share so created; or

5. Any other amendment to the articles of incorporation, merger, share exchange or disposition of assets to the extent provided by the articles of incorporation, bylaws or a resolution of the board of directors.

B. Notwithstanding subsection A, the availability of appraisal rights under subdivisions A 1 through A 4 shall be limited in accordance with the following provisions:

1. Appraisal rights shall not be available for the holders of shares of any class or series of shares that is:

a. A covered security under § 18(b)(1)(A) or (B) of the federal Securities Act of 1933, as amended;

b. Traded in an organized market and has at least 2,000 stockholders and a market value of at least $20 million, exclusive of the value of such shares held by the corporation’s subsidiaries, senior executives, directors and beneficial stockholders owning more than 10 percent of such shares; or

c. Issued by an open end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and may be redeemed at the option of the holder at net asset value.

2. The applicability of subdivision 1 of this subsection shall be determined as of:

a. The record date fixed to determine the stockholders entitled to receive notice of, and to vote at, the meeting of stockholders to act upon the corporate action requiring appraisal rights; or

b. The day before the effective date of such corporate action if there is no meeting of stockholders.

3. Subdivision 1 of this subsection shall not be applicable and appraisal rights shall be available pursuant to subsection A for the holders of any class or series of shares who are required by the terms of the corporate action requiring appraisal rights to accept for such shares anything other than cash or shares of any class or any series of shares of any corporation, or any other proprietary interest of any other entity, that satisfies the standards set forth in subdivision 1 of this subsection at the time the corporate action becomes effective.

4. Subdivision 1 of this subsection shall not be applicable and appraisal rights shall be available pursuant to subsection A for the holders of any class or series of shares where the corporate action is an interested transaction.

C. Notwithstanding any other provision of this section, the articles of incorporation as originally filed or any amendment thereto may limit or eliminate appraisal rights for any class or series of preferred shares, but any such limitation or elimination contained in an amendment to the articles of incorporation that limits or eliminates appraisal rights for any of such shares that are outstanding immediately prior to the effective date of such amendment or that the corporation is or may be required to issue or sell thereafter pursuant to any conversion, exchange or other right existing immediately before the effective date of such amendment shall not apply to any corporate action that becomes effective within one year of that date if such action would otherwise afford appraisal rights.

A. A record stockholder may assert appraisal rights as to fewer than all the shares registered in the record stockholder’s name but owned by a beneficial stockholder only if the record stockholder objects with respect to all shares of the class or series owned by the beneficial stockholder and notifies the corporation in writing of the name and address of each beneficial stockholder on whose behalf appraisal rights are being asserted. The rights of a record stockholder who asserts appraisal rights for only part of the shares held of record in the record stockholder’s name under this subsection shall be determined as if the shares as to which the record stockholder objects and the record stockholder’s other shares were registered in the names of different record stockholders.

B. A beneficial stockholder may assert appraisal rights as to shares of any class or series held on behalf of the stockholder only if such stockholder:

1. Submits to the corporation the record stockholder’s written consent to the assertion of such rights no later than the date referred to in subdivision B 2 b of § 13.1-734; and

2. Does so with respect to all shares of the class or series that are beneficially owned by the beneficial stockholder.

A. Where any corporate action specified in subsection A of § 13.1-730 is to be submitted to a vote at a stockholders’ meeting, the meeting notice shall state that the corporation has concluded that stockholders are, are not or may be entitled to assert appraisal rights under this article.

If the corporation concludes that appraisal rights are or may be available, a copy of this article and a statement of the corporation’s position as to the availability of appraisal rights shall accompany the meeting notice sent to those record stockholders entitled to exercise appraisal rights.

B. In a merger pursuant to § 13.1-719, the parent corporation shall notify in writing all record stockholders of the subsidiary who are entitled to assert appraisal rights that the corporate action became effective. Such notice shall be sent within 10 days after the corporate action became effective and include the materials described in § 13.1-734.

C. Where any corporate action specified in subsection A of § 13.1-730 is to be approved by written consent of the stockholders pursuant to § 13.1-657:

1. Written notice that appraisal rights are, are not, or may be available must be given to each record stockholder from whom a consent is solicited at the time consent of such stockholder is first solicited and, if the corporation has concluded that appraisal rights are or may be available, must be accompanied by a copy of this article; and

2. Written notice that appraisal rights are, are not, or may be available must be delivered together with the notice to nonconsenting and nonvoting stockholders required by subsections E and F of § 13.1-657, may include the materials described in § 13.1-734, and, if the corporation has concluded that appraisal rights are or may be available, must be accompanied by a copy of this article.

