10-Q

United States

Securities and Exchange Commission

Washington, DC 20549

FORM 10-Q

(Mark one)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2015

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission file number: 001-35279

ASB BANCORP, INC.

(Exact name of registrant as specified in its charter)

North Carolina	45-2463413
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

11 Church Street, Asheville, North Carolina	28801
(Address of principle executive offices)	(Zip code)

(828) 254-7411

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes ☒  No ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files) Yes ☒  No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one)

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 4,384,657 shares of Common Stock, par value $0.01 per share, issued and outstanding as of July 31, 2015.

ASB BANCORP, INC.

  FORM 10-Q

 Table Of Contents

		Begins On Page
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) At June 30, 2015 and December 31, 2014	1
	Consolidated Statements of Income (Unaudited) For the Three and Six Months Ended June 30, 2015 and 2014	2
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) For the Three and Six Months Ended June 30, 2015 and 2014	3
	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) For the Six Months Ended June 30, 2015	4
	Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, 2015 and 2014	5
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	67
Part II.	Other Information
Item 1.	Legal Proceedings	67
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	69
Signatures		70

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ASB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except par values)	June 30, 2015				December 31, 2014*
Assets
Cash and due from banks	$	11,020		$	9,045
Interest-earning deposits with banks		41,970			47,813
Total cash and cash equivalents		52,990			56,858
Securities available for sale (amortized cost of $135,622 at June 30, 2015 and $141,266 at December 31, 2014)		134,813			141,462
Securities held to maturity (estimated fair value of $4,209 at June 30, 2015 and $4,363 at December 31, 2014)		3,899			3,999
Investment in Federal Home Loan Bank stock, at cost		2,807			2,902
Loans held for sale		8,192			5,237
Loans receivable (net of deferred loan fees of $611 at June 30, 2015 and $706 at December 31, 2014)		552,999			521,820
Allowance for loan losses		(6,124	)		(5,949	)
Loans receivable, net		546,875			515,871
Premises and equipment, net		11,823			11,932
Foreclosed real estate		9,381			8,814
Deferred income tax assets, net		5,511			5,588
Other assets		7,008			7,387
Total assets	$	783,299		$	760,050
Liabilities
Noninterest-bearing deposits	$	113,984		$	97,450
Interest-bearing deposits		509,979			505,929
Total deposits		623,963			603,379
Overnight and short-term borrowings		224			660
Federal Home Loan Bank advances		50,000			50,000
Accounts payable and other liabilities		12,949			11,614
Total liabilities		687,136			665,653
Shareholders’ Equity
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued		-			-
Common stock, $0.01 par value; 60,000,000 shares authorized; 4,378,411 shares issued at June 30, 2015 and  December 31, 2014		44			44
Additional paid-in capital		34,152			34,047
Retained earnings		74,000			72,513
Accumulated other comprehensive loss, net of tax		(6,433	)		(5,802	)
Unearned Employee Stock Ownership Plan (ESOP) shares		(3,297	)		(3,452	)
Unearned equity incentive plan shares		(1,960	)		(2,610	)
Stock-based deferral plan shares		(343	)		(343	)
Total shareholders’ equity		96,163			94,397
Total liabilities and shareholders’ equity	$	783,299		$	760,050

* Derived from audited consolidated financial statements.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

1

ASB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands, except per share data)	2015		2014			2015		2014
Interest and dividend income
Loans, including fees	$	5,664	$	5,024		$	11,185	$	9,946
Securities		557		653			1,125		1,389
Other earning assets		68		94			133		177
Total interest and dividend income		6,289		5,771			12,443		11,512
Interest expense
Deposits		390		395			767		798
Overnight and short-term borrowings		-		1			-		1
Federal Home Loan Bank advances		490		490			974		974
Total interest expense		880		886			1,741		1,773
Net interest income		5,409		4,885			10,702		9,739
Provision for (recovery of) loan losses		65		(1,390	)		259		(1,458	)
Net interest income after provision for (recovery of) loan losses		5,344		6,275			10,443		11,197
Noninterest income
Mortgage banking income		498		216			853		436
Deposit and other service charge income		618		626			1,201		1,212
Income from debit card services		462		425			882		799
Gain on sale of investment securities, net		143		93			199		207
Other noninterest income		247		194			443		356
Total noninterest income		1,968		1,554			3,578		3,010
Noninterest expenses
Salaries and employee benefits		3,344		3,521			6,688		6,819
Occupancy expense, net		444		482			912		969
Foreclosed property expenses		54		242			120		392
Data processing fees		623		674			1,200		1,322
Federal deposit insurance premiums		124		141			249		274
Advertising		146		161			260		262
Professional and outside services		276		277			476		455
Other noninterest expenses		999		852			1,877		1,717
Total noninterest expenses		6,010		6,350			11,782		12,210
Income before income tax provision		1,302		1,479			2,239		1,997
Income tax provision		437		538			752		652
Net income	$	865	$	941		$	1,487	$	1,345
Net income per common share – Basic	$	0.22	$	0.22		$	0.38	$	0.31
Net income per common share – Diluted	$	0.22	$	0.21		$	0.37	$	0.30

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

ASB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Comprehensive Income (Loss)
Net income	$	865		$	941		$	1,487		$	1,345
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale:
Reclassification of securities gains recognized in net income		(143	)		(93	)		(199	)		(207	)
Deferred income tax benefit		53			35			74			78
Gains (losses) arising during the period		(1,673	)		1,560			(806	)		3,837
Deferred income tax benefit (expense)		625			(587	)		300			(1,443	)
Unrealized holding gains (losses) adjustment, net of tax		(1,138	)		915			(631	)		2,265
Defined Benefit Pension Plans:
Net periodic pension cost		194			144			389			287
Net pension loss		(194	)		(144	)		(389	)		(287	)
Total other comprehensive income (loss)		(1,138	)		915			(631	)		2,265
Comprehensive income (loss)	$	(273	)	$	1,856		$	856		$	3,610

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

ASB BANCORP, INC. AND SUBSIDIARY

 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands)	Six Months Ended June 30, 2015
Common stock
December 31, 2014	$	44
June 30, 2015	$	44
Additional paid-in capital
December 31, 2014	$	34,047
ESOP shares allocated		168
Stock-based compensation expense		587
Vesting of restricted stock		(650	)
June 30, 2015	$	34,152
Retained earnings
December 31, 2014	$	72,513
Net income		1,487
June 30, 2015	$	74,000
Accumulated other comprehensive income (loss), net of tax
December 31, 2014	$	(5,802	)
Other comprehensive loss		(631	)
June 30, 2015	$	(6,433	)
Unearned ESOP shares
December 31, 2014	$	(3,452	)
ESOP shares allocated		155
June 30, 2015	$	(3,297	)
Unearned equity incentive plan shares
December 31, 2014	$	(2,610	)
Vesting of restricted stock		650
June 30, 2015	$	(1,960	)
Stock-based deferral plan shares
December 31, 2014	$	(343	)
June 30, 2015	$	(343	)
Total shareholders’ equity
December 31, 2014	$	94,397
Net income		1,487
Other comprehensive loss		(631	)
ESOP shares allocated		323
Stock-based compensation expense		587
June 30, 2015	$	96,163

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

ASB BANCORP, INC. AND SUBSIDIARY

 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended June 30,
(Dollars in thousands)	2015			2014
Operating Activities
Net income	$	1,487		$	1,345
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) loan losses		259			(1,458	)
Provision for losses on foreclosed properties		-			154
Depreciation		421			467
Gain on sale of fixed and other assets		(20	)		(1	)
Loss on sale of foreclosed real estate		1			25
Deferred income tax expense		451			885
Net amortization of premiums on securities		1,323			1,752
Gain on sale of investment securities		(199	)		(207	)
Net accretion of deferred fees on loans		(46	)		(37	)
Mortgage loans originated for sale		(39,686	)		(19,253	)
Proceeds from sale of mortgage loans		37,584			21,072
Gain on sale of mortgage loans		(853	)		(436	)
ESOP compensation expense		323			284
Stock-based compensation expense		528			937
Excess tax benefits from equity awards		(59	)		(26	)
Decrease (increase) in income tax receivable		218			(217	)
Decrease in interest receivable		13			327
Net change in other assets and liabilities		1,542			1,028
Net cash provided by operating activities		3,287			6,641
Investing Activities
Purchases of securities available for sale		(52,209	)		(18,117	)
Proceeds from sales of securities available for sale		50,624			47,679
Principal repayments on mortgage-backed and asset-backed securities		6,205			8,172
Redemption of FHLB stock		95			229
Net increase in loans receivable		(32,029	)		(22,993	)
Additions to foreclosed real estate		-			(269	)
Net proceeds from sales of foreclosed real estate		244			4,121
Purchases of premises and equipment		(312	)		(118	)
Net proceeds from sales of fixed and other assets		20			-
Net cash provided by (used in) investing activities		(27,362	)		18,704

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

ASB BANCORP, INC. AND SUBSIDIARY

 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)

	Six Months Ended June 30,
(Dollars in thousands)	2015			2014
Financing Activities
Net increase in deposits	$	20,584		$	19,897
Net repayments of overnight and short-term borrowings		(436	)		(396	)
Proceeds from the exercise of stock options		-			25
Excess tax benefits from equity awards		59			26
Common stock repurchased		-			(3,863	)
Net cash provided by financing activities		20,207			15,689
Net increase (decrease) in cash and cash equivalents		(3,868	)		41,034
Cash and cash equivalents at beginning of period		56,858			52,791
Cash and cash equivalents at end of period	$	52,990		$	93,825
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits, advances and other borrowings	$	1,754		$	1,783
Non-cash investing and financing transactions:
Transfers from loans to foreclosed real estate	$	812		$	173
Increase (decrease) in unrealized gains and losses on securities available for sale		(806	)		3,837
Increase (decrease) in deferred income taxes resulting from other comprehensive income		374			(1,365	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These interim financial statements do not contain all necessary disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for a complete set of financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K of ASB Bancorp, Inc. for the year ended December 31, 2014 filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2015.  These financial statements were prepared on a basis consistent with the audited consolidated financial statements previously referenced and include all normal and recurring adjustments that management believes are necessary in order to conform to GAAP.  The results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or any other future period.

Organization – ASB Bancorp, Inc. (the “Parent”) was incorporated on May 12, 2011 to be the bank holding company for Asheville Savings Bank, S.S.B. (the “Bank”) upon completion of the Bank’s conversion from the mutual to stock form of organization.

The Bank is headquartered in Asheville, North Carolina and provides mortgage, consumer and commercial banking services primarily in Buncombe, Henderson, McDowell, Transylvania, and Madison counties in North Carolina and a loan production office in Mecklenburg County, North Carolina. The Bank is regulated by the Office of the North Carolina Commissioner of Banks (“NCCoB”) and the Federal Deposit Insurance Corporation (“FDIC”). The Parent is regulated by the Board of Governors of the Federal Reserve System (the “FRB”) and the NCCoB.

Principles of Consolidation – The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiary, the Bank (collectively, the “Company”). The Bank has two wholly owned subsidiaries, Appalachian Financial Services, Inc., which has on occasion managed the Bank’s real estate acquired through debt default but is currently inactive, and Wenoca, Inc., which serves as the Bank’s trustee regarding deeds of trust. Both subsidiaries are organized as North Carolina corporations. For purposes of the consolidated financial statements, all significant intercompany accounts and transactions have been eliminated. The accounting and reporting policies of the Company conform to GAAP.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment Securities – Realized gains and losses on sales of investment securities are recognized at the time of sale (“trade date”) based upon the specific identification method.

Interest income includes amortization of purchase premiums and discounts. Realized gains and losses are derived from the amortized cost of the security sold. Declines in the fair value of held to maturity and available for sale debt securities below their cost that are deemed to be other than temporary because of credit risk impairment are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other factors, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (iv) whether it is more likely than not that the Company will be required to sell the investment prior to a recovery.

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ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans – Loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized fees and costs on originated loans. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending processes are deferred and amortized to interest income over the contractual lives of the loans.

Loan Segments and Classes

The Bank’s portfolio segments and classes within those segments are subject to risks that could have an adverse impact on the credit quality of the loan portfolio. Management has identified the risks described below as significant risks that are generally similar among the loan segments and classes.

Commercial Loan Segment

The Bank’s commercial loans are centrally underwritten based primarily on the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. The Bank’s commercial lenders and underwriters work to understand the borrower’s businesses and management experiences. The majority of the Bank’s commercial loans are secured by collateral, so collateral values are important to the transaction. In commercial loan transactions where the principals or other parties provide personal guarantees, the Bank’s commercial lenders and underwriters analyze the relative financial strength and liquidity of each guarantor. Risks that are common to the Bank’s commercial loan classes include general economic conditions, demand for the borrowers’ products and services, the personal circumstances of the principals, and reductions in collateral values.

In addition to these common risks for the Bank’s commercial loans, the various commercial loan classes also have certain risks specific to them.

Commercial Construction and Land Development loans are highly dependent on the supply and demand for commercial real estate in the Bank’s markets as well as the demand for the newly constructed residential homes and lots being developed by the Bank’s commercial loan borrowers. Prolonged deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for the Bank’s commercial borrowers.

Commercial Mortgage and Commercial and Industrial loans are primarily dependent on the ability of the Bank’s commercial loan customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a borrower’s actual business results significantly underperform the original projections, the ability of that borrower to service the Bank’s loan on a basis consistent with the contractual terms may be at risk. While these loans are generally secured by real property, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.

Non-Commercial Loan Segment

The Bank underwrites its non-commercial loans using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use, and recent credit inquiries. To the extent that the loan is secured by collateral, the value of the collateral is also evaluated. Common risks to each class of non-commercial loans include general economic conditions within the Bank’s markets, such as unemployment and potential declines in collateral values, and the personal circumstances of the borrowers.

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ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In addition to these common risks for the Bank’s non-commercial loans, various non-commercial loan classes may also have certain risks specific to them.

Residential Mortgage and Non-Commercial Construction and Land Development loans are to individuals and are typically secured by one-to-four family residential property, undeveloped land, and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can cause residential mortgage loan borrowers to have debt levels in excess of the current market value of the collateral, which can result in increased levels of foreclosures. Recent declines in value have led to unprecedented levels of foreclosures and losses within the banking industry. Non-commercial construction and land development loans can experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.

Revolving Mortgage loans are open-end or revolving lines of credit that borrowers may repay and borrow multiple times during the life of the loan and are often secured by second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render the Bank’s second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lien holders that may further weaken collateral positions. In addition, the open-end structure of these loans creates the risk that customers may draw on the lines in excess of the collateral value if there have been significant declines in the value of collateral since origination.

Consumer loans are often closed-end whereby the loan is fully disbursed when the loan closes and is repaid according to agreed upon specified dates.  Consumer loans include loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.

Credit Quality Indicators

Loans are monitored for credit quality on a recurring basis and the composition of the loans outstanding by credit quality indicator is provided below.

Loan credit quality indicators are developed through review of individual borrowers on an ongoing basis, although certain non-commercial loans, including residential mortgage, revolving mortgage and consumer loans, are evaluated upon origination and are reevaluated upon a change in delinquency status. Most commercial loans are evaluated at least annually with more frequent evaluation of more severely criticized loans or leases. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:

Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.

Special Mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

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ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the obligor and/or the realizable value of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.

Loss – Assets classified loss are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.

Allowance for Loan Losses – The allowance for loan losses is management’s estimate of probable credit losses that are inherent in the Bank’s loan portfolios at the balance sheet date. The allowance increases when the Bank provides for loan losses through charges to operating earnings and when the Bank recovers amounts from loans previously written down or charged off. The allowance decreases when the Bank writes down or charges off loan amounts that are deemed uncollectible.

Management determines the allowance for loan losses based on periodic evaluations that are inherently subjective and require substantial judgment because the evaluations require the use of material estimates that are susceptible to significant change. The Bank generally uses two allowance methodologies that are primarily based on management’s determination as to whether or not a loan is considered to be impaired.

Commercial loans, as well as non-commercial loans that are classified as substandard and secured by real estate, are evaluated for impairment on a loan-by-loan basis and are considered impaired when it is probable, based on current information, that the borrower will be unable to pay contractual interest or principal as required by the loan agreement. Loans that experience insignificant payment delays and payment shortfalls are not necessarily considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment history, and the amount of the shortfall relative to the principal and interest owed. Loans that are deemed to be troubled debt restructurings, which are discussed below, are also included as impaired loans. Impaired loans are measured at their estimated fair value based on either the value of the loan’s expected future cash flows discounted at the loan’s effective interest rate or on the collateral value, net of the estimated costs of disposal, if the loan is collateral dependent. For loans considered impaired, an individual allowance for loan losses is recorded when the loan principal balance exceeds the estimated fair value.

For loans not considered impaired, management determines the allowance for loan losses based on estimated loss percentages that are determined by and applied to the various classes of loans that comprise the segments of the Bank’s loan portfolio. The estimated loss percentages by loan class are based on a number of factors that include by class (i) average historical losses over the past three years, (ii) levels and trends in delinquencies, impairments, and net charge-offs, (iii) trends in the volume and direction of loan balances within that class, terms, and concentrations, (iv) trends in interest rates, (v) effects of changes in the Bank’s risk tolerance, underwriting standards, lending policies, procedures, and practices, and (vi) national and local business and economic conditions.

