Note

Subordinated Notes

December 18, 2015,

the Company completed the issuance of

$7.5

million in aggregate principal amount of fixed-to-floating rate subordinated notes in a private placement transaction to various institutional accredited investors. The net proceeds of the offering are intended to support growth and be used for other general business purposes. The notes have a maturity date of

December 30, 2025

and have an annual fixed interest rate of

6.75%

until

December 30, 2020.

Thereafter, the notes will have a floating interest rate based on LIBOR. Interest will be paid semi-annually, in arrears, on

June 30

and

December 30

of each year during the time that the notes remain outstanding through the fixed interest rate period or earlier redemption date. Interest will be paid quarterly, in arrears, on

March 30,

June 30,

September 30

and

December 30

throughout the floating interest rate period or earlier redemption date.

(Dollars in Thousands)
As of December 31, 2018	Principal		Unamortized Debt Issuance Costs		Net
Subordinated notes	$	7,500	$	215	$	7,285

(Dollars in Thousands)
As of December 31, 2017	Principal		Unamortized Debt Issuance Costs		Net
Subordinated notes	$	7,500	$	246	$	7,254

For the years ended

December 31, 2018

and

2017,

the average effective interest rate was

7.38%

and

7.41%,

respectively.

The indebtedness evidenced by the notes, including principal and interest, is unsecured and subordinate and junior in right of the Company’s payments to general and secured creditors and depositors of its wholly owned subsidiary, HomeTown Bank. The notes are redeemable, without penalty, on or after

December 30, 2020

and, in certain limited circumstances, prior to that date. The notes limit the Company from declaring or paying any dividend, or making any distribution on capital stock or other equity securities of any kind of the Company if the Company is

not

“well capitalized” for regulatory purposes, immediately prior to the declaration of such dividend or distribution, except for dividends payable solely in shares of common stock of the Company.