D. Where corporate action described in subsection A of § 13.1-730 is proposed, or a merger pursuant to § 13.1-719 is effected, the notice referred to in subsection A or C, if the corporation concludes that appraisal rights are or may be available, and in subsection B shall be accompanied by:

1. The annual financial statements specified in subsection A of § 13.1-774 of the corporation that issued the shares that may be subject to appraisal, which shall be as of a date ending not more than 16 months before the date of the notice and shall comply with subsection B of § 13.1-774; provided that, if such annual financial statements are not reasonably available, the corporation shall provide reasonably equivalent financial information; and

2. The latest available quarterly financial statements of such corporation, if any.

E. The right to receive the information described in subsection D may be waived in writing by a stockholder before or after the corporate action.

A. If a corporate action specified in subsection A of § 13.1-730 is submitted to a vote at a stockholders’ meeting, a stockholder who wishes to assert appraisal rights with respect to any class or series of shares:

1. Must deliver to the corporation before the vote is taken written notice of the stockholder’s intent to demand payment if the proposed action is effectuated; and

2. Must not vote, or cause or permit to be voted, any shares of such class or series in favor of the proposed action.

B. If a corporate action specified in subsection A of § 13.1-730 is to be approved by less than unanimous written consent, a stockholder who wishes to assert appraisal rights with respect to any class or series of shares may not execute a consent in favor of the proposed action with respect to that class or series of shares.

C. A stockholder who fails to satisfy the requirements of subsection A or subsection B is not entitled to payment under this article.

A. If proposed corporate action requiring appraisal rights under § 13.1-730 becomes effective, the corporation shall deliver a written appraisal notice and form required by subdivision B 1 to all stockholders who satisfied the requirements of § 13.1-733. In the case of a merger under § 13.1-719, the parent corporation shall deliver a written appraisal notice and form to all record stockholders who may be entitled to assert appraisal rights.

B. The appraisal notice shall be sent no earlier than the date the corporate action specified in subsection A of § 13.1-730 became effective and no later than 10 days after such date and shall:

1. Supply a form that (i) specifies the first date of any announcement to stockholders made prior to the date the corporate action became effective of the principal terms of the proposed corporate action, (ii) if such announcement was made, requires the stockholder asserting appraisal rights certify whether beneficial ownership of those shares for which appraisal rights are asserted was acquired before that date, and (iii) requires the stockholder asserting appraisal rights to certify that such stockholder did not vote for or consent to the transaction;

a. Where the form must be sent and where certificates for certificated shares must be deposited and the date by which those certificates must be deposited, which date may not be earlier than the date for receiving the required form under subdivision 2 b of this subsection;

b. A date by which the corporation must receive the form which date may not be fewer than 40 nor more than 60 days after the date the subsection A appraisal notice and form were sent, and state that the stockholder shall have waived the right to demand appraisal with respect to the shares unless the form is received by the corporation by such specified date;

d. That, if requested in writing, the corporation will provide, to the stockholder so requesting, within 10 days after the date specified in subdivision 2 b of this subsection, the number of stockholders who returned the form by the specified date and the total number of shares owned by them; and

e. The date by which the notice to withdraw under § 13.1-735.1 must be received, which date must be within 20 days after the date specified in subdivision 2 b of this subsection; and

A. A stockholder who receives notice pursuant to § 13.1-734 and who wishes to exercise appraisal rights must complete, sign, and return the form sent by the corporation and, in the case of certificated shares, deposit the stockholder’s certificates in accordance with the terms of the notice by the date referred to in the notice pursuant to

subdivision B 2 b of § 13.1-734. If the form requires the stockholder to certify whether the beneficial owner of such shares acquired beneficial ownership of the shares before the date required to be set forth in the notice pursuant to subdivision B 1 of § 13.1-734, and the stockholder fails to make the certification, the corporation may elect to treat the stockholder’s shares as after-acquired shares under § 13.1-738. Once a stockholder deposits that stockholder’s certificates or, in the case of uncertificated shares, returns the signed form, that stockholder loses all rights as a stockholder, unless the stockholder withdraws pursuant to subsection B.

B. A stockholder who has complied with subsection A may nevertheless decline to exercise appraisal rights and withdraw from the appraisal process by so notifying the corporation in writing by the date set forth in the appraisal notice pursuant to subdivision B 2 e of § 13.1-734. A stockholder who fails to withdraw from the appraisal process may not thereafter withdraw without the corporation’s written consent.

C. A stockholder who does not sign and return the form and, in the case of certificated shares, deposit that stockholder’s share certificates where required, each by the date set forth in the notice described in subsection B of § 13.1-734, shall not be entitled to payment under this article.

A. Except as provided in § 13.1-738, within 30 days after the form required by subsection B 2 b of § 13.1-734 is due, the corporation shall pay in cash to those stockholders who complied with subsection A of § 13.1-735.1 the amount the corporation estimates to be the fair value of their shares plus interest.