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ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Methodology Change – In the second quarter of 2014, the Bank assessed and modified its loan loss methodology for unimpaired commercial construction and land development, unimpaired residential construction and land development, and unimpaired commercial and industrial loans. This modification resulted in further sub-segmentation of these classes of loans and the related historical charge-off rates. The purpose was to allocate the substantial historical charge-off rates created by three sub-segments of these loan classes against the significantly diminished or nonexistent current balances within these same loan sub-segments reflecting no continued credit exposure to the Bank. Specifically, additional sub-segments were identified where the Bank made (i) loans in excess of $2.5 million to construct commercial mixed-use buildings in small communities with low population growth, (ii) speculative loans to construct one-to-four family residences for the greater of 80% of the appraised value of the completed residence or 100% of the actual costs of construction, and (iii) loans secured by equity securities that do not have a readily determinable fair value.  This change in methodology resulted in a nonrecurring reduction of approximately $1.3 million in the Bank’s reserves for loans not considered impaired in the second quarter of 2014.

Future material adjustments to the allowance for loan losses may be necessary due to improving or deteriorating economic conditions, delinquencies, charge-off levels or declining collateral values. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require the Bank to make adjustments to the allowance for loan losses based upon judgments that differ significantly from those of management.

Nonperforming Assets – Nonperforming assets can include loans that are past due 90 days or more and continue to accrue interest, loans on which interest is not being accrued, and foreclosed real estate.

Loans Past Due 90 Days or More, Nonaccruing, Impaired, or Restructured – The Bank’s policies related to loans that are placed on nonaccruing status conform to guidelines prescribed by bank regulatory authorities. Generally, the Bank suspends the accrual of interest on loans (i) that are maintained on a cash basis because of the deterioration of the financial condition of the borrower, (ii) for which payment in full of principal or interest is not expected, or (iii) on which principal or interest has been in default for a period of 90 days or more, unless the loan is both well secured and in the process of collection. While a loan is on nonaccruing status, the Bank recognizes interest income only to the extent cash payments are received in excess of collection of the principal outstanding on the loan. Loans are returned to accruing status when all principal and interest amounts contractually due are brought current and concern no longer exists as to the future collectability of principal and interest, which is generally confirmed when the loan demonstrates  performance for six consecutive months or payment cycles.

A troubled debt restructuring (“TDR”) occurs when a borrower is experiencing financial difficulty and the Bank grants a concession it would not otherwise consider to provide the borrower relief from one or more of the contractual loan conditions. Concessions that the Bank might consider include the allowance of interest-only payments on more than a temporary basis, the reduction of interest rates, the extension of the loan term, the forgiveness of principal, or a combination of these. The Bank might require additional collateral or additional guarantors as conditions to modifying loans as TDRs.

The Bank might consider modifying both accruing or nonaccruing loans as TDRs. When a modification includes a reduction of principal that resulted from a partial charge-off of the loan, the Bank typically accounts for the TDR as a nonaccruing loan.

11

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Bank classifies TDRs as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis consistent with its evaluation of impaired loans that have not been modified as TDRs. An allowance is based on either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.

The Bank’s policy for recognition of interest income on loans considered to be impaired, including restructured loans, is the same as its interest income recognition policy for loans not considered to be impaired.

Loan Charge-Offs – The Bank charges off loan balances, in whole or in part, when available, verifiable, and documentable information confirms that specific loans, or portions of specific loans, are uncollectible or unrecoverable. For unsecured loans, losses are confirmed when it can be determined that the borrower, or any guarantor, is unwilling or unable to pay the amounts as agreed. When the borrower, or any guarantors, are unwilling or unable to pay the amounts as agreed on a loan secured by collateral and any recovery is dependent upon the sale of the collateral, the loan is deemed to be collateral dependent. Repayments or recoveries for collateral dependent loans are directly affected by the value of the collateral at liquidation.  As such, loan repayment can be affected by factors that influence the amount recoverable, the timing of the recovery, or a combination of the two. Such factors include economic conditions that affect the markets in which the loan or its collateral is sold, bankruptcy, repossession and foreclosure laws, and consumer banking regulations. Losses are also confirmed when the loan, or a portion of the loan, is classified as loss resulting from loan reviews conducted by the Bank.

Charge-offs of loans in the commercial loan segment are recognized when the uncollectibility of the loan balance and the inability to recover sufficient value from the sale of any collateral securing the loan is confirmed. The uncollectibility of the loan balance is evidenced by the inability of the commercial borrower to generate cash flows sufficient to repay the loan as agreed causing the loan to become delinquent. For collateral dependent commercial loans, the Bank determines the fair value of the collateral based on appraisals, current market conditions, and estimated costs to sell the collateral. For collateral dependent commercial loans where the loan balance, including any accrued interest, net deferred fees or costs, and unamortized premiums or discounts, exceeds the fair value of the collateral securing the loan, the deficiency is identified as unrecoverable, is deemed to be a confirmed loss, and is charged off.

Charge-offs of loans in the non-commercial loan segment are generally confirmed and recognized in a manner similar to loans in the commercial loan segment. Secured non-commercial loans that are identified as uncollectible and are deemed to be collateral dependent are confirmed as loss to the extent the fair value of the collateral is insufficient to recover the loan balance. Closed-end consumer loans that become 120 cumulative days past due and open-end consumer loans that become 180 cumulative days past due are charged off to the extent that the fair value of any collateral, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Closed-end and open-end loans secured by residential real estate that become 180 days past due are charged off to the extent that the fair value of the residential real estate securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Loans determined to be fraudulent are charged off within 90 days of discovery. Loans to borrowers in bankruptcy are subject to modification by the bankruptcy court and are charged off to the extent that the fair value of any collateral securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance, unless the Bank expects repayment is likely to occur. Such loans are charged off within 60 days of the receipt of notification from a bankruptcy court or when the loans become 120 days past due, whichever is shorter.

12

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreclosed Real Estate – Foreclosed real estate consists of real estate and other assets acquired as a result of customers’ loan defaults. Foreclosed real estate is stated at the lower of the related loan balance or the fair value of the property net of the estimated costs of disposal with a charge to the allowance for loan losses upon foreclosure. Any write-downs subsequent to foreclosure are charged against operating earnings. To the extent recoverable, costs relating to the development and improvement of property are capitalized, whereas those costs relating to holding the property are charged to expense.

Comprehensive Income – Comprehensive income is defined as the change in equity of an enterprise during a period from transactions and other events and circumstances from non-owner sources and, accordingly, includes both net income and amounts referred to as other comprehensive income (“OCI”). The items of other comprehensive income are included in the Consolidated Statements of Comprehensive Income (Loss). The accumulated balance of other comprehensive income is included in the equity section of the Consolidated Balance Sheets. The Company’s components of accumulated other comprehensive income include unrealized gains and/or losses on investment securities classified as available for sale and certain changes in the Company’s benefit obligations under its retirement plans. The Company adjusts the level of accumulated comprehensive income related to its retirement plans on an annual basis, consistent with the receipt of its annual actuarial studies.

The changes in the components of the Company’s accumulated other comprehensive loss, net of income taxes, are presented as follows:

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Three Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	631		$	(1,048	)	$	(90	)	$	(1,138	)	$	(507	)
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,295	)	$	(1,170	)	$	32		$	(1,138	)	$	(6,433	)
Three Months Ended June 30, 2014
Unrealized loss on securities	$	(1,602	)	$	973		$	(58	)	$	915		$	(687	)
Benefit plan liability		(4,421	)		(90	)		90			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(6,023	)	$	883		$	32		$	915		$	(5,108	)

13

ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Six Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	124		$	(506	)	$	(125	)	$	(631	)	$	(507	)
Benefit plan liability		(5,926	)		(244	)		244			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(750	)	$	119		$	(631	)	$	(6,433	)
Six Months Ended June 30, 2014
Unrealized loss on securities	$	(2,952	)	$	2,394		$	(129	)	$	2,265		$	(687	)
Benefit plan liability		(4,421	)		(179	)		179			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(7,373	)	$	2,215		$	50		$	2,265		$	(5,108	)

The Company’s reclassifications out of accumulated other comprehensive income are as follows:

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
(Dollars in thousands)	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(143	)	$	(93	)	Gain on sale of investment securities
Deferred income tax expense		53			35		Income tax provision
Total reclassifications for the period	$	(90	)	$	(58	)	Net of tax
Net periodic pension benefit	$	194		$	144		Salaries and employee benefits
Deferred income tax expense		(72	)		(54	)	Income tax provision
Total reclassifications for the period	$	122		$	90		Net of tax

14

ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
CH OPEN (Dollars in thousands)	Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(199	)	$	(207	)	Gain on sale of investment securities
Deferred income tax expense		74			78		Income tax provision
Total reclassifications for the period	$	(125	)	$	(129	)	Net of tax
Net periodic pension benefit	$	389		$	287		Salaries and employee benefits
Deferred income tax expense		(145	)		(108	)	Income tax provision
Total reclassifications for the period	$	244		$	179		Net of tax

Income Taxes – The establishment of provisions for federal and state income taxes is a complex area of accounting that involves the use of significant judgments and estimates in applying relevant tax statutes. The Company is subject to audit by federal and state tax authorities, the results of which may produce tax liabilities that differ from the Company’s tax estimates and provisions. The Company continually evaluates its exposure to possible tax assessments arising from audits and it records its estimate of possible exposure based on current facts and circumstances. The Parent and the Bank have entered into a formal agreement that will allow them, if so elected, to file consolidated federal and state income tax returns, where permitted, and each to pay its respective share of income taxes due.

Deferred tax assets and liabilities are recognized for the tax effects of differing carrying values of assets and liabilities for tax and financial statement purposes that will reverse in future periods. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. When uncertainty exists concerning the recoverability of a deferred tax asset, the carrying value of the asset may be reduced by a valuation allowance. The amount of any valuation allowance established is based upon an estimate of the deferred tax asset that is more likely than not to be recovered. Increases or decreases in the valuation allowance result in increases or decreases to the provision for income taxes.

The Bank’s loss carry forward period under applicable North Carolina income tax laws is 15 years with a remaining loss carry forward period of 12 years. The Bank includes interest and penalties related to income tax liabilities in noninterest expense. The Bank’s tax filings for the years 2011 and thereafter are currently open to audit under statutes of limitations by the Internal Revenue Service and the North Carolina Department of Revenue.

15

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Pension Plan – The Bank has two noncontributory, defined benefit pension plans. The Bank recognizes the overfunded or underfunded status of the plans as an asset or liability in its consolidated statement of financial position and recognizes changes in the funded status in the year in which the change occurs through comprehensive income. The funded status of a benefit plan is measured as the difference between plan assets at fair value and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation. GAAP also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position and to include additional disclosure in the notes to financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.

Employee Stock Ownership Plan (“ESOP”) – In connection with the mutual-to-stock conversion on October 11, 2011, the Bank established an ESOP for the benefit of all of its eligible employees. Full-time employees of the Bank who have been credited with at least 1,000 hours of service during a twelve-month period and who have attained age 21 are eligible to participate in the ESOP.  Shares allocated under the ESOP vest at the rate of 20% per year of service beginning with the completion of two years of service and fully vest upon the completion of six years of service. The Bank anticipates it will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to the Parent over a period of 15 years in accordance with the terms of the loan.

Unallocated ESOP shares are not considered outstanding (including for the calculation of net income per common share as discussed below) and are shown as a reduction of shareholders’ equity. Dividends on unallocated ESOP shares, if paid, are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. The fair value of the annual share allocations is recorded on a monthly basis with fair value determined by calculating the average closing stock price for each day during the month. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference is recognized in shareholders’ equity. The Company recognizes a tax deduction equal to the cost of the shares released. Because the ESOP is internally leveraged through a loan from the Parent to the ESOP, the loan receivable by the Parent from the ESOP is not reported as an asset nor is the debt of the ESOP shown as a liability in the consolidated financial statements.

Equity Incentive Plan – The Company issued restricted stock and stock options under the 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”) to key officers and outside directors during the first quarter of 2013 and to additional key officers and a newly appointed outside director during 2014.  There were no grants under the 2012 Equity Incentive Plan during the first six months of 2015.  The Company uses a fair value based method of accounting for employee stock compensation plans, whereby  compensation cost is measured based on the fair value of the award as of the grant date and recognized over the vesting period.

Net Income Per Common Share – Where presented, basic net income per common share is the Company’s net income available to common shareholders, which represents net income less dividends paid or payable to preferred stock shareholders, if any, divided by the weighted average number of common shares outstanding during the period. In calculating the weighted average number of common shares outstanding, shares held by the ESOP are not considered to be outstanding until they are committed to be released for allocation.  Also, the weighted average of unvested restricted shares are not considered outstanding until the shares vest.

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ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

For diluted income per common share, net income available to common shareholders is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options and restricted stock, as well as any adjustment to income that would result from the assumed issuance. The effects of restricted stock and stock options are excluded from the computation of diluted income per common share in periods in which the effect would be antidilutive. Potential common shares that might be issued by the Company relate solely to outstanding stock options and restricted stock and are determined using the treasury stock method.

Net income per common share has been computed based on the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share data)	2015			2014			2015			2014
Numerator:
Net income	$	865		$	941		$	1,487		$	1,345
Denominator:
Weighted average common shares outstanding		4,378,411			4,886,313			4,378,411			4,957,586
Less: Weighted average unvested restricted shares		(121,610	)		(178,706	)		(129,565	)		(186,987	)
Less: Weighted average unallocated ESOP shares		(333,602	)		(364,989	)		(337,471	)		(368,858	)
Weighted average common shares used to compute net income per common share – Basic		3,923,199			4,342,618			3,911,375			4,401,741
Add: Effect of dilutive securities		90,133			41,536			83,715			39,269
Weighted average common shares used to compute net income per common share – Diluted		4,013,332			4,384,154			3,995,090			4,441,010
Net income per common share – Basic	$	0.22		$	0.22		$	0.38		$	0.31
Net income per common share – Diluted	$	0.22		$	0.21		$	0.37		$	0.30

For the three and six months ended June 30, 2015, options to purchase 434,771 and 443,629 shares of common stock, respectively, and 93,206 and 90,766 restricted shares, respectively, were excluded from the computation of net income per common share because their effect would be anti-dilutive.  For the three and six months ended June 30, 2014, options to purchase 469,502 and 473,020 shares of common stock, respectively, and 142,668 and 141,417 restricted shares, respectively, were excluded from the computation of net income per common share because their effect would be anti-dilutive.

Recent Accounting Pronouncements

Accounting Standards Update ASU 2015-02 – In February, 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis.  The amendments affect business entities that are required toevaluate whether they should consolidate certain legal entities.  For public entities, the amendments in ASU 2015-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  Early adoption, including adoption in an interim period, is permitted.  The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2015-03 – In April, 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.  Under the ASU, an entity presents debt issuance costs in thebalance sheet as a direct deduction from the related debt liability rather than as an asset.  Amortization of

17

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

the costs is reported as interest expense. For public entities, the amendments in ASU 2015-03 are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption is permitted for financial statements that have not been previously issued.  The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

2. INVESTMENT SECURITIES

Securities Available for Sale – The maturities, amortized cost, unrealized gains, unrealized losses and fair values of securities available for sale are as follows:

Type And Maturity Group (Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2015
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,154	$	1	$	(14	)	$	2,141
Asset-backed securities issued by the Small Business Administration (SBA)		18,714		224		(17	)		18,921
Residential mortgage-backed securities issued by GSE’s (1)		54,471		94		(459	)		54,106
State and local government securities due -
After 5 years but within 10 years		8,030		39		(50	)		8,019
After 10 years		51,501		131		(758	)		50,874
Mutual funds		752		-		-			752
Total	$	135,622	$	489	$	(1,298	)	$	134,813
December 31, 2014
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	1,037	$	-	$	(11	)	$	1,026
After 5 years but within 10 years		1,136		-		(24	)		1,112
Asset-backed securities issued by the Small Business Administration (SBA)		28,139		354		(28	)		28,465
Residential mortgage-backed securities issued by GSE’s (1)		67,675		189		(443	)		67,421
State and local government securities due -
After 5 years but within 10 years		9,850		98		(31	)		9,917
After 10 years		32,685		278		(188	)		32,775
Mutual funds		744		2		-			746
Total	$	141,266	$	921	$	(725	)	$	141,462

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises  including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

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ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2. INVESTMENT SECURITIES (Continued)

Securities Held to Maturity – The maturities, amortized cost, unrealized gains, unrealized losses and fair values of securities classified as held to maturity are as follows:

Type And Maturity Group (Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2015
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,031	$	66	$	-	$	1,097
Residential mortgage-backed securities  issued by GSE’s (1)		436		33		-		469
State and local government securities due -
After 5 years but within 10 years		963		85		-		1,048
After 10 years		1,469		126		-		1,595
Total	$	3,899	$	310	$	-	$	4,209
December 31, 2014
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,038	$	73	$	-	$	1,111
Residential mortgage-backed securities  issued by GSE’s (1)		532		40		-		572
State and local government securities due -
After 5 years but within 10 years		961		98		-		1,059
After 10 years		1,468		153		-		1,621
Total	$	3,999	$	364	$	-	$	4,363

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprisesincluding the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

19

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2. INVESTMENT SECURITIES (Continued)

The following tables show investment gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2015 and December 31, 2014. The total number of securities with unrealized losses at June 30, 2015 and December 31, 2014 were 58 and 46, respectively. The unrealized losses relate to debt and equity securities that have incurred fair value reductions due to higher market interest rates since the securities were purchased. The unrealized losses are not likely to reverse unless and until market interest rates decline to the levels that existed when the securities were purchased. Management has the intent to hold securities with unrealized losses until a recovery of the market value occurs. Management has determined that it is more likely than not that the Company will not be required to sell any of the securities with unrealized losses prior to a recovery of market value sufficient to negate the unrealized loss. Management has analyzed the creditworthiness of the underlying issuers and determined that the Company will collect all contractual cash flows and, therefore, all impairment is considered to be temporary.