B. The payment to each stockholder pursuant to subsection A shall be accompanied by:

1. The (i) annual financial statements specified in subsection A of § 13.1-774 of the corporation that issued the shares to be appraised, which shall be as of a date ending not more than 16 months before the date of payment and shall comply with subsection B of § 13.1-774; provided that, if such annual financial statements are not available, the corporation shall provide reasonably equivalent information, and (ii) the latest available quarterly financial statements of such corporation, if any;

2. A statement of the corporation’s estimate of the fair value of the shares, which estimate shall equal or exceed the corporation’s estimate given pursuant to subdivision B 2 c of § 13.1-734; and

3. A statement that stockholders described in subsection A have the right to demand further payment under § 13.1-739 and that if any such stockholder does not do so within the time period specified therein, such stockholder shall be deemed to have accepted such payment in full satisfaction of the corporation’s obligations under this article.

A. A corporation may elect to withhold payment required by § 13.1-737 from any stockholder who was required to, but did not certify that beneficial ownership of all of the stockholder’s shares for which appraisal rights are asserted was acquired before the date set forth in the appraisal notice sent pursuant to subdivision B 1 of § 13.1-734.

B. If the corporation elected to withhold payment under subsection A, it shall, within 30 days after the form required by subdivision B 2 b of § 13.1-734 is due, notify all stockholders who are described in subsection A:

2. Of the corporation’s estimate of fair value pursuant to subdivision B 2 of § 13.1-737 and its offer to pay such value plus interest;

3. That they may accept the corporation’s estimate of fair value plus interest in full satisfaction of their demands or demand for appraisal under § 13.1-739;

4. That those stockholders who wish to accept such offer must so notify the corporation of their acceptance of the corporation’s offer within 30 days after receiving the offer; and

5. That those stockholders who do not satisfy the requirements for demanding appraisal under § 13.1-739 shall be deemed to have accepted the corporation’s offer.

C. Within 10 days after receiving a stockholder’s acceptance pursuant to subsection B, the corporation shall pay in cash the amount it offered under subdivision B 2 to each stockholder who agreed to accept the corporation’s offer in full satisfaction of the stockholder’s demand.

D. Within 40 days after sending the notice described in subsection B, the corporation shall pay in cash the amount it offered to pay under subdivision B 2 to each stockholder described in subdivision B 5.

A. A stockholder paid pursuant to § 13.1-737 who is dissatisfied with the amount of the payment must notify the corporation in writing of that stockholder’s stated estimate of the fair value of the shares and demand payment of that estimate plus interest (less any payment under § 13.1-737). A stockholder offered payment under § 13.1-738 who is dissatisfied with that offer must reject the offer and demand payment of the stockholder’s estimate of the fair value of the shares plus interest.

B. A stockholder who fails to notify the corporation in writing of that stockholder’s demand to be paid the stockholder’s stated estimate of the fair value plus interest under subsection A within 30 days after receiving the corporation’s payment or offer of payment under § 13.1-737 or 13.1-738, respectively, waives the right to demand payment under this section and shall be entitled only to the payment made or offered pursuant to those respective sections.

A. If a stockholder makes a demand for payment under § 13.1-739 that remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60-day period, it shall pay in cash to each stockholder the amount the stockholder demanded pursuant to § 13.1-737 plus interest.

B. The corporation shall commence the proceeding in the circuit court of the city or county where the corporation’s principal office, or, if none in the Commonwealth, where its registered office, is located. If the corporation is a foreign corporation without a registered office in the Commonwealth, it shall commence the proceeding in the circuit court of the city or county in the Commonwealth where the principal office, or, if none in the Commonwealth, where the registered office of the domestic corporation merged with the foreign corporation was located at the time the transaction became effective.

C. The corporation shall make all stockholders, whether or not residents of the Commonwealth, whose demands remain unsettled parties to the proceeding as in an action against their shares, and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.

D. The corporation may join as a party to the proceeding any stockholder who claims to have demanded an appraisal but who has not, in the opinion of the corporation, complied with the provisions of this article. If the court determines that a stockholder has not complied with the provisions of this article, that stockholder shall be dismissed as a party.

E. The jurisdiction of the court in which the proceeding is commenced under subsection B is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers shall have the powers described in the order appointing them, or in any amendment to it. The stockholders demanding appraisal are entitled to the same discovery rights as parties in other civil proceedings. There shall be no right to a jury trial.

F. Each stockholder made a party to the proceeding is entitled to judgment (i) for the amount, if any, by which the court finds the fair value of the stockholder’s shares plus interest exceeds the amount paid by the corporation to the stockholder for such shares or (ii) for the fair value plus interest of the stockholder’s shares for which the corporation elected to withhold payment under § 13.1-738.

A. The court in an appraisal proceeding commenced under § 13.1-740 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the stockholders demanding appraisal, in amounts the court finds equitable, to the extent the court finds such stockholders acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by this article.

B. The court in an appraisal proceeding may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:

1. Against the corporation and in favor of any or all stockholders demanding appraisal if the court finds the corporation did not substantially comply with the requirements of § 13.1-732, 13.1-734, 13.1-737 or 13.1-738; or

2. Against either the corporation or a stockholder demanding appraisal, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by this article.

C. If the court in an appraisal proceeding finds that the services of counsel for any stockholder were of substantial benefit to other stockholders similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to such counsel reasonable fees to be paid out of the amounts awarded the stockholders who were benefited.

D. To the extent the corporation fails to make a required payment pursuant to § 13.1-737, 13.1-738 or 13.1-739, the stockholder may sue directly for the amount owed and, to the extent successful, shall be entitled to recover from the corporation all costs and expenses of the suit, including counsel fees.

A. Except for action taken before the Commission pursuant to § 13.1-614 or as provided in subsection B, the legality of a proposed or completed corporate action described in subsection A of § 13.1-730 may not be contested, nor may the corporate action be enjoined, set aside or rescinded, in a legal or equitable proceeding by a stockholder after the stockholders have approved the corporate action.

1. Was not authorized and approved in accordance with the applicable provisions of:

a. Article 11 (§ 13.1-705 et seq.), Article 12 (§ 13.1-715.1 et seq.), or Article 13 (§ 13.1-723 et seq.);

2. Was procured as a result of fraud, a material misrepresentation, or an omission of a material fact necessary to make statements made, in light of the circumstances in which they were made, not misleading;

3. Is an interested transaction, unless it has been authorized, approved or ratified by the board of directors in the same manner as is provided in subsection B of § 13.1-691 and has been authorized, approved or ratified by the stockholders in the same manner as is provided in subsection C of § 13.1-691 as if the interested transaction were a director’s conflict of interests transaction; or

4. Is adopted or taken by less than unanimous consent of the voting stockholders pursuant to § 13.1-657 if:

a. The challenge to the corporate action is brought by a stockholder who did not consent and as to whom notice of the adoption or taking of the corporate action was not effective at least 10 days before the corporate action was effected; and

b. The proceeding challenging the corporate action is commenced within 10 days after notice of the adoption or taking of the corporate action is effective as to the stockholder bringing the proceeding.

C. Any remedial action with respect to corporate action described in subsection A of § 13.1-730 shall not limit the scope of, or be inconsistent with, any provision of § 13.1-614.

Section 13.1-692.1 of the Virginia Stock Corporation Act of the Code of Virginia, 1950, as amended (the “Virginia SCA”), places a limitation on the liability of officers and directors of a corporation in any proceeding brought by or in the right of the corporation or brought by or on behalf of shareholders of the corporation. The damages asserted against an officer or director arising out of a single transaction, occurrence, or course of conduct shall not exceed the greater of $100,000 or the amount of cash compensation received by the officer or director from the corporation during the 12 months immediately preceding the act or omission for which liability was imposed. The statute also authorizes the corporation, in its articles of incorporation or, if approved by the shareholders, in its bylaws, to provide for a different specific monetary limit on, or to eliminate entirely, liability. The liability of an officer or director shall not be limited or eliminated if the officer or director engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law. The Company’s articles of incorporation contain a provision which indemnifies, to the full extent permitted and in the manner prescribed by the Virginia SCA, each director or officer of the Company against liabilities, fines, penalties and claims imposed upon or asserted against him (including amounts paid in settlement) by reason of having been such director or officer, whether or not then continuing so to be, and against all expenses (including counsel fees) reasonably incurred by him in connection therewith, except in relation to matters as to which he shall have been finally adjudged liable by reason of his willful misconduct or a knowing violation of criminal law in the performance of his duty as such director or officer.

The Company’s articles of incorporation also empower the Board of Directors, by majority vote of a quorum of disinterested directors, to cause the Company to indemnify or contract in advance to indemnify any other person not a director or officer against liabilities, fines, penalties and claims imposed upon or asserted against him (including amounts paid in settlement) by reason of having been an employee, agent or consultant of the Company, whether or not then continuing so to be, and against all expenses (including counsel fees) reasonably incurred by him in connection therewith, to the same extent as if such person were specified as one to whom indemnification is granted to a director or officer of the Company.

Sections 13.1-692.1 and 13.1-696 to -704 of the Virginia SCA are hereby incorporated herein by reference.

The Company has the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another entity, against any liability asserted against or incurred by such person, in any such capacity or arising from his or her status as such, whether or not the Company would have the power to indemnify such person against such liability under its articles of incorporation.

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(A) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(B) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(C) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial, bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the end of the offering.

(b) The undersigned registrant hereby undertakes as follows: that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, as amended (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15 (d) of the Securities Exchange Act of 1934, as amended) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.

(2) The registrant undertakes that every prospectus (i) that is filed pursuant to the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

(f) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Roanoke, Virginia, on April 10, 2009.