	June 30, 2015
	Less Than 12 Months					12 Months Or More					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities Available For Sale
US GSE and agency	$	-	$	-		$	1,110	$	(14	)	$	1,110	$	(14	)
Asset-backed SBA		-		-			1,997		(17	)		1,997		(17	)
Residential mortgage- backed GSE (1)		35,703		(380	)		8,991		(79	)		44,694		(459	)
State and local government		42,635		(751	)		1,477		(57	)		44,112		(808	)
Total temporarily impaired securities	$	78,338	$	(1,131	)	$	13,575	$	(167	)	$	91,913	$	(1,298	)

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 or during the six-month period then ended.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2. INVESTMENT SECURITIES (Continued)

	December 31, 2014
	Less Than 12 Months					12 Months Or More					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities Available For Sale
US GSE and agency	$	-	$	-		$	2,138	$	(35	)	$	2,138	$	(35	)
Asset-backed SBA		1,006		(1	)		2,158		(27	)		3,164		(28	)
Residential mortgage-backed GSE (1)		5,579		(13	)		27,089		(430	)		32,668		(443	)
State and local government		1,867		(16	)		13,541		(203	)		15,408		(219	)
Total temporarily impaired securities	$	8,452	$	(30	)	$	44,926	$	(695	)	$	53,378	$	(725	)

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at December 31, 2014 or during the twelve-month period then ended.

Investment securities pledged as collateral follows:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Pledged to Federal Reserve Discount Window	$	6,998	$	3,745
Pledged to repurchase agreements for commercial customers		1,326		1,137

Interest income from taxable and tax-exempt securities recognized in interest and dividend income follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2015		2014		2015		2014
Interest income from taxable securities	$	246	$	329	$	551	$	716
Interest income from tax-exempt securities		311		324		574		673
Total interest income from securities	$	557	$	653	$	1,125	$	1,389

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ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2. INVESTMENT SECURITIES (Continued)

Proceeds and gross realized gains from sales of securities recognized in net income follow:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Proceeds from sales of securities	$	32,089		$	17,774		$	50,624		$	47,679
Gross realized gains from sales of securities		341			328			465			554
Gross realized losses from sales of securities		(198	)		(235	)		(266	)		(347	)

3. LOANS RECEIVABLE

Loans receivable by segment and class follow:

(Dollars in thousands)	June 30, 2015			December 31, 2014
Commercial:
Commercial construction and land development	$	27,236		$	21,661
Commercial mortgage		212,844			201,316
Commercial and industrial		17,150			15,872
Total commercial		257,230			238,849
Non-commercial:
Non-commercial construction and land development		16,174			14,781
Residential mortgage		173,940			172,163
Revolving mortgage		61,743			56,370
Consumer		44,523			40,363
Total non-commercial		296,380			283,677
Total loans receivable		553,610			522,526
Less: Deferred loan fees		(611	)		(706	)
Total loans receivable net of deferred loan fees		552,999			521,820
Less: Allowance for loan losses		(6,124	)		(5,949	)
Loans receivable, net	$	546,875		$	515,871

22

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

3. LOANS RECEIVABLE (Continued)

Loans receivable by segment, class, and grade follow:

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans
June 30, 2015
Commercial:
Commercial construction and land development	$	27,085	$	151	$	-	$	-	$	-	$	27,236
Commercial mortgage		198,371		13,006		1,467		-		-		212,844
Commercial and industrial		16,285		603		262		-		-		17,150
Total commercial		241,741		13,760		1,729		-		-		257,230
Non-commercial:
Non-commercial construction and land development		16,174		-		-		-		-		16,174
Residential mortgage		165,117		6,642		2,181		-		-		173,940
Revolving mortgage		58,396		2,729		618		-		-		61,743
Consumer		44,116		330		77		-		-		44,523
Total non-commercial		283,803		9,701		2,876		-		-		296,380
Total loans receivable	$	525,544	$	23,461	$	4,605	$	-	$	-	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	21,336	$	323	$	2	$	-	$	-	$	21,661
Commercial mortgage		184,992		14,809		1,515		-		-		201,316
Commercial and industrial		14,628		873		371		-		-		15,872
Total commercial		220,956		16,005		1,888		-		-		238,849
Non-commercial:
Non-commercial construction and land development		14,781		-		-		-		-		14,781
Residential mortgage		161,859		8,544		1,760		-		-		172,163
Revolving mortgage		52,700		3,119		551		-		-		56,370
Consumer		39,965		294		104		-		-		40,363
Total non-commercial		269,305		11,957		2,415		-		-		283,677
Total loans receivable	$	490,261	$	27,962	$	4,303	$	-	$	-	$	522,526

23

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

3. LOANS RECEIVABLE (Continued)

Loans receivable by segment, class, and delinquency status follow:

	Past Due
(Dollars in thousands)	31-89 Days		90 Days Or More		Total		Current		Total Loans
June 30, 2015
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	27,236	$	27,236
Commercial mortgage		628		-		628		212,216		212,844
Commercial and industrial		4		117		121		17,029		17,150
Total commercial		632		117		749		256,481		257,230
Non-commercial:
Non-commercial construction and land development		-		-		-		16,174		16,174
Residential mortgage		1,406		181		1,587		172,353		173,940
Revolving mortgage		277		37		314		61,429		61,743
Consumer		96		-		96		44,427		44,523
Total non-commercial		1,779		218		1,997		294,383		296,380
Total loans receivable	$	2,411	$	335	$	2,746	$	550,864	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	21,661	$	21,661
Commercial mortgage		532		-		532		200,784		201,316
Commercial and industrial		-		43		43		15,829		15,872
Total commercial		532		43		575		238,274		238,849
Non-commercial:
Non-commercial construction and land development		-		-		-		14,781		14,781
Residential mortgage		576		1,226		1,802		170,361		172,163
Revolving mortgage		396		141		537		55,833		56,370
Consumer		227		1		228		40,135		40,363
Total non-commercial		1,199		1,368		2,567		281,110		283,677
Total loans receivable	$	1,731	$	1,411	$	3,142	$	519,384	$	522,526

24

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

3. LOANS RECEIVABLE (Continued)

The recorded investment in loans, by segment and class, that are not accruing interest or are 90 days or more past due and still accruing interest follows:

	June 30, 2015				December 31, 2014
(Dollars in thousands)	Nonaccruing		Past Due 90 Days Or More And Still Accruing		Nonaccruing		Past Due 90 Days Or More And Still Accruing
Commercial:
Commercial mortgage	$	840	$	-	$	881	$	-
Commercial and industrial		262		-		221		-
Total commercial		1,102		-		1,102		-
Non-commercial:
Residential mortgage		1,589		-		1,354		-
Revolving mortgage		221		-		230		-
Consumer		-		-		2		-
Total non-commercial		1,810		-		1,586		-
Total loans receivable	$	2,912	$	-	$	2,688	$	-

The Bank services loans for Habitat for Humanity of Western North Carolina as an in-kind donation.  The balances of these loans were $15.3 million at June 30, 2015 and $14.9 million at December 31, 2014.

25

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses by segment follows:

	Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
(Dollars in thousands)	Commercial			Non- Commercial			Total			Commercial			Non- Commercial			Total
Balance at beginning of period	$	3,429		$	2,613		$	6,042		$	3,409		$	2,540		$	5,949
Provision for (recovery of) loan losses		96			(31	)		65			92			167			259
Charge-offs		-			(137	)		(137	)		(79	)		(310	)		(389	)
Recoveries		3			151			154			106			199			305
Balance at end of period	$	3,528		$	2,596		$	6,124		$	3,528		$	2,596		$	6,124
	Three Months Ended June 30, 2014									Six Months Ended June 30, 2014
(Dollars in thousands)	Commercial			Non- Commercial			Total			Commercial			Non- Commercial			Total
Balance at beginning of period	$	4,609		$	2,580		$	7,189		$	4,560		$	2,747		$	7,307
Recovery of loan losses		(1,184	)		(206	)		(1,390	)		(1,137	)		(321	)		(1,458	)
Charge-offs		-			(56	)		(56	)		-			(150	)		(150	)
Recoveries		16			11			27			18			53			71
Balance at end of period	$	3,441		$	2,329		$	5,770		$	3,441		$	2,329		$	5,770

26

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. ALLOWANCE FOR LOAN LOSSES (Continued)

Ending balances of loans and the related allowance, by segment and class, follow:

	Allowance For Loan Losses						Total Loans Receivable
(Dollars in thousands)	Loans Individually Evaluated For Impairment		Loans Collectively Evaluated		Total		Loans Individually Evaluated For Impairment		Loans Collectively Evaluated		Total
June 30, 2015
Commercial:
Commercial construction and land development	$	-	$	247	$	247	$	-	$	27,236	$	27,236
Commercial mortgage		46		2,986		3,032		3,884		208,960		212,844
Commercial and industrial		20		229		249		285		16,865		17,150
Total commercial		66		3,462		3,528		4,169		253,061		257,230
Non-commercial:
Non-commercial construction and land development		-		135		135		-		16,174		16,174
Residential mortgage		97		1,010		1,107		3,502		170,438		173,940
Revolving mortgage		88		708		796		190		61,553		61,743
Consumer		-		558		558		-		44,523		44,523
Total non-commercial		185		2,411		2,596		3,692		292,688		296,380
Total loans receivable	$	251	$	5,873	$	6,124	$	7,861	$	545,749	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	-	$	303	$	303	$	-	$	21,661	$	21,661
Commercial mortgage		67		2,796		2,863		3,976		197,340		201,316
Commercial and industrial		98		145		243		394		15,478		15,872
Total commercial		165		3,244		3,409		4,370		234,479		238,849
Non-commercial:
Non-commercial construction and land development		-		116		116		-		14,781		14,781
Residential mortgage		160		969		1,129		3,023		169,140		172,163
Revolving mortgage		135		675		810		370		56,000		56,370
Consumer		-		485		485		-		40,363		40,363
Total non-commercial		295		2,245		2,540		3,393		280,284		283,677
Total loans receivable	$	460	$	5,489	$	5,949	$	7,763	$	514,763	$	522,526

27

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired loans and the related allowance, by segment and class, follow:

			Recorded Investment
(Dollars in thousands)	Unpaid Principal Balance		With A Recorded Allowance		With No Recorded Allowance		Total		Related Recorded Allowance
June 30, 2015
Commercial:
Commercial mortgage	$	3,989	$	3,379	$	505	$	3,884	$	46
Commercial and industrial		752		145		140		285		20
Total commercial		4,741		3,524		645		4,169		66
Non-commercial:
Residential mortgage		3,576		1,801		1,701		3,502		97
Revolving mortgage		199		88		102		190		88
Total non-commercial		3,775		1,889		1,803		3,692		185
Total impaired loans	$	8,516	$	5,413	$	2,448	$	7,861	$	251
December 31, 2014
Commercial:
Commercial mortgage	$	4,050	$	3,444	$	532	$	3,976	$	67
Commercial and industrial		779		328		66		394		98
Total commercial		4,829		3,772		598		4,370		165
Non-commercial:
Residential mortgage		3,062		2,298		725		3,023		160
Revolving mortgage		414		267		103		370		135
Total non-commercial		3,476		2,565		828		3,393		295
Total impaired loans	$	8,305	$	6,337	$	1,426	$	7,763	$	460

28

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. ALLOWANCE FOR LOAN LOSSES (Continued)

The average recorded investment in impaired loans and interest income recognized on impaired loans follows:

	Three Months Ended June 30, 2015				Three Months Ended June 30, 2014
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial mortgage	$	3,902	$	33	$	4,100	$	36
Commercial and industrial		289		-		277		1
Total commercial		4,191		33		4,377		37
Non-commercial:
Residential mortgage		3,402		18		2,803		22
Revolving mortgage		301		-		251		2
Total non-commercial		3,703		18		3,054		24
Total loans receivable	$	7,894	$	51	$	7,431	$	61
	Six Months Ended June 30, 2015				Six Months Ended June 30, 2014
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial construction and land development	$	-	$	-	$	46	$	1
Commercial mortgage		3,924		66		4,092		78
Commercial and industrial		321		1		285		3
Total commercial		4,245		67		4,423		82
Non-commercial:
Residential mortgage		3,142		42		2,867		47
Revolving mortgage		329		-		292		2
Total non-commercial		3,471		42		3,159		49
Total loans receivable	$	7,716	$	109	$	7,582	$	131

29

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. ALLOWANCE FOR LOAN LOSSES (Continued)

The following table summarizes the Bank’s recorded investment in TDRs before and after their modifications during the periods indicated. There were no new restructured loans by the Bank during the three months ended June 30, 2015 or June 30, 2014.  The Bank extended the payment terms on one loan and reduced the interest rate below market levels on one loan during the six months ended June 30, 2015. The Bank extended payment terms on two loans and reduced the interest rate below market levels on one loan during the six months ended June 30, 2014.

	Six Months Ended June 30, 2015						Six Months Ended June 30, 2014
(Dollars in thousands)	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Below market interest rate
Commercial:
Commercial mortgage		-	$	-	$	-		1	$	562	$	562
Commercial and industrial		1		153		153		-		-		-
Total commercial		1		153		153		1		562		562
Total loans modified with below market interest rate		1		153		153		1		562		562
Extended payment terms
Non-commercial:
Residential mortgage		1		29		42		2		67		93
Total non-commercial		1		29		42		2		67		93
Total loans modified with extended payment terms		1		29		42		2		67		93
Total loans modified		2	$	182	$	195		3	$	629	$	655

There were no loans modified as TDRs within the preceding 12 months that stopped performing during the three months or six months ended June 30, 2015 and June 30, 2014.

In the determination of the allowance for loan losses, management considers TDRs on loans and the subsequent nonperformance in accordance with their modified terms, by measuring impairment loan-by-loan based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

30

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. ALLOWANCE FOR LOAN LOSSES (Continued)

The Bank’s loans that were considered to be TDRs follow:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Nonperforming restructured loans	$	1,068	$	1,018
Performing restructured loans		4,724		4,804
Total	$	5,792	$	5,822

As of June 30, 2015, the Bank had $7,000 of residential real estate loans in the process of foreclosure and $775,000 of foreclosed residential real estate property included in foreclosed real estate.

5. BENEFIT PLANS

Defined Benefit Plans – In January 2013, the Board of Directors amended the Bank’s Qualified and Non-Qualified pension plans, effective March 31, 2013, to curtail or eliminate benefits under the plans for services to be performed in future periods.  During 2013, pension expense was decreased by a $499,000 one-time credit that resulted from the curtailment of benefits for future service.

In June 2014, the Board of Directors further amended the Bank’s Qualified and Non-Qualified pension plans,  effective September 16, 2014, to offer immediate lump sum payments to inactive participants having an  actuarial equivalent of vested accrued benefits below $60,000, determined as of November, 1, 2014, as available.  The election deadline for the inactive participant to make the lump sum selection was October 17, 2014.  The total of immediate aggregate lump sum payments to all inactive participants making this selection was approximately $544,000 for 2014.

Net periodic cost (benefit) related to defined benefit plans include the following components for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Non-Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs
Interest cost	$	14		$	12		$	27		$	25
Amortization of net loss		14			7			29			14
Net periodic pension cost	$	28		$	19		$	56		$	39
Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs
Interest cost	$	247		$	250		$	495		$	500
Expected return on plan assets		(236	)		(248	)		(472	)		(495	)
Amortization of net loss		180			137			360			273
Net periodic pension cost	$	191		$	139		$	383		$	278

31

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. BENEFIT PLANS (Continued)

Employee Stock Ownership Plan – In conjunction with the Parent’s initial public offering in 2011, the Bank established an ESOP to provide eligible employees the opportunity to own Parent stock. The Parent provided a loan to the ESOP in the amount of $4,468,000, which was used to purchase 446,764 shares of the Parent’s common stock at a price of $10.00 per share in the Parent’s initial public offering. The loan bears a fixed interest rate of 3.25% and provides for annual payments of interest and principal over the 15 year term of the loan.

The Bank committed to make contributions to the ESOP sufficient to support the debt service of the loan. The loan is secured by the shares purchased, which are held in a suspense account until released for allocation to the participants as principal and interest payments are made by the ESOP to the Parent.

Shares released are allocated to each eligible participant based on the ratio of each participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. Forfeited shares shall be reallocated among other participants in the Plan. At the discretion of the Bank, cash dividends, when paid on allocated shares, will be distributed to participants’ accounts or used to repay the principal and interest on the ESOP loan used to acquire Parent stock on which dividends were paid. Cash dividends on unallocated shares will be used to repay the outstanding debt of the ESOP.