By:		/s/ Susan K. Still
		Susan K. Still, President and Chief Executive Officer

By:		/s/ Charles W. Maness, Jr.
		Charles W. Maness, Jr., Treasurer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William R. Rakes and Susan K. Still and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, including any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 10, 2009.



Title of each class of securities to be registered	Amount to be registered (1)	Proposed maximum offering price per share/unit (2)	Proposed maximum aggregate offering price (2)	Registration fee (2)
Common Stock, $5.00 par value	2,939,400	$6.50	$19,106,000	$1,066.11


ADDITIONAL INFORMATION		iii

NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS		iv

SUMMARY		1

RISK FACTORS		7

FORWARD LOOKING STATEMENTS		9

SELECTED FINANCIAL DATA AND OTHER INFORMATION		10

THE ANNUAL MEETING		11

PROPOSED REORGANIZATION INTO A BANK HOLDING COMPANY		12

POSTPONEMENT AND ADJOURNMENT OF STOCKHOLDER MEETING		20

ELECTION OF DIRECTORS		20

NOMINEES FOR ELECTION		21

DIRECTORS MEETINGS, COMMITTEES AND FEES		22

EXECUTIVE COMPENSATION		25

EMPLOYMENT AGREEMENTS		28
SUMMARY COMPENSATION TABLE		29

STOCK OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2008		29

INFORMATION ABOUT HOMETOWN BANK		30

ADDITIONAL INFORMATION ABOUT HOMETOWN BANKSHARES CORPORATION		31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		35

HISTORICAL AND PRO FORMA FINANCIAL DATA		52

SUPERVISION AND REGULATION		52

WHERE YOU CAN FIND MORE INFORMATION		56

INFORMATION INCORPORATED BY REFERENCE		56

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		57

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		57

STOCKHOLDER PROPOSALS		58


OTHER MATTERS		59

LEGAL MATTERS		59

APPENDIX A – PLAN AND AGREEMENT OF SHARE EXCHANGE		A-1

APPENDIX B		B-1

ARTICLES OF INCORPORATION		B-1
BYLAWS		B-4

APPENDIX C – DISSENTERS’ RIGHTS: CHAPTER 9, ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT		C-1

VIRGINIA CODE		C-1

PART II – INDEMNIFICATION OF OFFICERS AND DIRECTORS		65

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		65
UNDERTAKINGS		66

SIGNATURES		67

POWER OF ATTORNEY		68


		DATE:				THURSDAY, MAY 28, 2009

		TIME:				2:00 P. M.

		PLACE:				THE THEATRE (FIRST FLOOR)
						TAUBMAN MUSEUM OF ART
						110 SALEM AVENUE, S.E.
						ROANOKE, VIRGINIA 24011


Sincerely yours,


William R. Rakes				Susan K. Still
Chairman of the Board				President and CEO


Internet		E-mail

www.hometownbankva.com		information@hometownbankva.com

Telephone		U. S. Mail

(540) 345-6000		202 South Jefferson Street, S.E.
		Roanoke, Virginia 24011


	2008			2007			2006			2005
Income Statement Data:
Interest income	$	10,786		$	7,253		$	3,591		$	291
Interest expense		5,548			3,886			1,510			48
Net interest income		5,238			3,367			2,081			243
Provision for loan losses		1,648			857			648			16
Other income		511			364			240			15
Non-interest expenses		6,276			4,536			4,699			1,185
Income taxes		—			—			—			—

Net loss	$	(2,175	)	$	(1,662	)	$	(3,026	)	$	(943	)


Per Share Data:
Net loss (basic and diluted)	$	(0.80	)	$	(0.66	)	$	(1.21	)	$	(0.38	)
Cash dividends		—			—			—			—
Book value at end of period		8.33			8.26			8.91			9.62
Dividend payout ratio		—	%		—	%		—	%		—
Balance Sheet Data:
Assets	$	233,635		$	154,821		$	78,614		$	38,423
Loans receivable		208,391			132,332			59,772			1,467
Investment securities		9,488			8,008			9,966			15,967
Deposits		188,411			119,690			55,780			13,812
Short-term borrowings		898			329			—			—
FHLB borrowings		18,200			13,000			—			—
Shareholders’ equity		24,498			20,657			22,279			24,048
Performance Ratios:
Return on average assets		(1.16	)%		(1.52	)%		(5.06	)%		(2.81	)
Return on average equity		(9.49	)		(7.72	)		(13.13	)		(3.87	)
Net interest margin		2.95			3.32			3.74			2.88
Efficiency ratio		109.17			121.58			202.46			459.30
Asset Quality Ratios:
Allowance for loan losses to period end loans		1.37	%		1.11	%		1.11	%		1.09