Shares held by the ESOP include the following:

	June 30, 2015
Allocated ESOP shares, December 31, 2014		98,624
ESOP shares committed to be released during the period		15,565
ESOP shares withdrawn during the period		(9,219	)
Unallocated ESOP shares		329,688
Total ESOP shares		434,658
Fair value of unallocated ESOP shares (dollars in thousands)	$	7,141

As ESOP shares are earned by the participants, the Company recognizes compensation expense equal to the fair value of the earned ESOP shares during the periods in which they become committed to be released.

Total expense recognized in connection with the ESOP follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2015		2014		2015		2014
ESOP expense	$	165	$	148	$	323	$	284

32

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. BENEFIT PLANS (Continued)

2012 Equity Incentive Plan - The Company’s 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”) provides for awards of restricted stock and stock options to key officers and outside directors. Cost recognized under the 2012 Equity Incentive Plan is based on the fair value of restricted stock and stock option awards on their grant date.  The maximum number of shares that may be awarded under the plan is 781,837 shares, including 223,382 for restricted stock shares and 558,455 shares for stock options.

Shares of common stock granted under the 2012 Equity Incentive Plan may be issued from authorized but unissued shares or, in the case of restricted stock awards, may be awarded with shares purchased on the open market.  During 2012, the Company purchased the 223,382 shares of its common stock in the open market at a total cost of $3.6 million, or an average of $16.12 per share, through an independent trustee to fulfill anticipated restricted stock awards.  The share-based awards granted under the 2012 Equity Incentive Plan have some similar characteristics, except some awards have been granted in restricted stock and other awards have been granted in stock options.  Therefore, the following disclosures have been disaggregated for the restricted stock awards and the stock option grants under the plan due to their dissimilar characteristics.

Share-based compensation expenses related to restricted stock and stock options recognized for the three and six months ended June 30, 2015 were $263,000 and $528,000, respectively, and were $660,000 and $937,000, respectively, for the same periods of 2014.  Compensation expense for the three and six months ended June 30, 2014 included $380,000 that was recognized for accelerated vesting of restricted stock and stock options due to the medical disability of an executive officer.

The table below presents restricted stock award activity for the periods indicated:

	Restricted Stock Awards			Weighted Average Grant Date Fair Value
Unvested restricted shares at December 31, 2014		161,906		$	15.75
Vested and released to participants		(40,296	)		15.74
Unvested restricted shares at June 30, 2015		121,610		$	15.75

There were no restricted stock awards granted, forfeited or exercised during the six-month period ended June 30, 2015.

At June 30, 2015, unrecognized compensation expense, adjusted for expected forfeitures, was $1.5 million related to restricted stock.  The weighted-average period over which compensation cost related to unvested awards is expected to be recognized was 2.63 years at June 30, 2015.

33

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. BENEFIT PLANS (Continued)

The table below presents stock option activity for the periods indicated:

	Stock Options Available For Granting		Stock Options Outstanding		Weighted Average Exercise Price		Remaining Contractual Life (In Years)		Aggregate Intrinsic Value (In Thousands)
Outstanding at December 31, 2014		60,355		496,500	$	16.00		7.61	$	2,731
Outstanding at June 30, 2015		60,355		496,500	$	16.00		7.11	$	2,810
Options exercisable at June 30, 2015				209,800	$	15.77		6.17	$	1,235

There were no stock options granted, forfeited or exercised during the six-month period ended June 30, 2015.

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model. The following table illustrates the weighted-average assumptions for the Black-Scholes model used in determining the fair value of options granted to directors and officers in the six months ended June 30, 2014.  There were no options granted for the six months ended June 30, 2015.

	Six Months Ended June 30, 2014
Fair value per option award		$5.91
Expected life in years		6.5 years
Expected stock price volatility		27.34%
Expected dividend yield		0.00%
Risk-free interest rate		2.04%
Expected forfeiture rate		6.39%

At June 30, 2015, the Company had $1.1 million of unrecognized compensation expense related to stock options.  The weighted average period over which compensation cost related to unvested stock options is expected to be recognized was 2.85 years at June 30, 2015.  There were 209,800 options vested and exercisable at June 30, 2015.

34

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6. COMMITMENTS AND CONTINGENCIES

Loan Commitments - The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recorded in the accompanying consolidated balance sheets. Such financial instruments are recorded when they are funded.

The Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheet.

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 are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial real estate.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

35

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6. COMMITMENTS AND CONTINGENCIES (Continued)

The Bank’s commitments to extend or originate credit and under standby letters of credit follow:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit	$	170,268	$	149,590
Commitments under standby letters of credit		460		36
Total	$	170,728	$	149,626

Concentrations of Credit Risk - The Bank’s primary market area consists of Buncombe, Henderson, McDowell, Transylvania and Madison counties of North Carolina.  The majority of the Bank’s loans are residential mortgage loans and commercial real estate loans. The Bank’s policy generally will allow residential mortgage loans up to 80% of the value of the real estate that is pledged as collateral or up to 95% with private mortgage insurance and commercial real estate loans up to 85% of the value of the real estate that serves as collateral to secure the loan.

Interest Rate Risk - The Bank’s profitability depends to a large extent on its net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Like most financial institutions, the Bank’s interest income and interest expense are significantly affected by changes in market interest rates and other economic factors beyond its control. The Bank’s interest-earning assets consist primarily of long-term, fixed-rate mortgage loans, adjustable rate mortgage loans and investments that typically adjust more slowly to changes in interest rates than its interest-bearing liabilities, which are primarily term deposits. Accordingly, the Bank’s earnings are usually adversely affected during periods of rising interest rates and positively impacted during periods of declining interest rates. However, based on the results of the Bank’s interest rate risk simulation model, which management believes accurately reflects the extraordinary stress currently existing in the financial markets with respect to potential margin compression resulting from the Bank’s difficulty in reducing its cost of funds further in this competitive pricing environment, the Bank’s earnings may well be adversely affected if interest rates decline further. Such a decline in rates could result from, among other factors, the Federal Reserve Board's purchase of government securities and/or mortgage-backed securities in an effort to further stimulate the economy. Accordingly, the Bank is carefully monitoring, through its Asset/Liability management process, the competitive landscape related to interest rates as well as various economic indicators in order to optimally position the Bank in terms of changes in interest rates.

Litigation - The Bank is periodically involved in legal actions in the normal course of business. The Bank is  not a party to any pending legal proceedings that, after consultation with its legal counsel, the Bank’s management believes would have a material adverse effect on the Bank’s financial condition, results of operations, or cash flows.

Investment Commitments - During 2012, the Bank entered into an agreement to invest $2.0 million as a  limited partner in a Small Business Investment Company. The Bank invested $350,000 of its investment commitment in 2013, $250,000 in 2014 and $200,000 in the second quarter of 2015.  This investment is recognized using the cost method and is included in “other assets” on the balance sheet.

36

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS

FASB ASC Topic 820: Fair Value Measurements and Disclosures (“FASB ASC Topic 820”) requires  disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed below.  The estimated fair value amounts shown below have been determined by the Bank using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. The use of different market assumptions and/or valuation methodologies could have a material effect on the estimated fair value amounts.

Fair value estimates are made at a specific point in time, based on relevant market information and  information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.

The fair value estimates presented below are based on pertinent information available to management as of  June 30, 2015 and December 31, 2014. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued  since the dates presented herein and, therefore, current estimates of fair value may differ significantly from  the amounts presented.

The fair value measurement and disclosure guidance contained in FASB ASC Topic 820 defines fair value  as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the  principal or most advantageous market for the asset or liability in an orderly transaction between market  participants on the measurement date. The guidance also establishes a fair value hierarchy which requires  an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

Level 1

The fair values of Level 1 assets are determined by quoted prices in active markets for identical assets or  liabilities. Level 1 assets and liabilities include debt and equity securities that are traded in an active exchange  market, as well as certain U.S. Treasury debt securities.

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted  prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, SBA asset-backed securities, securities issued by state and local governments, and corporate debt securities.

37

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value  of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is  determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as  instruments for which the determination of fair value requires significant management judgment or  estimation. This category generally includes certain private equity investments, loans receivable held for investment, accrued interest receivable and payable, time deposits, repurchase agreements, and FHLB advances.

The methodologies for estimating fair values of financial assets and financial liabilities are determined as  discussed below. The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest, Federal Home Loan Bank Stock and demand deposits.

Investment Securities – Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is primarily based upon quoted prices of like or similar securities, if available. If quoted prices are not available, fair values are measured using independent pricing models or other  model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The fair values of  investments in mutual funds are determined by quoted prices and are included as recurring Level 1 assets. The fair values of investments in securities issued by U.S. GSE’s, asset-backed securities issued by the SBA, residential mortgage-backed securities issued by U.S. GSE’s, and securities issued by state and local  governments are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions and are included as recurring Level 2 assets.

Loans Held for Sale –Loans held for sale are residential mortgages carried at the lower of cost or market  value. The market values of loans held for sale are based on what mortgage buyers are currently offering on a “best efforts” basis to buy the loans. As such, mortgages held for sale are classified as nonrecurring Level 2 assets.

Loans Receivable – For variable rate loans, carrying value is a reasonable estimate of fair value. For fixed  rate loans, fair values are estimated based on discounted future cash flows using the current interest rates at  which loans with similar terms would be made to borrowers of similar credit quality. Valuation adjustments  are made for credit risk, which are represented by the allowance for loan losses, but do not include  adjustments for illiquidity or other market risks.

The Bank does not record loans at fair value on a recurring basis. However, from time to time, a loan is  considered impaired and an allowance for loan losses is established. Loans for which it is probable that  payment of interest and principal will not be made in accordance with the contractual terms of the loan  agreement are considered impaired. Once a loan is identified as individually impaired, management measures  impairment in accordance with the accounting guidance contained in FASB ASC Topic 310: Receivables (“FASB ASC Topic 310”). The fair value of impaired loans is estimated using one of several methods,  including collateral value, market value of similar debt, enterprise value, liquidation value, or discounted  cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the  expected repayments or collateral exceed the recorded investments in such loans. Substantially all of the total impaired loans are evaluated based on the fair value of the collateral. In accordance with the fair  value measurement and disclosure guidance contained in FASB ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.

38

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

When the fair value of the collateral is based on an observable market price or a current appraised value, the impaired loan is recorded as nonrecurring Level 2 assets. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the impaired loan as nonrecurring Level 3 assets.

Accrued Interest Receivable and Payable – The carrying amount is a reasonable estimate of fair value.

Deferred Compensation Assets – Assets include debt and equity securities that are traded in an active  exchange market. Fair values are obtained from quoted prices in active markets for identical assets.

Demand and Savings Deposits – By definition, the carrying values are equal to the fair values.

Time Deposits and Repurchase Agreements – Fair value of fixed maturity certificates of deposit is estimated using the FHLB Rate Curve for similar remaining maturities. Fair value of repurchase agreements is estimated using the borrowing rate for overnight borrowings.

Federal Home Loan Bank Advances – The fair value of Federal Home Loan Bank advances is estimated  using the rates currently offered for advances of similar remaining maturities.

Deferred Compensation Liabilities – Fair values are measured based on the fair values of the related deferred compensation assets.

Defined Benefit Plan Assets – The Nonqualified Defined Benefit Plan had no plan assets because it was not funded. The assets of the Qualified Defined Benefit Plan, which are invested in interest-bearing depository accounts and money market, debt and equity security mutual funds, are included at fair value in the Qualified Plan’s separate financial statements. Fair value measurement is based upon quoted prices of like or similar securities. The fair values of the Plan’s investments in interest-bearing depository accounts and money market, debt and equity security mutual funds are determined by quoted prices and are included as recurring Level 1 assets.

Foreclosed Properties – Foreclosed properties are measured and recorded at the lower of cost or estimated  fair value. The fair value of foreclosed properties is measured using the current appraised value of the  property less the estimated expenses necessary to sell the property. Foreclosed properties are classified as  nonrecurring Level 3 assets.

39

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

The estimated fair values and carrying amounts of financial instruments follow:

	Fair Value Measurement Using								Total
(Dollars in thousands)	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount In Balance Sheet
June 30, 2015
Financial assets:
Cash and cash equivalents	$	52,990	$	-	$	-	$	52,990	$	52,990
Securities available for sale		752		134,061		-		134,813		134,813
Securities held to maturity		-		4,209		-		4,209		3,899
Investments in FHLB stock		-		-		2,807		2,807		2,807
Loans held for sale		-		8,368		-		8,368		8,192
Loans receivable, net		-		-		547,606		547,606		546,875
Accrued interest receivable		-		-		2,217		2,217		2,217
Deferred compensation assets		1,403		-		-		1,403		1,403
Financial liabilities:
Demand deposits		-		-		473,674		473,674		473,674
Time deposits		-		-		150,326		150,326		150,289
Repurchase agreements		-		-		222		222		224
Federal Home Loan Bank Advances		-		-		52,912		52,912		50,000
Deferred compensation liabilities		1,408		-		-		1,408		1,408
Accrued interest payable		-		-		102		102		102
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit		-		-		-		-		-
Commitments under standby letters of credit		-		-		-		-		-

40

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

	Fair Value Measurement Using								Total
(Dollars in thousands)	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount In Balance Sheet
December 31, 2014
Financial assets:
Cash and cash equivalents	$	56,858	$	-	$	-	$	56,858	$	56,858
Securities available for sale		746		140,716		-		141,462		141,462
Securities held to maturity		-		4,363		-		4,363		3,999
Investments in FHLB stock		-		-		2,902		2,902		2,902
Loans held for sale		-		5,350		-		5,350		5,237
Loans receivable, net		-		-		516,752		516,752		515,871
Accrued interest receivable		-		-		2,230		2,230		2,230
Deferred compensation assets		1,418		-		-		1,418		1,418
Financial liabilities:
Demand deposits		-		-		449,286		449,286		449,286
Time deposits		-		-		153,994		153,994		154,093
Repurchase agreements		-		-		653		653		660
Federal Home Loan Bank Advances		-		-		53,382		53,382		50,000
Deferred compensation liabilities		1,418		-		-		1,418		1,418
Accrued interest payable		-		-		115		115		115
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit		-		-		-		-		-
Commitments under standby letters of credit		-		-		-		-		-

41

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at fair value on a recurring basis. There were no transfers to or from Levels 1 and 2 during the six months ended June 30, 2015.

(Dollars in thousands)	Fair Value Measurement Using						Total
Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets		Assets/ Liabilities Measured At Fair Value
June 30, 2015
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,141	$	-	$	2,141	$	2,141
Asset-backed SBA securities		-		18,921		-		18,921		18,921
Residential mortgage-backed securities issued by GSE’s		-		54,106		-		54,106		54,106
State and local government securities		-		58,893		-		58,893		58,893
Mutual funds		752		-		-		752		752
Total	$	752	$	134,061	$	-	$	134,813	$	134,813
Defined benefit plan assets:
Cash and cash equivalents	$	555	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		12,910		-		-
Equity security mutual funds		3,799		-		-
Total	$	17,409	$	-	$	-
December 31, 2014
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,138	$	-	$	2,138	$	2,138
Asset-backed SBA securities		-		28,465		-		28,465		28,465
Residential mortgage-backed securities issued by GSE’s		-		67,421		-		67,421		67,421
State and local government securities		-		42,692		-		42,692		42,692
Mutual funds		746		-		-		746		746
Total	$	746	$	140,716	$	-	$	141,462	$	141,462
Defined benefit plan assets:
Cash and cash equivalents	$	489	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		14,166		-		-
Equity security mutual funds		3,553		-		-
Total	$	18,353	$	-	$	-

42

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

As may be required from time to time, certain assets may be recorded at fair value on a nonrecurring basis in certain circumstances such as evidence of impairment in accordance with U.S. GAAP. Assets measured at fair value on a nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy that were held for the periods indicated are in the table below.

(Dollars in thousands)	Fair Value Measurement Using						Total
0 Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets (1)		Assets/ Liabilities Measured At Fair Value (1)
June 30, 2015
Impaired loans	$	-	$	-	$	2,113	$	2,113	$	2,113
Foreclosed properties		-		-		4,997		4,997		4,997
December 31, 2014
Impaired loans	$	-	$	-	$	1,847	$	1,847	$	1,847
Foreclosed properties		-		-		4,341		4,341		4,341

(1) Properties recorded at cost and not market are excluded.

There were no transfers between valuation levels for any asset during the six-month period ended June 30, 2015.  If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the period when the assets are valued.

Quantitative Information About Level 3 Fair Value Measurements

The following table presents quantitative information about financial and nonfinancial assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs:

(Dollars in thousands)	Fair Value (1)		Valuation Technique	Unobservable Input	Discount Range (Weighted Average)
June 30, 2015
Impaired loans	$	2,113	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (20	%)
Foreclosed properties		4,997	Discounted appraisals (2)	Collateral discounts (3)		0%-40% (9	%)
December 31, 2014
Impaired loans	$	1,847	Discounted appraisals (2)	Collateral discounts (3)		6%-35% (13	%)
Foreclosed properties		4,341	Discounted appraisals (2)	Collateral discounts (3)		0%-40% (9	%)

(1) Properties recorded at cost and not market are excluded.

(2) Fair value is generally based on appraisals of the underlying collateral.

(3) Appraisals of collateral may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

43

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

A Caution About Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;

• statements regarding our business plans, prospects, growth and operating strategies;

• statements regarding the quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

• general economic conditions, either nationally or in our primary market area, that are worse than expected;

• a continued decline in real estate values;

• changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

• legislative, regulatory or supervisory changes that adversely affect our business;

• adverse changes in the securities markets;

• increased cybersecurity risk, including potential business disruptions or financial losses;

• changes in technology;

• our ability to attract and retain key personnel;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board; and

• the risks outlined in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2014.

Any of the forward-looking statements that we make in this quarterly report and in other public statements we make may later prove incorrect because of inaccurate assumptions, the factors illustrated above or other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.

Except as required by applicable law or regulation, ASB Bancorp, Inc. does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

44

Critical Accounting Policies

During the three- and six-month periods ended June 30, 2015, there were no significant changes in critical accounting policies or the application of critical accounting policies as disclosed in the our audited consolidated financial statements and related footnotes for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K.

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. The following represent our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to earnings. Management’s estimates of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance monthly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the FDIC and the NCCoB, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect our earnings. See notes 1 and 4 included in the consolidated financial statements.

Fair Value of Investments. Securities are characterized as available for sale or held to maturity based on management’s ability and intent regarding such investment at acquisition. On an ongoing basis, management estimates the fair value of its investment securities based on information and assumptions it deems reliable and reasonable, which may be quoted market prices or if quoted market prices are not available, fair values extrapolated from the quoted prices of similar instruments. Based on this information, an assessment must be made as to whether any decline in the fair value of an investment security should be considered as an other than temporary impairment and recorded in noninterest income as a loss on investments. The determination of such impairment is subject to a variety of factors, including management’s judgment and experience. See notes 2 and 7 included in the consolidated financial statements.

45

Pension Plan. The Company has a noncontributory defined benefit pension plan. This plan is accounted for under the provisions of FASB ASC Topic 715: Compensation-Retirement Benefits (“FASB ASC Topic 715”), which requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The funded status of a benefit plan is measured as the difference between plan assets at fair value and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation. FASB ASC Topic 715 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. Management must make certain estimates and assumptions when determining the projected benefit obligation. These estimates and assumptions include the expected return on plan assets and the appropriate discount rate to be used in determining the present value of the obligation.  See notes 1 and 5 included in the consolidated financial statements.

Foreclosed Real Estate.  The Company's valuations of its foreclosed real estate involve significant judgments and assumptions by management, which have a material impact on the reported values of foreclosed real estate assets and noninterest expense recorded in the financial statements. The judgments and assumptions used by management are described in “Foreclosed Real Estate” under note 1 included in the consolidated financial statements.

Introduction

This Management’s Discussion and Analysis is provided to help readers understand how we evaluate our financial condition and results of operations. The following discussions are intended to provide a general overview of our financial condition at June 30, 2015 and our operating performance for the three- and six-month periods ended June 30, 2015. Readers seeking more in-depth information should read the more detailed discussions below as well as the consolidated financial statements and related notes included under Item 1 of this Quarterly Report on Form 10-Q.

All amounts presented are consolidated data unless otherwise specified. Uncertainty and future events could cause changes in accounting estimates that have material effects on the financial position and results of operations in future periods.

46

Comparison of Financial Condition at June 30, 2015 and December 31, 2014

The following table provides the changes in our significant asset and liability categories at June 30, 2015 compared to December 31, 2014.

(Dollars in thousands)	June 30, 2015			December 31, 2014			$ Change			% Change
Interest-earning assets
Interest-earning deposits with banks and overnight and short-term investments	$	41,970		$	47,813		$	(5,843	)		-12.2	%
Investment securities		138,712			145,461			(6,749	)		-4.6	%
Investments held at cost		2,807			2,902			(95	)		-3.3	%
Loans held for sale		8,192			5,237			2,955			56.4	%
Loans receivable, net of deferred fees		552,999			521,820			31,179			6.0	%
Total interest-earning assets		744,680			723,233			21,447			3.0	%
Noninterest-earning assets
Cash and due from banks		11,020			9,045			1,975			21.8	%
Allowance for loan losses		(6,124	)		(5,949	)		(175	)		-2.9	%
Premises and equipment, net of accumulated depreciation		11,823			11,932			(109	)		-0.9	%
Foreclosed real estate		9,381			8,814			567			6.4	%
Deferred income tax assets, net of deferred income tax liabilities		5,511			5,588			(77	)		-1.4	%
Other assets		7,008			7,387			(379	)		-5.1	%
Total noninterest-earning assets		38,619			36,817			1,802			4.9	%
Total assets	$	783,299		$	760,050		$	23,249			3.1	%
Interest-bearing liabilities
Interest-bearing deposits	$	509,979		$	505,929		$	4,050			0.8	%
Overnight and short-term borrowings		224			660			(436	)		-66.1	%
Federal Home Loan Bank advances		50,000			50,000			-			0.0	%
Total interest-bearing liabilities		560,203			556,589			3,614			0.6	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		113,984			97,450			16,534			17.0	%
Accounts payable and other liabilities		12,949			11,614			1,335			11.5	%
Total noninterest-bearing liabilities		126,933			109,064			17,869			16.4	%
Total liabilities		687,136			665,653			21,483			3.2	%
Total equity		96,163			94,397			1,766			1.9	%
Total liabilities and equity	$	783,299		$	760,050		$	23,249			3.1	%
Cash and cash equivalents	$	52,990		$	56,858		$	(3,868	)		-6.8	%
Total core deposits (excludes certificate accounts)		473,674			449,286			24,388			5.4	%
Total certificates of deposit		150,289			154,093			(3,804	)		-2.5	%
Total deposits		623,963			603,379			20,584			3.4	%
Total funding liabilities		674,187			654,039			20,148			3.1	%

47

Assets. Total assets increased $23.2 million, or 3.1%, to $783.3 million at June 30, 2015 from $760.1 million at December 31, 2014. Cash and cash equivalents decreased $3.9 million, or 6.8%, to $53.0 million at June 30, 2015 from $56.9 million at December 31, 2014. Investment securities decreased $6.7 million, or 4.6%, to $138.7 million at June 30, 2015 from $145.4 million at December 31, 2014, primarily due to the sale of investment securities to fund anticipated loan growth. Loans receivable, net of deferred fees, increased $31.2 million, or 6.0%, to $553.0 million at June 30, 2015 from $521.8 million at December 31, 2014 as new loan originations exceeded loan repayments, prepayments and foreclosures.

	Six Months Ended June 30,
(Dollars in thousands)	2015		2014
Loans originated:
Commercial:
Commercial mortgage	$	42,079	$	31,567
Construction and land development		14,528		1,928
Commercial and industrial		5,130		3,735
Non-commercial:
Residential mortgage		48,358		27,984
Construction and land development		17,324		11,909
Revolving mortgage		17,299		9,002
Consumer		14,761		7,165
Total loans originated	$	159,479	$	93,290
Loan principal payments, prepayments and payoffs	$	87,031	$	50,532
Residential mortgage loans sold	$	37,584	$	21,072

Nonperforming Assets. Nonperforming assets totaled $12.3 million, or 1.57% of total assets, at June 30, 2015, compared to $11.5 million, or 1.51% of total assets, at December 31, 2014. Nonperforming assets included $2.9 million in nonperforming loans and $9.4 million in foreclosed real estate at June 30, 2015 compared to $2.7 million and $8.8 million, respectively, at December 31, 2014.

Nonperforming loans increased $224,000 to $2.9 million, or 0.53% of total loans, at June 30, 2015 from $2.7 million, or 0.52% of total loans, at December 31, 2014.  Of the $224,000 increase in nonperforming loans for the six months, $235,000 related to additional nonperforming residential mortgage loans, which was partially offset by decreases in commercial mortgages, revolving mortgages and consumer loans. Collateral on nonperforming loans in the amount of $812,000 was moved into foreclosed real estate, while performing troubled debt restructurings (“TDRs”) decreased $80,000, or 1.7%, when comparing the same periods. Total performing TDRs and nonperforming assets increased $711,000, or 4.4%, to $17.0 million, or 2.17% of total assets, at June 30, 2015 compared to $16.3 million, or 2.15% of total assets, at December 31, 2014.

At June 30, 2015, nonperforming loans included seven residential mortgage loans that totaled $1.6 million, two commercial mortgage loans that totaled $840,000, three revolving home equity loans that totaled $221,000 and four commercial and industrial loans that totaled $262,000.  As of June 30, 2015, the nonperforming loans had specific reserves totaling $108,000.

TDRs at June 30, 2015 and at December 31, 2014 totaled $5.8 million.  There were two additions to TDRs during the six months ended June 30, 2015. At June 30, 2015, $1.1 million of the total $5.8 million of TDRs were not performing.

48

Foreclosed real estate at June 30, 2015 included nine properties with a total recorded amount of $9.4 million compared to ten properties with a total recorded amount of $8.8 million at December 31, 2014. During the six months ended June 30, 2015, two new properties that totaled $812,000 were added to foreclosed real estate, while three properties that totaled $156,000 were sold. In addition, the Bank sold one of its 15 units in a mixed-use condominium complex for net proceeds of $89,000. The Bank recorded no capital additions and no loss provisions on foreclosed real estate during the first six months of 2015.

Liabilities. Total deposits increased $20.6 million, or 3.4%, to $624.0 million at June 30, 2015 from $603.4 million at December 31, 2014. During the six months ended June 30, 2015, the Company continued its focus on core deposit growth, from which it excludes certificates of deposit.  Core deposits increased $24.4 million, or 5.4%, to $473.7 million at June 30, 2015 from $449.3 million at December 31, 2014.

Commercial checking and money market accounts increased $18.6 million, or 15.3%, to $140.2 million at June 30, 2015 from $121.6 million at December 31, 2014, reflecting expanded sources of lower cost funding. The Company’s initiatives to obtain new commercial deposit relationships in conjunction with making new commercial loans significantly contributed to this increase and reflects a commitment to establishing diversified relationships with business clients.

Over the same period, certificates of deposit decreased $3.8 million, or 2.5%, to $150.3 million at June 30, 2015 from $154.1 million at December 31, 2014 as the Company continued its focus on core deposit growth.  Accounts payable and other liabilities increased $1.3 million, or 11.5%, to $12.9 million at June 30, 2015 from $11.6 million at December 31, 2014.  The increase in accounts payable and other liabilities at June 30, 2015 was primarily attributable to a $906,000 increase in escrowed payments from mortgage borrowers and a $403,000 increase in pension plan liabilities.

Results of Operations for the Three Months Ended June 30, 2015 and 2014

Overview.  Net income was $865,000, or $0.22 per diluted share, for the quarter ended June 30, 2015 compared to $941,000, or $0.21 per diluted share, for the quarter ended June 30, 2014. Net interest income increased $524,000, which was the result of a $518,000 increase in total interest and dividend income and a decrease of $6,000 in interest expense.  The provision for loan losses was $65,000 for the second quarter of 2015 compared to a recovery of loan losses of $(1.4) million for the same period of 2014.  Noninterest income increased $414,000  and noninterest expenses decreased $340,000 during the second quarter of 2015 compared to the second quarter of 2014. Noninterest expenses for the second quarter decreased primarily in foreclosed properties expenses and compensation and employee benefits. The income tax provision decreased $101,000 for the quarter ended June 30, 2015 compared to the same quarter of 2014.

	Three Months Ended June 30,
(Dollars in thousands)	2015		2014			$ Change			% Change
Interest and dividend income	$	6,289	$	5,771		$	518			9.0	%
Interest expense		880		886			(6	)		-0.7	%
Net interest income		5,409		4,885			524			10.7	%
Provision for (recovery of) loan losses		65		(1,390	)		1,455			104.7	%
Net interest income after provision for (recovery of) loan losses		5,344		6,275			(931	)		-14.8	%
Noninterest income		1,968		1,554			414			26.6	%
Noninterest expenses		6,010		6,350			(340	)		-5.4	%
Income before income tax provision		1,302		1,479			(177	)		-12.0	%
Income tax provision		437		538			(101	)		-18.8	%
Net income		865		941			(76	)		-8.1	%

49

Net Interest Income.  Net interest income increased by $524,000, or 10.7%, to $5.4 million for the three months ended June 30, 2015 compared to $4.9 million for the three months ended June 30, 2014. Total interest and dividend income increased $518,000, or 9.0%, to $6.3 million for the three months ended June 30, 2015 from $5.8 million for the three months ended June 30, 2014, primarily as a result of an increase of $90.3 million in average loan balances, which was partially offset by a 25 basis point decrease in the average yield on loans.   Average mortgage-backed security balances decreased $20.2 million for the three months ended June 30, 2015, and the average yield on mortgage-backed securities decreased 8 basis points compared to the same period of 2014. Interest expense decreased $6,000, or 0.7%, to $880,000 for the three months ended June 30, 2015 from $886,000 for the three months ended June 30, 2014, primarily due to an $8.0 million decrease in the average balances of certificates of deposit.

Interest income on loans increased $640,000, or 12.7%, to $5.7 million during the three months ended June 30, 2015, primarily due to an increase in average outstanding loans of $90.3 million, or 19.5%. Loan originations increased $26.2 million for the three months ended June 30, 2015 compared to the three months ended June 30, 2014, while residential mortgage loan sales increased by $11.6 million. Loan principal repayments increased $17.9 million to $45.3 million for the three months ended June 30, 2015 from $27.4 million for the three months ended June 30, 2014. The average balance of the  investment portfolio decreased $20.6 million, or 13.4%, to $132.9 million for the three months ended June 30, 2015 as securities were sold in part to fund anticipated loan originations.

Provision for Loan Losses. The provision for loan losses was $65,000 for the three months ended June 30, 2015 compared to a recovery of loan losses of $(1.4) million for the three months ended June 30, 2014.  The increase in the provision for loan losses for the second quarter of 2015 was primarily due to growth in loan volume.  In the second quarter of 2014, the Bank modified its loan loss methodology for unimpaired commercial construction and land development, unimpaired residential construction and land development, and unimpaired commercial and industrial loans, which resulted in a nonrecurring reduction of approximately $1.3 million in the Bank's reserves for loans not considered impaired in the second quarter of 2014. The allowance for loan losses totaled $6.1 million, or 1.11% of total loans, at June 30, 2015 compared to $5.9 million, or 1.14% of total loans, at December 31, 2014. The Company charged off $137,000 in loans during the three months ended June 30, 2015 compared to $56,000 during the three months ended June 30, 2014.

Noninterest Income. Noninterest income increased $414,000, or 26.6%, to $2.0 million for the three months ended June 30, 2015 from $1.6 million for the three months ended June 30, 2014. Factors that contributed to the increase in noninterest income during the 2015 period included increases of $282,000 in mortgage banking income, $50,000 in net gains from the sale of investment securities, $37,000 in income from debit card services, $28,000 in loan fees and $19,000 in gain on sale of other assets, which were partially offset by a decrease of $8,000 in deposit and other service charge income. The increase in mortgage banking income was attributable to higher volumes of residential mortgage loans originated and sold. Increased transaction volume also drove the rise in income from debit card services.

Noninterest Expenses.  Noninterest expenses decreased $340,000, or 5.4%, to $6.0 million for the three months ended June 30, 2015 from $6.4 million for the three months ended June 30, 2014. The decrease for the second quarter of 2015 was primarily attributable to decreases of $188,000 in foreclosed property expenses, $177,000 in salaries and employee benefits, $51,000 in data processing expenses and $71,000 in various other expenses, which were partially offset by increases of $63,000 in mortgage software expenses, $35,000 in consumer loan expenses and $22,000 in indirect auto expenses. The decrease in salaries and benefits was primarily due to a $380,000 additional expense during the second quarter of 2014 for accelerated vesting related to the disability of an equity incentive plan participant.  The decrease was partially offset by a $145,000 increase in compensation expense for employee incentives and $61,000 in increased pension plan expenses in 2015. The decrease in foreclosed property expenses included a reduction of $135,000 in valuation write-downs of foreclosed properties.

50

Income Tax Provision. Income tax provision decreased $101,000 to $437,000 for the three months ended June 30, 2015 from $538,000 for the three months ended June 30, 2014, primarily due to a decrease in pre-tax income. The effective tax rate was 33.56% for the three months ended June 30, 2015 compared to 36.38% for the three months ended June 30, 2014, with the decrease primarily resulting from the effects of favorable permanent tax differences relative to the size of the pre-tax income in 2015 compared to 2014.

Results of Operations for the Six Months Ended June 30, 2015 and 2014

Overview. Net income was $1.5 million or $0.37 per diluted common share, for the six months ended June 30, 2015, compared to $1.3 million, or $0.30 per diluted common share, for the six months ended June 30, 2014.  Income before income taxes increased $242,000, primarily due to an increase of $963,000 in net interest income, an increase of $568,000 in noninterest income, and a decrease of $428,000 in noninterest expenses, which were partially offset by an increase of $1.7 million in provision for loan losses.