Non-performing assets to period end loans		1.57			—			—			—

Net charge-offs to average loans		0.15			0.05			—			—

Capital and Liquidity Ratios:
Tangible capital		10.5	%		13.3	%		28.3	%		62.6
Risk-based:
Total capital to risk-weighted assets		11.9			14.9			31.3			288.7
Tier I capital to risk-weighted assets		10.6			13.9			30.4			288.9
Average loans to average deposits		114.2			108.0			89.9			4.4


Name, Age and Year First Became Director	Principal Occupation	Shares Owned¹		Shares Acquirable Within 60 Days²	Percent of Class
Kenneth S. Bowling Age 62 Director since 5/08	Vice President H. T. Bowling, Inc.	20,000		—	0.68

George B. Cartledge, Jr. Age 67 Director since 11/04	Chairman and CEO Grand Home Furnishings	30,000	³	20,000	1.02

Warner Dalhouse Age 74 Director since 11/04	Retired Chairman and CEO Dominion Bankshares, Inc.	12,500		20,000	0.42

Marc S. Fink Age 49 Director since 11/04	President and CEO Finks, Inc.	20,000		20,000	0.68

Victor F. Foti Age 73 Director since 11/04	Retired, Foti, Flynn, Lowen & Co., CPA’s	10,000		20,000	0.34

Daniel D. Hamrick Age 62 Director since 5/08	Attorney-at-Law	8,000		—	0.27

Shirley Martin Age 62 Director since 5/08	Retired, FNB Corporation	8,000		—	0.27

Edward G. Murphy, M.D. Age 53 Director since 11/04	President and CEO Carilion Clinic	19,400	⁴	20,000	0.65


Name and Principal Position	Year	Salary	Bonus	Option Awards¹	Non-Equity Incentive Plan Compensation	All Other Compensation²	Total
Susan K. Still President Chief Executive Officer	2008	164,831	—	—	18,928	7,567	191,326
Susan K. Still President Chief Executive Officer	2007	147,919	—	—	16,880	6,988	171,707

William C. Moses Executive Vice President Chief Credit Officer	2008	107,467	—	—	12,938	10,181	130,586
	2007	104,506	—	—	11,483	10,099	126,088

Charles W. Maness, Jr. Executive Vice President Chief Financial Officer	2008	102,267	—	—	11,644	10,677	124,588
	2007	93,000	—	—	10,335	10,053	113,388


Name	Number of Securities Underlying Options Granted (#)	Percent of Total Options Granted to Employees in Fiscal Year¹		Exercise or Base Price ($/SH)²		Expiration Date
Susan K. Still	30,000	15.00	%	$	10.00	4/19/2016
William C. Moses	30,000	15.00	%	$	10.00	4/19/2016
Charles W. Maness, Jr.	30,000	15.00	%	$	10.00	4/30/2016

Named Executive Officers As a group	90,000	45.00	%

All employees, as a group	206,000	100.00	%


Properties Owned:

Colonial Avenue Office		4227 Colonial Avenue, Roanoke, VA 24018
Smith Mountain Lake Office		13400 Booker T. Washington Highway, Moneta, VA 24121

Properties Leased:

Main Office		202 South Jefferson Street, Roanoke, VA 24011
New River Branch		1540 Roanoke Street, Christiansburg, VA 24073
(Loan Production Office)		1655 Roanoke Street, Suite C, Christiansburg, VA 24073
South Roanoke Office		3515 Franklin Road, SW, Roanoke, VA 24014


Name				Title
Susan K. Still				President and Chief Executive Officer

Charles W. Maness, Jr.				Treasurer

William C. Moses				Secretary


	2008							2007
*(Dollars in thousands)*	Avg. Balance			Interest Income/ Expense		Yield/ Rate		Avg. Balance			Interest Income/ Expense		Yield/ Rate
Assets:
Federal funds sold	$	1,324		$	22	1.66	%	$	1,274		$	66	5.18	%

Deposits in banks		16			—	0.00	%		274			14	5.11	%
Securities, taxable		7,876			359	4.56	%		8,824			451	5.11	%
Restricted equity securities		1,657			76	4.59	%		1,027			61	5.94	%
Loans		166,833			10,329	6.19	%		90,013			6,661	7.40	%

Total earnings assets		177,706		$	10,786	6.07	%		101,412		$	7,253	7.15	%
Less: Allowance for loan losses		(1,783	)						(958	)
Total non-earning assets		11,556							8,654

Total Assets	$	187,479						$	109,108


Liabilities and stockholders’ equity
Interest bearing deposits:
Checking	$	31,648		$	826	2.61	%	$	22,843		$	917	4.01	%
Money market savings		17,970			475	2.64	%		12,195			500	4.10	%
Regular savings		382			4	0.96	%		149			1	0.67	%
Time Deposits		84,556			3,589	4.24	%		42,796			2,272	5.31	%
Other borrowings		2,012			58	2.86	%		957			52	5.43	%
Long term borrowings		16,481			596	3.62	%		3,326			144	4.33	%