	Six Months Ended June 30,
(Dollars in thousands)	2015		2014			$ Change			% Change
Interest and dividend income	$	12,443	$	11,512		$	931			8.1	%
Interest expense		1,741		1,773			(32	)		-1.8	%
Net interest income		10,702		9,739			963			9.9	%
Provision for (recovery of) loan losses		259		(1,458	)		1,717			117.8	%
Net interest income after provision for (recovery of) loan losses		10,443		11,197			(754	)		-6.7	%
Noninterest income		3,578		3,010			568			18.9	%
Noninterest expenses		11,782		12,210			(428	)		-3.5	%
Income before income tax provision		2,239		1,997			242			12.1	%
Income tax provision		752		652			100			15.3	%
Net income		1,487		1,345			142			10.6	%

Net Interest Income. Net interest income increased by $963,000, or 9.9%, to $10.7 million for the six months ended June 30, 2015 compared to $9.7 million for the six months ended June 30, 2014.  Interest income on loans increased $1.2 million, primarily resulting from an $85.4 million increase in the average loan balances, partially offset by a 23 basis point decrease in the average yield on loans.  Interest on securities decreased $264,000, attributable to a $27.2 million decrease in the average balance in mortgage-backed and other investment securities and a 4 basis point reduction in the average yield earned on the investment portfolio. Interest expense decreased $32,000, or 1.8%, to $1.7 million for the six months ended June 30, 2015. The lower interest expense was primarily attributable to lower average balances of certificates of deposit, as well as an average rate reduction of 1 basis point on certificates of deposit and 1 basis point on NOW accounts.  The decreases in interest expense were partially offset by higher average balances of NOW, money market and savings accounts and an increase of 1 basis point in the average rate paid on money market accounts.

Provision for Loan Losses. The Company recorded a provision for loan losses in the amount of $259,000 for the six months ended June 30, 2015 compared to a recovery of loan losses of $(1.5) million for the six months ended June 30, 2014.  Net charge-offs were $84,000 for the first six months of 2015 compared to $79,000 for the first six months of 2014.  As was the case for the second quarter of 2014, the increase in the six-month provision for loan losses primarily resulted from a $1.3 million reduction in loan loss reserves due to a modification of the loan loss methodology during the second quarter of 2014, and the increase in the provision for loan losses for the six-month period of 2015 was primarily due to growth in loan volume.

51

Noninterest Income.  Noninterest income increased $568,000, or 18.9%, to $3.6 million for the six months ended June 30, 2015 from $3.0 million for the six months ended June 30, 2014. Factors that contributed to the increase in noninterest income during the 2015 period included increases of $417,000 in mortgage banking income, $83,000 in income from debit card services and $21,000 in income from an investment in a Small Business Investment Company, which were partially offset by lower securities net gains and lower deposit and service charge income.  As was the case for the second quarter of 2015, the increase in mortgage banking income was attributable to higher volumes of residential mortgage loans originated and sold, and increased transaction volume that resulted in increased income from debit card services.

Noninterest Expenses. Noninterest expenses decreased $428,000, or 3.5%, to $11.8 million for the six months ended June 30, 2015 from $12.2 million for the six months ended June 30, 2014. The lower 2015 noninterest expenses primarily reflected decreases of $272,000 in foreclosed property expenses, $131,000 in compensation and employee benefits, $122,000 in data processing expenses and $57,000 in occupancy expenses, which were partially offset by increases of $68,000 in consumer loan expenses, $63,000 in mortgage software expenses and $36,000 in indirect auto expenses. The decrease in foreclosed property expenses included a reduction of $154,000 in valuation write-downs of foreclosed properties.  As was the case for the second quarter of 2015, the decrease in salaries and benefits was attributable to a $380,000 additional expense during the second quarter of 2014 for accelerated vesting related to the disability of an equity incentive plan participant.  The decrease for the six months was partially offset by a $145,000 increase in incentive compensation expenses and a $122,000 increase in pension plan expenses in 2015.

Income Tax Provision. Income tax expense increased by $100,000 for the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to an increase in pre-tax income. The effective tax rate was 33.59% for the six months ended June 30, 2015 compared to 32.65% for the six months ended June 30, 2014, with the increase primarily resulting from a decrease in favorable permanent tax differences relative to the size of the pre-tax income in 2015 compared to 2014.

Average Balances and Yields

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs are derived by dividing annualized income or expense by the average balances of assets or liabilities for the periods presented.  Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only.  Loan fees are included in interest income on loans and are not material.  The yields on tax exempt loans and municipal investment securities have been included on a tax-equivalent basis using a federal marginal tax rate of 34%.

52

	For The Three Months Ended June 30,
	2015								2014
(Dollars in thousands)	Average Balance			Interest And Dividends		Yield/ Cost			Average Balance			Interest And Dividends		Yield/ Cost
Assets
Interest-earning deposits with banks	$	57,116		$	39		0.27	%	$	90,641		$	66		0.29	%
Loans receivable		553,522			5,664		4.10	%		463,251			5,024		4.35	%
Investment securities		56,696			331		3.09	%		57,044			347		3.21	%
Mortgage-backed and similar securities		76,239			226		1.19	%		96,443			306		1.27	%
Other interest-earning assets		2,807			29		4.14	%		2,902			28		3.87	%
Total interest-earning assets		746,380			6,289		3.44	%		710,281			5,771		3.32	%
Allowance for loan losses		(6,143	)							(7,261	)
Noninterest-earning assets		42,015								45,786
Total assets	$	782,252							$	748,806
Liabilities and equity
NOW accounts	$	153,441			55		0.14	%	$	150,072			54		0.14	%
Money market accounts		160,830			71		0.18	%		153,616			66		0.17	%
Savings accounts		45,018			11		0.10	%		37,525			9		0.10	%
Certificates of deposit		152,981			253		0.66	%		160,955			266		0.66	%
Total interest-bearing deposits		512,270			390		0.31	%		502,168			395		0.32	%
Overnight and short-term borrowings		651			-		0.00	%		622			1		0.64	%
Federal Home Loan Bank advances		50,000			490		3.93	%		50,000			490		3.93	%
Total interest-bearing liabilities		562,921			880		0.63	%		552,790			886		0.64	%
Noninterest-bearing deposits		108,492								84,425
Other noninterest-bearing liabilities		13,931								9,588
Total liabilities		685,344								646,803
Total equity		96,908								102,003
Total liabilities and equity	$	782,252							$	748,806
Net interest income				$	5,409							$	4,885
Interest rate spread							2.81	%							2.68	%
Net interest margin							2.96	%							2.82	%
Average interest-earning assets to average interest-bearing liabilities		132.59	%							128.49	%

53

	For The Six Months Ended June 30,
	2015								2014
(Dollars in thousands)	Average Balance			Interest And Dividends		Yield/ Cost			Average Balance			Interest And Dividends		Yield/ Cost
Assets
Interest-earning deposits with banks	$	53,249		$	73	0.28		%	$	77,896		$	113		0.29	%
Loans receivable		544,377			11,185		4.14	%		458,960			9,946		4.37	%
Investment securities		52,990			616		3.09	%		58,452			720		3.27	%
Mortgage-backed and similar securities		82,335			509		1.25	%		104,119			669		1.30	%
Other interest-earning
assets		2,848			60		4.25	%		3,006			64		4.29	%
Total interest-earning assets		735,799			12,443		3.46	%		702,433			11,512		3.37	%
Allowance for loan losses		(6,082	)							(7,288	)
Noninterest-earning assets		41,889								48,457
Total assets	$	771,606							$	743,602
Liabilities and equity
NOW accounts	$	152,466			107		0.14	%	$	147,287			108		0.15	%
Money market accounts		159,043			140		0.18	%		153,839			133		0.17	%
Savings accounts		44,183			21		0.10	%		36,539			18		0.10	%
Certificates of deposit		153,493			499		0.66	%		162,949			539		0.67	%
Total interest-bearing Deposits		509,185			767		0.30	%		500,614			798		0.32	%
Overnight and short-term borrowings		801			-		0.00	%		753			-		0.00	%
Federal Home Loan Bank
advances		50,000			974		3.93	%		50,000			975		3.93	%
Total interest-bearing liabilities		559,986			1,741		0.63	%		551,367			1,773		0.65	%
Noninterest-bearing deposits		101,558								80,745
Other noninterest-bearing liabilities		13,701								9,172
Total liabilities		675,245								641,284
Total equity		96,361								102,318
Total liabilities and equity	$	771,606							$	743,602
Net interest income				$	10,702							$	9,739
Interest rate spread							2.83	%							2.72	%
Net interest margin							2.99	%							2.86	%
Average interest-earning assets to average interest-bearing liabilities		131.40	%							127.40	%

54

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior period volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior period rate). The net column represents the sum of the volume and rate columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

	Three Months Ended June 30, 2015 Compared To Three Months Ended June 30, 2014									Six Months Ended June 30, 2015 Compared To Six Months Ended June 30, 2014
	Increase (Decrease) Due To:									Increase (Decrease) Due To:
(Dollars in thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income:
Interest-earning deposits with banks	$	(23	)	$	(4	)	$	(27	)	$	(34	)	$	(6	)	$	(40	)
Loans receivable		936			(296	)		640			1,776			(537	)		1,239
Investment securities		(2	)		(14	)		(16	)		(65	)		(39	)		(104	)
Mortgage-backed and similar securities		(61	)		(19	)		(80	)		(135	)		(25	)		(160	)
Other interest-earning assets		(1	)		2			1			(3	)		(1	)		(4	)
Total interest-earning assets		849			(331	)		518			1,539			(608	)		931
Interest expense:
NOW accounts		1			-			1			4			(5	)		(1	)
Money market accounts		3			2			5			5			2			7
Savings accounts		2			-			2			4			(1	)		3
Certificates of deposit		(13	)		-			(13	)		(31	)		(9	)		(40	)
Total interest-bearing deposits		(7	)		2			(5	)		(18	)		(13	)		(31	)
Overnight and short-term borrowings		-			(1	)		(1	)		-			-			-
Federal Home Loan Bank advances		-			-			-			-			(1	)		(1	)
Total interest-bearing liabilities		(7	)		1			(6	)		(18	)		(14	)		(32	)
Net increase (decrease) in interest income	$	856		$	(332	)	$	524		$	1,557		$	(594	)	$	963

With the prolonged low interest rate environment, the interest rate component continues to reflect the pressures of net interest margin compression.  The growth in loans has led to favorable changes in the volume component and overall net interest income levels in 2015 compared to 2014.

55

Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for on a mark-to-market basis. Other risks that we face are operational risks, liquidity risk and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. We do not offer Alt-A, sub-prime or no-documentation mortgage loans.

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. When the loan becomes 15 days past due, a late notice is sent to the borrower. When the loan becomes 30 days past due, a more formal letter is sent. Between 15 and 30 days past due, telephone calls are also made to the borrower. After 30 days, we regard the borrower in default. At 60 days delinquent, the borrower may be sent a letter from our attorney and we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Generally, when a consumer loan becomes 60 days past due, we institute collection proceedings and attempt to repossess any personal property that secures the loan. Management informs the Board of Directors monthly of the amount of loans delinquent more than 30 days, all loans in foreclosure and repossessed property that we own.

Analysis of Nonperforming Assets and Classified Assets. We consider repossessed assets and loans that are 90 days or more past due and certain loans that are less than 90 days past due, but that we will not be able to collect the full amount of, to be nonperforming assets. Loans are generally placed on nonaccrual status when they become 90 days delinquent, or sooner if the facts and circumstances indicate that we will not be able to collect the full amount of the loan, at which time the accrual of interest ceases and accrued interest is reversed and deducted from income. Typically, payments received on a nonaccrual loan are first applied to the outstanding principal balance to the extent that principal is due and then recognized as interest income.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. Property acquired through foreclosure is recorded at the lower of its cost or fair market value at the date of foreclosure. Any holding costs and declines in fair value after acquisition of the property result in charges against income.

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The following table provides information with respect to our nonperforming assets at the dates indicated.

(Dollars in thousands)	June 30, 2015			December 31, 2014			$ Change			% Change
Nonperforming loans:
Nonaccruing loans (1)
Commercial:
Commercial mortgage	$	840		$	881		$	(41	)		-4.7	%
Commercial and industrial		262			221			41			18.6	%
Total commercial		1,102			1,102			-			0.0	%
Non-commercial:
Residential mortgage		1,589			1,354			235			17.4	%
Revolving mortgage		221			230			(9	)		-3.9	%
Consumer		-			2			(2	)		-100.0	%
Total non-commercial		1,810			1,586			224			14.1	%
Total nonaccruing loans (1)		2,912			2,688			224			8.3	%
Total loans past due 90 or more days and still accruing		-			-			-			0.0	%
Total nonperforming loans		2,912			2,688			224			8.3	%
Foreclosed real estate		9,381			8,814			567			6.4	%
Total nonperforming assets		12,293			11,502			791			6.9	%
Performing troubled debt restructurings (2)		4,724			4,804			(80	)		-1.7	%
Performing troubled debt restructurings and total nonperforming assets	$	17,017		$	16,306			711			4.4	%
Allowance for loan losses	$	6,124		$	5,949
Total loans	$	552,999		$	521,820
Allowance as a percentage of total loans		1.11	%		1.14	%
Allowance as a percentage of nonperforming loans		210.30	%		221.32	%
Total nonperforming loans to total loans		0.53	%		0.52	%
Total nonperforming loans to total assets		0.37	%		0.35	%
Total nonperforming assets to total assets		1.57	%		1.51	%
Performing troubled debt restructurings and total nonperforming assets to total assets		2.17	%		2.15	%

(1) Nonaccruing loans include nonaccruing troubled debt restructurings.

(2) Performing troubled debt restructurings exclude nonaccruing troubled debt restructurings.

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We periodically modify loans by extending loan terms or granting other concessions to help borrowers remain current and avoid foreclosure. These modified loans, also referred to as TDRs, totaled $5.8 million at June 30, 2015 and December 31, 2014. During the six months ended June 30, 2015, two loans totaling $195,000 were restructured during the period. At June 30, 2015, $1.1 million of the total $5.8 million of TDRs were not performing according to their restructured terms and were included in the previous nonperforming assets table as nonaccruing loans.

Interest income that would have been recorded had nonaccruing loans been current according to their original terms amounted to $48,000 and $87,000 for the three- and six-month periods ended June 30, 2015, respectively, compared to $34,000 and $59,000, respectively, for the comparable periods of 2014. Interest income of $51,000 and $109,000 related to impaired loans was recognized for the three- and six-month periods ended June 30, 2015, respectively, compared to $61,000 and $131,000, respectively, for the same periods of 2014.

At June 30, 2015, our nonaccruing loans of $2.9 million, including nonperforming TDRs, were primarily comprised of the following:

● Commercial Mortgage Loans

○ Two loans to unrelated borrowers on commercial buildings located in Western North Carolina. As of June 30, 2015, the loans were considered impaired and nonaccruing with an aggregate balance of $840,000.  The Bank had no specific eserve as of June 30, 2015.

● Residential Mortgage Loans

○ Ten loans to multiple unrelated borrowers on one-to-four family residential properties with an aggregate balance of $1.8 million as of June 30, 2015.

At June 30, 2015, our performing TDRs of $4.7 million included the following:

● Commercial Mortgage Loans

○ One loan for the purchase of an existing mobile home park to be used for future development secured by nonowner-occupied commercial real estate located in coastal South Carolina. The loan was modified in the fourth quarter of 2014, which extended the terms of the loan and required scheduled principal payments. The future performance of the loan is dependent upon the guarantor group’s willingness and ability to service the debt. Such willingness and ability was demonstrated by the fact that, as of June 30, 2015, the loan was a performing TDR with a balance of $3.0 million that matures in May of 2017. As of June 30, 2015, the loan was considered impaired and had a specific reserve of $45,000.

● Residential Mortgage Loans

○ Ten loans to multiple unrelated borrowers on one-to-four family residential properties with an aggregate balance of $1.7 million as of June 30, 2015.

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Foreclosed properties consisted of the following at the dates indicated.

	June 30, 2015				December 31, 2014
(Dollars in thousands)	Number		Amount		Number		Amount
By foreclosed loan type:
Commercial construction and land development		7	$	8,606		8	$	8,706
Residential mortgage		2		775		2		108
Total		9	$	9,381		10	$	8,814

An analysis of foreclosed real estate follows:

(Dollars in thousands)	Six Months Ended June 30, 2015
Beginning balance	$	8,814
Transfers from loans		812
Loss on sale of foreclosed properties		(1	)
Net proceeds from sales of foreclosed properties		(244	)
Ending balance	$	9,381

The Bank’s largest foreclosed property resulted from a loan relationship that had an original purpose of constructing a mixed-use retail, commercial office, and residential condominium project located in Western North Carolina. As a result of this foreclosure, the Bank acquired 44 of the 48 condominium units in the building. Following an additional write-down of approximately $630,000 on the loans secured by this collateral in the fourth quarter of 2012, the Bank recorded this foreclosed property in the amount of $9.8 million.  During 2013, the Bank recorded additional write-downs totaling $1.6 million, which resulted in an adjusted recorded amount of $8.2 million at December 31, 2013.  During the year ended December 31, 2014, the Bank recorded an additional write-down of $133,000 on the property and sold 28 residential condominium units and one office unit.  During the first six months of 2015, the Bank sold one office unit. At June 30, 2015, the adjusted recorded amount was $4.4 million for the remaining eight retail units and six office units.

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Federal regulations require us to review and classify our assets on a regular basis. In addition, the FDIC and the NCCoB have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful, and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable on the basis of currently existing facts, conditions, and values, and there is a high possibility of loss. Assets classified “loss” are considered uncollectible and of such little value that continued recognition as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving close attention. When we classify an asset as substandard or doubtful, we may establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an amount equal to 100% of the portion of the asset classified loss.

The following table shows the aggregate amounts of our classified and special mention assets at the dates indicated.

(Dollars in thousands)	June 30, 2015		December 31, 2014		$ Change			% Change
Adversely classified loans:
Substandard	$	4,605	$	4,303	$	302			7.0	%
Total adversely classified loans		4,605		4,303		302			7.0	%
Special mention loans		23,461		27,962		(4,501	)		-16.1	%
Total classified and special mention loans		28,066		32,265		(4,199	)		-13.0	%
Total other classified and special mention assets		-		-		-			0.0	%
Total classified and special mention assets	$	28,066	$	32,265	$	(4,199	)		-13.0	%

Other than as disclosed in the above tables and related discussions, there were no other loans where management had serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

At June 30, 2015, substandard loans totaling $4.6 million included $2.9 million in nonaccruing loans that  were previously discussed as nonperforming loans. The remaining $1.7 million in performing substandard  loans included the following:

● Commercial Mortgage Loans

○ Two loans to one borrower on two commercial properties located in western North  Carolina. As of June 30, 2015, the loans were performing with a total balance of $628,000

● Residential Mortgage Loans

○ Fifteen loans to multiple unrelated borrowers for one-to-four family residential properties with an aggregate balance of $1.2 million as of June 30, 2015.

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Adversely classified assets include loans that are classified due to factors other than payment delinquencies, such as the absence of current financial statements and other required documentation, insufficient cash flows or other deficiencies, and therefore, are not included as nonperforming assets.

At June 30, 2015, special mention loans included the Bank’s largest performing TDR commercial  mortgage as previously discussed.

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a  short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities  and sales of investment securities and borrowings from the Federal Home Loan Bank of Atlanta. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on securities and interest-earning deposits we place with other banks, and (iv) the objectives of our asset-liability management policy.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits.  The level of these  assets depends on our operating, financing, lending and investing activities during any given period.  At  June 30, 2015, cash and cash equivalents totaled $53.0 million, including $42.0 million in   interest-bearing deposits in other banks, of which $36.3 million was on deposit with the Federal Reserve Bank.  Securities totaling $134.8 million at June 30, 2015 classified as available-for-sale provided an  additional source of liquidity. In addition, at June 30, 2015, we had the ability to borrow a total of  approximately $71.6 million from the Federal Home Loan Bank of Atlanta and approximately $6.6 million  from the Federal Reserve Bank’s discount window. At June 30, 2015, we had $50.0 million in Federal  Home Loan Bank advances outstanding and $5.5 million in letters of credit to secure public funds deposits.

A significant use of our liquidity is the funding of loan originations. At June 30, 2015, we had $170.3 million in commitments to extend credit outstanding, although we expect that significantly less will ultimately  be funded. Certificates of deposit due within one year of June 30, 2015 totaled $89.1 million, or 59.3%,  of total certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customer hesitancy to invest funds for longer periods due to the continued low interest rate environment and local competitive pressure. If these maturing deposits do not remain with us, we may  seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may pay higher rates on such deposits or other borrowings than we currently pay on the maturing certificates of deposit. However, based on past experience, we believe that a significant portion of our certificates of deposit will remain with us. We believe we have the ability to attract and retain deposits by adjusting the interest rates we offer.

In addition, we believe that our branch network, which is presently comprised of 13 full-service branch offices located throughout our primary market area, and the general cash flows from our existing lending and investment activities will afford us sufficient long-term liquidity.

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The following tables present our contractual obligations as of the dates indicated.

			Payments Due By Period
(Dollars in thousands)	Total		Less Than One Year		One To Three Years		Three To Five Years		More Than Five Years
At June 30, 2015
Long-term debt obligations	$	50,000	$	-	$	40,000	$	10,000	$	-
Operating lease obligations		1,255		362		372		121		400
Total	$	51,255	$	362	$	40,372	$	10,121	$	400
At December 31, 2014
Long-term debt obligations	$	50,000	$	-	$	40,000	$	10,000	$	-
Operating lease obligations		1,436		362		523		121		430
Total	$	51,436	$	362	$	40,523	$	10,121	$	430

Capital Management. We are subject to various regulatory capital requirements administered by the FDIC and the NCCoB, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2015, we exceeded all of our regulatory capital requirements and were considered “well capitalized” under regulatory guidelines.

We strive to manage our capital for maximum shareholder benefit. The capital from our October 2011 stock offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity was reduced as net proceeds from the stock offering were used for general corporate purposes, including the funding of lending activities.  Our financial condition and results of operations were enhanced by the capital from the offering, resulting over time in increased net interest-earning assets and net income.  However, the large increase in equity resulting from the capital raised in the conversion offering initially had an adverse impact on our return on equity. To help us better manage our capital, we repurchased shares of our common stock and may consider other capital deployment measures as regulations permit.

The Basel Committee on Banking Supervision, an international forum for cooperation on banking supervisory matters, promulgates capital standards for banking organizations. In July 2013, the federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”) and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more (such as the Company) and top-tier savings and loan holding companies, which we collectively refer to herein as “covered” banking organizations. The final rule became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions), and all of the requirements in the final rule will be fully phased in by January 1, 2019.

The rule imposes higher risk-based capital and leverage requirements for covered banking institutions than those previously in place. Specifically, the rule imposes the following minimum capital requirements: 

• a new common equity Tier 1 risk-based capital ratio of 4.5%;

• a Tier 1 risk-based capital ratio of 6% (increased from the previous 4% requirement);

• a total risk-based capital ratio of 8% (unchanged from previous requirements); and

• a leverage ratio of 4% (previously 3% for depository institutions with the highest supervisory composite rating and 4% for other depository institutions).

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Under the rule, Tier 1 capital is redefined to include two components: Common Equity Tier 1 capital and additional Tier 1 capital. The new and highest form of capital, Common Equity Tier 1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital includes other perpetual instruments historically included in Tier 1 capital, such as non-cumulative perpetual preferred stock. The rule permits bank holding companies with less than $15 billion in total consolidated assets to continue to include trust preferred securities and cumulative perpetual preferred stock issued before May 19, 2010 in Tier 1 capital, but not in Common Equity Tier 1 capital, subject to certain restrictions. Tier 2 capital consists of instruments that currently qualify in Tier 2 capital plus instruments that the rule has disqualified from Tier 1 capital treatment.

In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three measurements (Common Equity Tier 1, Tier 1 capital and total capital). The capital conservation buffer will be phased in incrementally over time, becoming fully effective on January 1, 2019, and will consist of an additional amount of common equity equal to 2.5% of risk-weighted assets.

The previous capital rules require certain deductions from or adjustments to capital. The final rule retains many of these deductions and adjustments and also provides for new ones. As a result, deductions from Common Equity Tier 1 capital will be required for goodwill (net of associated deferred tax liabilities); intangible assets such as non-mortgage servicing assets and purchased credit card relationships (net of associated deferred tax liabilities); deferred tax assets that arise from net operating loss and tax credit carryforwards (net of any related valuations allowances and net of deferred tax liabilities); any gain on sale in connection with a securitization exposure; any defined benefit pension fund net asset (net of any associated deferred tax liabilities) held by a bank holding company (this provision does not apply to a bank or savings association); the aggregate amount of outstanding equity investments (including retained earnings) in financial subsidiaries; and identified losses. Other deductions will be necessary from different levels of capital.

Additionally, the final rule provides for the deduction of three categories of assets: (i) deferred tax assets arising from temporary differences that cannot be realized through net operating loss carrybacks (net of related valuation allowances and of deferred tax liabilities), (ii) mortgage servicing assets (net of associated deferred tax liabilities) and (iii) investments in more than 10% of the issued and outstanding common stock of unconsolidated financial institutions (net of associated deferred tax liabilities). The amount in each category that exceeds 10% of Common Equity Tier 1 capital must be deducted from Common Equity Tier 1 capital. The remaining, non-deducted amounts are then aggregated, and the amount by which this total amount exceeds 15% of Common Equity Tier 1 capital must be deducted from Common Equity Tier 1 capital. Amounts of minority investments in consolidated subsidiaries that exceed certain limits and investments in unconsolidated financial institutions may also have to be deducted from the category of capital to which such instruments belong.

Accumulated other comprehensive income (“AOCI”) is presumptively included in Common Equity Tier 1 capital and often would operate to reduce this category of capital. The final rule provided a one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI. The Company elected to opt out of this one-time opportunity for the first quarter of 2015. The final rule also has the effect of increasing capital requirements by increasing the risk weights on certain assets, including high volatility commercial real estate, mortgage servicing rights not includable in Common Equity Tier 1 capital, equity exposures, and claims on securities firms, that are used in the denominator of the three risk-based capital ratios.

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It is management’s belief that, as of June 30, 2015, the Company and the Bank would have met all capital adequacy requirements under Basel III on a fully phased-in basis if such requirements were effective at that time. Management expects that the capital ratios for the Company and Bank under Basel III will continue to exceed the well-capitalized minimum capital requirements.

The Company and the Bank had the following actual and required regulatory capital amounts as of the periods indicated:

						Regulatory Requirements
	Actual					Minimum For Capital Adequacy Purposes					Minimum To Be Well Capitalized
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
ASB Bancorp, Inc. (1)
June 30, 2015
Common equity tier I capital	$	102,596		18.40	%	$	25,098		4.50	%	$	36,253		6.50	%
Tier I leverage capital		102,596		13.02	%		31,527		4.00	%		39,409		5.00	%
Tier I risk-based capital		102,596		18.40	%		33,464		6.00	%		44,619		8.00	%
Total risk-based capital		108,720		19.49	%		44,619		8.00	%		55,774		10.00	%
December 31, 2014
Common equity tier I capital		n/a		n/a			n/a		n/a			n/a		n/a
Tier I leverage capital		100,199		13.17	%		30,442		4.00	%		38,052		5.00	%
Tier I risk-based capital		100,199		19.83	%		20,210		4.00	%		30,315		6.00	%
Total risk-based capital		106,149		21.01	%		40,420		8.00	%		50,525		10.00	%
Asheville Savings Bank, S.S.B. (1)
June 30, 2015
Common equity tier I capital	$	92,581		16.61	%	$	25,076		4.50	%	$	36,221		6.50	%
Tier I leverage capital		92,581		11.79	%		31,416		4.00	%		39,269		5.00	%
Tier I risk-based capital		92,581		16.61	%		33,435		6.00	%		44,580		8.00	%
Total risk-based capital		98,705		17.71	%		44,580		8.00	%		55,725		10.00	%
NC Savings Bank capital		98,705		12.65	%		39,028		5.00	%		n/a		n/a
December 31, 2014
Common equity tier I capital		n/a		n/a			n/a		n/a			n/a		n/a
Tier I leverage capital		93,044		12.26	%		30,353		4.00	%		37,942		5.00	%
Tier I risk-based capital		93,044		18.43	%		20,195		4.00	%		30,293		6.00	%
Total risk-based capital		98,994		19.61	%		40,390		8.00	%		50,488		10.00	%
NC Savings Bank capital		98,994		13.07	%		37,870		5.00	%		n/a		n/a

(1) June 30, 2015 capital ratios are based on BASEL III and December 31, 2014 are based on BASEL I.

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Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and letters of credit.

For the six months ended June 30, 2015 and the year ended December 31, 2014, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk Management. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes: adjusting the maturities of borrowings; adjusting the investment portfolio mix and duration; and, generally selling in the secondary market substantially all newly originated fixed rate one-to-four family residential real estate loans. We currently do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.

We have an Asset/Liability Management Committee (“ALCO”) which includes our Chairman of the Board and an additional director, both of whom are independent directors, and members of senior management, to communicate, coordinate and control all aspects involving asset-liability management. The Committee meets quarterly to establish and monitor the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest and net income.

Interest Rate Risk Analysis. Our profitability depends to a large extent on our net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Like most financial institutions, our interest income and interest expense are significantly affected by changes in market interest rates and other economic factors beyond our control. Our interest-earning assets consist of fixed and floating rate loans and investment securities that generally adjust more slowly to changes in interest rates than our interest-bearing liabilities, which are primarily nonmaturity deposits. Accordingly, our earnings are usually adversely affected during periods of rising interest rates and positively impacted during periods of declining interest rates. The recent periods of sustained historically low interest rates have also reduced our net interest margins as we could not lower our cost of interest-bearing liabilities commensurate with the reductions in the yields on our interest-earning assets.

We implement an interest rate risk simulation model to determine our possible adverse exposure to net interest income and economic value of equity due to changes in interest rates, repricing risk, yield curve risk and basis risk. Our internal simulation model evaluates our projected future net interest income and economic value of equity under various interest rate scenarios and applies certain contractual and behavioral assumptions to calculate results in an increasing rate scenario, in a decreasing rate scenario and in a constant rate scenario. The major assumptions applied to our internal simulation model include, but are not limited to, the present value discounting method, calculated and reported rate shock and rate ramp scenarios, key rates, curves and spreads, internal rate restrictions (such as rate floors and caps and teaser rates), prepay and decay tables and interest rate exposure limits.

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Based on the results of our internal simulation model, which management believes accurately reflects the extraordinary stress currently existing in the financial markets with respect to potential margin compression resulting from our difficulty in reducing our costs of funds further in the current competitive pricing environment, our earnings may be adversely affected if interest rates were to further decline. Such a decline could result from, among other things, the Federal Reserve Board’s purchase of government securities and/or mortgage-backed securities in an effort to further stimulate the national economy. Although the current rate environment remains stable, we continue to carefully monitor, through our Asset/Liability Committee management process, the competitive landscape related to interest rates as well as various economic indicators in order to best position ourselves with respect to changing interest rates.

The following table reflects the estimated effects of changes in interest rates on the present value of our equity and on our projected net interest income over the next twelve months.

	As Of June 30, 2015								Over The Next Twelve Months Ending June 30, 2016
	Present Value Of Equity								Projected Net Interest Income
(Dollars in thousands)	Market Value		$ Change			% Change			Net Interest Income		$ Change			% Change
Change in Rates
(in Basis Points “BP”):
300 BP	$	91,858	$	(30,527	)		-24.94	%	$	21,049	$	(1,070	)		-4.84	%
200		100,021		(22,364	)		-18.27	%		20,788		(1,331	)		-6.02	%
100		111,707		(10,678	)		-8.72	%		21,438		(681	)		-3.08	%
0		122,385		-			0.00	%		22,119		-			0.00	%
(100)		120,520		(1,865	)		-1.52	%		20,671		(1,448	)		-6.55	%

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Item 4. Controls and Procedures

The Company’s management has carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of its “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

 Management of the Company has evaluated, with the participation of the Company’s principal executive officer and principal financial officer, changes in the Company’s internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act during the quarter ended June 30, 2015.  In connection with the above evaluation of the effectiveness of the Company's disclosure controls and procedures, no changes in its internal control over financial reporting were identified as having occurred during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incidental to our business. We are not a party to any pending legal proceedings that, after consultation with legal counsel, we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

For information regarding ASB Bancorp’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 13, 2015.  We do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 31, 2015, the Company announced that the Company's Board of Directors approved a stock repurchase program whereby the Company may repurchase up to 5%, or 218,920 shares, of its outstanding common stock as and when deemed appropriate by management and under any plan that may be deployed in accordance with Rule 10b5-1 of the Exchange Act of 1934.  The Rule 10b5-1 repurchase plan allows the Company to repurchase its shares during periods when it would normally not be active in the market due to its internal blackout period. As of June 30, 2015, the Company had not repurchased any shares of its common stock under this repurchase program.

The following table sets forth information as of June 30, 2015 regarding shares of our common stock that may be issued upon exercise of options previously granted and currently outstanding under our stock option plans, as well as the number of shares available for the grant of options that had not been granted as of that date.

Plan Category	Number Of Securities To Be Issued Upon Exercise Of Outstanding Options Warrants And Rights (a)		Weighted-Average Exercise Price Of Outstanding Options Warrants And Rights (b)		Number Of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected In Column (a) (c)
Equity compensation plans approved by security holders		496,500	$	16.00		60,355
Equity compensation plans not approved by security holders		–		n/a		–
Total		496,500	$	16.00		60,355

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Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

3.1	Articles of Incorporation of ASB Bancorp, Inc. (1)
3.2	Bylaws of ASB Bancorp, Inc. (1)
3.3	Amendment of the Bylaws of ASB Bancorp, Inc., adopted September 15, 2014 (2)
4.1	Form of Common Stock Certificate of ASB Bancorp, Inc. (1)
10.1	Employment Agreement, dated as of June 16, 2015, by and between ASB Bancorp, Inc., Asheville Savings Bank, S.S.B. and Suzanne S. DeFerie *
10.2	Employment Agreement, dated as of  June 16, 2015, by and between ASB Bancorp, Inc., Asheville Savings Bank, S.S.B. and Kirby A. Tyndall *
10.3	Employment Agreement, dated as of June 16, 2015, by and between ASB Bancorp, Inc., Asheville Savings Bank, S.S.B. and David A. Kozak *
10.4	Employment Agreement, dated as of June 16, 2015, by and between ASB Bancorp, Inc., Asheville Savings Bank, S.S.B. and Vikki D. Bailey *
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certifications
101.0	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (Extensible Business Reporting Language):  (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statement of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

* Management contract or compensatory plan, contract or arrangement.