Total int. bearing liabilities		153,049		$	5,548	3.62	%		82,266		$	3,886	4.72	%
Non-int. bearing liabilities:
Demand deposits		9,910							4,474
Other liabilities		1,598							836
Total liabilities		164,557							87,576

Stockholders’ equity		22,923							21,532

Total Liabilities and Stockholders’ Equity	$	187,480						$	109,108

Net interest income				$	5,238						$	3,367

Interest rate spread						2.45	%						2.43	%

Interest expense to average earning assets						3.12	%						3.83	%

Net interest margin						2.95	%						3.32	%


	2008 Compared to 2007								2007 Compared to 2006
*(Dollars in thousands)*	Increase (Decrease)			Change Due To:					Increase (Decrease)			Change Due To:
*(Dollars in thousands)*	Increase (Decrease)			Rate			Volume		Increase (Decrease)			Rate			Volume
Interest income:
Federal funds sold	$	(44	)	$	(47	)	3		$	(626	)	$	2		(628	)
Deposits in banks		(14	)		—		(14	)		14			—		14
Securities, taxable		(92	)		(46	)	(46	)		14			11		3
Restricted equity securities		15			(16	)	31			12			—		12
Loans		3,668			(1,237	)	4,905			4,248			—		4,248

Total interest income		3,533			(1,346	)	4,879			3,662			13		3,649


Interest expense:
Interest bearing liabilities:
Checking		(91	)		(379	)	289			252			(26	)	278
Money market savings		(25	)		(214	)	189			132			(3	)	135
Regular savings		3			1		2			1			1		—
Time Deposits		1,317			(531	)	1,848			1,817			22		1,795
Other borrowings		6			(33	)	38			30			(2	)	32
Long term borrowings		452			—		452			144			—		144

Total interest bearing liabilities		1,662			(1,156	)	2,818			2,376			(8	)	2,384

Net interest income	$	1,871		$	(190	)	2,061		$	1,286		$	21		1,265


	Period Ended December 31,
*(Dollars in thousands)*	2008		2007
Service charges on deposit accounts	$	161	$	60
Mortgage loan brokerage fees		77		107
Rental Income		105		110
Other Income		168		87

Total non-interest income	$	511	$	364


	Balances at December 31,
*(Dollars in thousands)*	2008		2007		2006		2005
Loans secured by real estate:
Construction and land development	$	43,645	$	22,460	$	5,098	$	—
Secured by 1-4 family residential		39,448		23,681		14,100		40
Nonfarm, non 1-4 family residential		92,619		65,041		25,369		—
Loans to farmers		223		119		124		—
Commercial loans		26,435		19,381		13,496		1,440
Loans to individuals		8,883		3,121		2,249		3


Total Loans	$	211,253	$	133,803	$	60,436	$	1,483


*(Dollars in thousands)*	Fixed Rate		Adjustable Rate		Total
Maturing :
Within one year	$	13,401		34,209	$	47,610
One to five years		101,852		31,656		133,508
After five years		4,498		25,637		30,135

Total	$	119,751	$	91,502	$	211,253


	Year ended December 31,
*(Dollars in thousands)*	2008			2007			2006		2005
Allowance, beginning of period	$	1,471		$	664		$	16	$	—

Provision for loan losses		1,648			857			648		16
Commercial, financial and agricultural loans charged off		(257	)		(50	)		—		—
Recoveries of loans previously charged off		—			—			—		—


Allowance, end of period	$	2,862		$	1,471		$	664	$	16


*(Dollars in thousands)*	Amortized Cost		Fair Value		Weighted Average Yield
U.S. government agency securities:
Maturing within 1 year	$	—	$	—	—
Maturing within 1 to 5 years		5,994		6,169	4.40	%
Maturing after 5 years		2,931		3,319	5.50

Total Maturities	$	8,925	$	9,488	4.79	%


	December 31,
	2008				2007				2006
*(Dollars in thousands)*	Amount		Rate		Amount		Rate		Amount		Rate
Non-int. bearing deposits	$	9,910			$	4,474			$	2,018
Interest bearing accounts:
Checking		31,647	2.61	%		22,843	4.01	%		15,950	4.17	%
Money market savings		17,970	2.64	%		12,195	4.10	%		8,912	4.12	%
Regular savings		382	0.96	%		149	0.67	%		88	0.45	%
Time Deposits		84,556	4.24	%		42,796	5.31	%		8,971	5.07	%

Total Interest Bearing		134,555	2.86	%		77,983	4.73	%		33,923	4.39	%


Total	$	144,466			$	82,457			$	35,941


*(Dollars in thousands)*	Within 3 months		3 to 6 months		6 to 12 months		Over 1 year		Total		Percent of Total Deposits
At December 31, 2008	$	21,694	$	10,143	$	13,413	$	2,208	$	47,458	25.19	%


*(Dollars in thousands)*	0 - 3 Months			3 - 12 Months			1 - 5 Years			Over 5 Years			Total
Interest Earning Assets
Securities	$	—		$	3,084		$	3,085		$	3,319		$	9,488
Interest-Bearing Balances		86												86
Loans		85,887			26,129			86,446			9,929			208,391
Federal funds sold		520			—			—			—			520

Total	$	86,493		$	29,213		$	89,531		$	13,248		$	218,485
Cumulative totals	$	86,493		$	115,706		$	205,237		$	218,485

Interest Bearing Liabilities
Interest checking	$	33,362		$	—		$	—		$	—		$	33,362
Savings		623			—			—			—			623
Money Market		18,118			—			—			—			18,118
Time Deposits		43,283			72,444			7,872			2			123,601
Short term borrowings		898			—			—			—			898
FHLB Borrowings		—			10,200			4,000			4,000			18,200

Total	$	96,284		$	82,644		$	11,872		$	4,002		$	194,802
Cumulative totals	$	96,284		$	178,928		$	190,800		$	194,802


Cumulative interest	$	(9,791	)	$	(53,431	)	$	77,659		$	9,246		$	23,683
Interest sensitivity gap	$	(9,791	)	$	(63,222	)	$	14,437		$	23,683
Cumulative interest sensitivity gap to total interest earning assets		-4.48	%		-28.94	%		6.61	%		10.84	%


ASSETS

Cash and due from banks	$	0
Investment in bank subsidiary	$	24,895,000


Total Assets	$	24,895,000


LIABILITIES

Accounts payable	$	0

STOCKHOLDERS’ EQUITY

Total Stockholders’ Equity	$	24,895,000


Total Liabilities and Stockholders’ Equity	$	24,895,000


	2008		2007
Audit Fees	$	54,200	$	44,000
Audit Related Fees		1,018		0
Tax Fees		5,000		4,500
Total	$	60,218	$	48,500


By Order of the Board of Directors

By:		/s/ William C. Moses
		William C. Moses
Its:		Corporate Secretary


		HOMETOWN BANKSHARES CORPORATION

ATTEST:	/s/ William C. Moses	By:	/s/ Susan K. Still

		HOMETOWN BANK

ATTEST:	/s/ William C. Moses	By:	/s/ Susan K. Still


Class		No. of Shares
Common Stock, Par Value $5.00		10,000,000


/s/ William R. Rakes				June 2, 2008

William R. Rakes				Chairman, Board of Directors

SCC ID #0626627-4				(540) 983-9374


Exhibit Number		Exhibit
2		Plan and Agreement of Share Exchange (attached to the Prospectus as Appendix A)

3(i)		Articles of Incorporation of HomeTown Bankshares Corporation (included in Appendix B, attached to the Prospectus)

3(ii)		Bylaws of HomeTown Bankshares Corporation (included in Appendix B, attached to the Prospectus)

5		Legal Opinion and consent of Gentry Locke Rakes & Moore, LLP

10.1		Employment Agreement between HomeTown Bank and Susan K. Still

10.2		Employment Agreement between HomeTown Bank and Charles W. Maness, Jr.

10.3		Employment Agreement between HomeTown Bank and William C. Moses

10.4		Lease Agreement between HomeTown Bank and Colonial Partners, LLC for 202, 204, 206 Jefferson Street, Roanoke, Virginia

10.5		Amendment to Lease Agreement between HomeTown Bank and Colonial Partners, LLC for 202, 204, 206 Jefferson Street, Roanoke, Virginia

10.6		Lease Agreement between HomeTown Bank and James Paul Poulos and Rita Ann Poulos, Trustees for 3521 Franklin Road, Roanoke, Virginia

10.7		Branch Lease Agreement between HomeTown Bank and Hash Group, LLC for 1540 Roanoke Street, Christiansburg, Virginia

10.8		Branch Lease Agreement between HomeTown Bank and Hash Investments, L.L.C. for 1655 Roanoke Street, Christiansburg, Virginia

13		Annual Report

21		Subsidiaries of the Registrant

23(a)		Consent of Yount, Hyde & Barbour, P.C.

23(b)		Consent of Gentry Locke Rakes & Moore, LLP (included in Exhibit 5 above)

24		Power of Attorney (included on the signature page of the Prospectus)

99		Form of Proxy


/s/ George B. Cartledge, Jr.				/s/ Warner Dalhouse
George B. Cartledge, Jr., Director				Warner Dalhouse, Director

/s/ Victor F. Foti				/s/ Daniel D. Hamrick
Victor F. Foti, Director				Daniel D. Hamrick, Director

/s/ Edward G. Murphy				/s/ William R. Rakes
Edward G. Murphy, Director				William R. Rakes, Director

/s/ Susan K. Still				/s/ James M. Turner, Jr.
Susan K. Still, President, CEO, and Director				James M. Turner, Jr., Director