(1) Incorporated herein by reference to the exhibits to ASB Bancorp, Inc.’s Registration Statement on Form S-1 (File No. 333-174527), filed with the SEC on May 26, 2011.

(2) Incorporated herein by reference to the exhibits to ASB Bancorp, Inc.’s Current Report on Form 8-K filed with the SEC on September 19, 2014.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ASB BANCORP, INC.
		Registrant
August 7, 2015	By:	/s/ SUZANNE S. DEFERIE
		Suzanne S. DeFerie
		President and Chief Executive Officer
		(Principal Executive Officer)
August 7, 2015	By:	/s/ KIRBY A. TYNDALL
		Kirby A. Tyndall
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

Amended and Restated as of June 16, 2015

THIS EMPLOYMENT AGREEMENT (the “Agreement”) amends and restates as of June 16 2015, the Employment Agreement dated as of the 18th day of October, 2011, by and between ASB BANCORP, INC., a North Carolina corporation (“Company”), ASHEVILLE SAVINGS BANK, S.S.B., a North Carolina chartered savings bank (the “Bank”), and SUZANNE S. DEFERIE (“Executive”). For purposes of this Agreement, the term “Employer” shall mean the Company and the Bank.

RECITALS

WHEREAS, Company and the Bank wish to continue to employ Executive in positions of substantial responsibility; and

WHEREAS, Company, the Bank and Executive desire to amend this Agreement to make certain corrections and clarifications which are intended to bring the Agreement further into compliance with the Internal Revenue Code and developments in the law.

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and for other good and valuable consideration, the receipt and adequacy whereof each party hereby acknowledges, Company, the Bank and Executive hereby agree as follows:

1.DEFINITIONS: The following terms shall have the following meanings for all purposes of this Agreement:

Base Salary means the annual base compensation specified in Section 4 below.

Board means, unless otherwise indicated by the context, the Board of Directors of Company and the Board of Directors of the Bank.

Cause means any of the reasons listed in Section 7(d) below for which this Agreement may be terminated or Executive may be discharged prior to the end of the Term hereof.

Change of Control means and shall be deemed to have occurred upon the occurrence of any of the following events.

(1)The acquisition by any “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the Exchange Act) (other than Company, any Subsidiary or any Company or Subsidiary’s employee benefit plan), directly or indirectly, as “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than fifty percent (50%) of either the then outstanding shares or the combined voting power of the then outstanding securities of Company or the Bank;

(2)A majority of the directors of Company elected at Company’s annual stockholders meeting shall have been nominated for election other than by or at the direction of the “incumbent directors” of Company, and the “incumbent directors” shall cease to constitute a majority of the directors of Company during any twelve (12) month period. The term “incumbent director” shall mean any director who was a director of Company on the Effective Date and any individual who becomes a director of

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Company subsequent to the Effective Date and who is elected or nominated by or at the direction of at least majority of the then incumbent directors; or

(3)The consummation of (x) a merger, consolidation or other business combination of Company with any other “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the 1934 Act) or affiliate thereof, other than a merger or consolidation that would result in the outstanding common stock of Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) more than fifty percent (50%) of the outstanding common stock of Company or such surviving entity or a parent or affiliate thereof outstanding immediately after such merger, consolidation or other business combination, or (y) the sale or disposition of all or substantially all of Company’s or the Bank’s assets.

No event that occurs is a Change of Control unless it complies with Code Section 409A and the regulations thereunder.   No event that was not already covered by this definition prior to the amendment and restatement of this Agreement is added by such amendment and restatement.

Code means the Internal Revenue Code of 1986, as amended.

Effective Date means the first day of the initial Term.

Exchange Act means the Securities Exchange Act of 1934, as amended.

Good Reason means the occurrence of any of the conditions listed in Section 7(f) below which is followed by the resignation of Executive within twelve (12) months after such occurrence.

Protected Customer shall mean any person, business or entity who or which:

(1)Was known by Executive to have purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank; or

(2)Purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank, and about whom Executive had access to confidential or proprietary information during this period; or

(3)Was known by Executive to have received (during the one-year period prior to Executive’s last day of employment with the Bank) but not yet acted upon a proposal by Company, the Bank or any Subsidiary other than the Bank for the purchase of products or performance of services.

Resignation for Good Reason means resignation by Executive in accordance with the provisions of Section 7(f) below.

Restricted Period means the one-year period described in Section 9(a) below.

Subsidiary means any corporation at least a majority of the stock of which is owned by Company, either directly or through one or more other Subsidiaries, and any other entity controlled, directly or indirectly, by Company or any other Subsidiary.

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Term means the term of this Agreement specified in Section 3 and 8(a) below, including the initial term and any extended term.

Termination for Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(d) below for any of the reasons listed therein.

Termination without Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(e) below.

2.EMPLOYMENT:

(a)During the Term, Executive shall serve as President and Chief Executive Officer of Company and the Bank, reporting directly to the Board. Executive will perform all duties and have all powers associated with such positions as and as may be set forth in the Bylaws of Company or the Bank. In addition, Executive shall be responsible for establishing the business objectives, policies and strategic plans of Company and the Bank in conjunction with the Board. Executive agrees that, during the Term, Executive will devote full business time and energy to the business, affairs and interests of Company and the Bank and serve diligently and to the best of Executive’s ability. Executive may serve as a director, trustee or officer of other corporations and entities, including without limitation charitable organizations, and engage in other activities to the extent those activities and services do not inhibit the performance of Executive’s duties hereunder or, in the opinion of the Board, conflict with the business of Company, the Bank or any Subsidiary.

(b)Notwithstanding anything in this Agreement to the contrary, unless otherwise agreed to by the parties, if Executive is then serving as a director of the Company and/or the Bank, Executive shall be deemed to have resigned as a director of Company and the Bank effective immediately after termination of Executive’s employment for Cause, regardless of whether the Executive submits a formal, written resignation as director.

(c)References in this Agreement to services rendered for Company and compensation, benefits, indemnification and liability insurance payable or provided by Company shall include services rendered for and compensation, benefits, indemnification and liability insurance payable or provided by the Bank and any Subsidiary other than the Bank, and references in this Agreement to “ Company “ shall mean and include the Bank and any Subsidiary other than the Bank if Executive performs any services therefor, as the context may require.

3.TERM: The initial term of this Agreement shall be for the period beginning on June 16, 2015 and continuing for a thirty-six (36) month period through and including June 15, 2018 subject, however, to earlier termination in the manner provided in this Agreement. Commencing as of the first anniversary of the Effective Date and continuing as of each anniversary of the Effective Date thereafter, the disinterested members of the Board may, in the sole discretion of the Board, extend the Agreement term for an additional year, so that the remaining term of the Agreement again becomes thirty-six (36) full months from the applicable anniversary of the Effective Date, unless the Executive elects not to extend the term of this Agreement by giving written notice at least thirty (30) days prior to the applicable anniversary date. Notwithstanding the foregoing, the term of this Agreement shall be extended pursuant to Section 8(a) below upon the occurrence of a Change of Control.

4.BASE SALARY; INCENTIVE COMPENSATION:

(a)Executive shall receive a Base Salary at the rate of $330.000, payable in substantially equal installments no less frequently than monthly (less any amounts withheld as required by law or

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pursuant to any benefits plan). At least annually, Company shall review and, in its sole discretion, may increase, Executive’s Base Salary. If Executive’s Base Salary is increased by Company, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement.

(b)Executive shall be eligible to participate in any incentive compensation, bonus plans or arrangements of the Company on the same terms as other senior officers. Nothing paid to Executive under any such plans or arrangements will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

5.EMPLOYEE BENEFITS AND REIMBURSEMENTS:

(a)During the Term, Executive shall be eligible to participate in any retirement, group insurance, hospitalization, incentive or deferred compensation and other benefit or compensation plans of the Bank presently in effect or hereafter adopted and generally available to all Company’s senior officers, subject to the terms and conditions specified in such plans. Executive shall also be eligible to any additional compensation, benefits or perquisites, if any, that may be provided specifically to or for Executive by Company or the Bank from time to time. During the Term, to the extent provided by corporate policies, Executive shall be reimbursed for expenditures (including travel, entertainment, parking and business meetings) made in pursuance and furtherance of the business and good will of Company.

(b)Vacation and Leave. Executive will be entitled to vacation leave, sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior officers.

6.INDEMNIFICATION:

(a)Company, the Bank and any Subsidiary other than the Bank for which Executive provides services shall indemnify and hold Executive harmless from and against all liability and expense resulting from (1) all acts or omissions of Executive while acting in the capacity of a director, officer, trustee, or fiduciary and/or employee of Company, the Bank and any such Subsidiary during Executive’s employment as such director, officer, and/or employee and (2) acts or omissions of Company, the Bank and any such Subsidiary occurring or alleged to have occurred during or prior to Executive’s employment, on terms and conditions no less favorable to Executive than the terms and conditions providing for indemnification of officers and directors under the Articles of Incorporation and the Bylaws of Company, the Bank charter and each such Subsidiary’s governing documents.

(b)The Bank shall carry directors and officers liability insurance in such amounts as the Bank in its discretion deems appropriate, and any payments made under such policy to Executive or on Executive’s behalf shall be offset against the indemnification obligation set forth in Section 6(a).

(c)Notwithstanding the foregoing, the indemnification provided by Section 6(a) shall not apply, and Executive shall not be indemnified, with respect to any acts or omissions which constitute wanton or willful misconduct or willful gross negligence. The indemnity obligation set forth in this Section 6 shall be subject to the prohibitions and limitations established by applicable law and as set forth in applicable regulations adopted by any federal or state bank regulatory agency having jurisdiction over Company, the Bank or any Subsidiary other than the Bank for which Executive performs services.

(d)The provisions of this Section 6 shall survive termination of this Agreement.

7.TERMINATION: Executive’s employment under this Agreement may be terminated under any of the following conditions.

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(a)Disability: If Executive is unable to perform the essential functions of Executive’s positions on a full-time basis for a period of six (6) consecutive months (or for such shorter period ending with Executive’s eligibility for and receipt of long-term disability benefits under an insurance policy or employee benefit plan provided or made available to Executive by Company) by reason of illness or other physical or mental disability, Company shall have the right to terminate Executive’s employment under this Agreement at the end of the applicable period by written notice thereof. If Executive’s employment is so terminated, Executive shall be paid any salary and benefits to which Executive may be entitled until the end of the payroll period in which the date of termination occurs, and thereafter, Company shall have no further obligation for additional compensation and benefits under this Agreement. A condition of disability shall be determined by Company on the basis of competent evidence. A written opinion of a licensed physician certified in his field of specialization and acceptable to Company, or Executive’s entitlement to or receipt of long-term disability benefits under any insurance policy or employee benefit plan provided or made available to Executive by Company or under federal Social Security law, shall be conclusive evidence of disability.

(b)Death: In the event of Executive’s death during the Term, Executive’s estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Base Salary at the rate in effect at the time of Executive’s death for a period of one (1) month after the date of Executive’s death and shall be paid for any accrued and unused paid time off. Such additional compensation and accrued and unused paid time off shall be paid in a single lump sum within thirty (30) days from Executive’s date of death.

(c)Resignation By Executive: Upon thirty (30) days prior notice, Executive may resign or voluntarily leave the employ of Company, other than under circumstances treated as Resignation for Good Reason.  In the event of Executive’s resignation under this Section 7(c), Executive shall be paid any accrued and unpaid salary and accrued and unused paid time off through Executive’s date of resignation.

(d)Termination For Cause: Company may, in its sole discretion, by written notice to Executive, terminate Executive’s employment immediately for Cause upon the occurrence of any of the following:

(1)Executive’s willful failure to follow or to cooperate in carrying out any of the lawful policies of Company or the Bank or the lawful directions of the Board;

(2)Continued and willful neglect by Executive of Executive’s duties for or on behalf of Company, the Bank or any Subsidiary other than the Bank for which Executive provides services;

(3)Willful misconduct of Executive in connection with the performance of any of Executive’s duties, including, by way of example, but not limitation, misappropriation of funds or property of Company, the Bank or a Subsidiary other than the Bank or a depositor therein or borrower therefrom, or securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of Company, the Bank or Subsidiary other than the Bank to the prejudice of the Bank or its Subsidiaries;

(4)Conduct by Executive which results in Executive’s suspension and/or temporary prohibition or removal and/or permanent prohibition from participation in the conduct of the affairs of Company, the Bank or any Subsidiary other than the Bank pursuant to the rules and regulations of the primary federal or state banking agency for Company, the Bank or the other Subsidiary or any other federal or state banking agency having regulatory jurisdiction over Company, the Bank or the other Subsidiary;

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(5)Conviction of Executive of a felony or any misdemeanor involving moral turpitude or Executive’s willful violation of any law, rule or regulation to which Company, the Bank or other Subsidiary for which Executive performs services is subject or of a final order or other formal administrative action entered into, by or imposed upon Company, the Bank or any such Subsidiary;

(6)Willful violation of any code of conduct or standards of ethics applicable to employees of Company or the Bank that results in material and demonstrable damage to the business or reputation of Company or the Bank; or

(7)The issuance of a permanent injunction or similar remedy against Executive preventing Executive from executing or performing all or part of this Agreement.

If Executive’s employment is Terminated for Cause or Company has Cause for termination and Executive voluntarily resigns, Executive shall not be entitled to any further compensation or benefits under this Agreement other than payment for any accrued and unused paid time off.

Notwithstanding anything herein to the contrary, except as “willful” may be otherwise defined by the rules and regulations of the primary federal or state banking agency for the Bank for which Executive performs services or any other federal or state banking agency having regulatory jurisdiction over the Bank for which Executive performs services, (x) no act or failure to act on Executive’s part shall be considered “willful” unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interest of Company or the Bank for which Executive performs services, and (y) no failure to act on Executive’s part shall be considered “willful” if such failure is a result of a condition of disability within the meaning of Section 7(a) of this Agreement. Executive shall not be deemed to have been Terminated for Cause under this Agreement unless and until there is delivered to Executive a copy of a resolution adopted at a meeting of the Company Board called and held for the purpose, which resolution shall (x) contain findings that Executive has committed an act constituting Cause, and (y) specify the particulars thereof. The resolution of the Board shall be deemed to have been duly adopted if and only if it is adopted by the affirmative vote of a majority of the directors then in office, excluding Executive. Notice of the meeting and the proposed Termination for Cause shall be given to Executive a reasonable time before the meeting of the Board. Executive and Executive’s counsel (if the Executive chooses to have counsel present) shall have a reasonable opportunity to be heard by the Board at the meeting.

(e)Termination Without Cause: Company may, in its sole discretion, by written notice to Executive terminate Executive’s employment under this Agreement immediately without Cause at any time (other than following a Change of Control, in which case a termination without Cause is governed by Section 8 of this Agreement).  In the event of such termination, Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive is Terminated without Cause through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination.  The payments described in this Section 7(e) will be due Executive regardless of any subsequent employment attained by Executive, other than the following benefit.  If Executive is eligible for and timely and properly elects continuation coverage under the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”), the Employer shall reimburse the Executive monthly for the monthly COBRA premium paid by Executive for herself and her dependents for a period of eighteen (18) months after the Termination Date (the “COBRA Reimbursement”). If the terms of the applicable plan documents do not allow the Employer to continue to provide COBRA coverage to Executive and Executive's dependents beyond the expiration of the statutorily-proscribed COBRA period, the Employer shall make monthly cash payments to Executive in an amount equal to the monthly COBRA premium for coverage for Executive and Executive's dependents for the duration of the eighteen

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(18) month period. Provided, however, that Employer’s obligations under this provision for COBRA/health coverage shall terminate on the date on which the Executive enrolls in a group health plan offered by another employer that provides substantially similar coverage.

(f)Resignation For Good Reason:

(1)Executive may Resign for Good Reason upon the occurrence of any of the following conditions without Executive’s prior written consent:

(A)a material change in Executive’s positions, authority and responsibilities relative to Executive’s positions, authority and responsibilities at the Effective Date;

(B)a liquidation or dissolution of Company or the Bank, other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive;

(C)a reduction in Executive’s Base Salary;

(D)a relocation of Executive’s principal place of employment by more than thirty-five (35) miles from its location as of the Effective Date; or

(E)a material breach of this Agreement by Company or the Bank.

(2)Resignation for Good Reason shall be effected by delivering to Company, within twelve (12) months after the occurrence of one of the conditions described above, a written notice specifying a date for termination of employment (a) which is not less than thirty (30) days after the date of the notice, and (b) which is not more than ninety (90) days after the date of the notice. The notice shall also state that Executive is Resigning for Good Reason as contemplated by this Section 7(f) and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Resignation for Good Reason hereunder. If within the notice period, Company cures or corrects any circumstances providing a basis for Resignation for Good Reason pursuant to Sections 7(f)(1)(A) or (E) only, Executive shall not be entitled to Resign for Good Reason.

(3)If Executive Resigns for Good Reason at any time after the date of this Agreement (other than a Resignation for Good Reason during the Term after a Change of Control, which shall be governed by Section 8 below), then Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive Resigns for Good Reason through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. In addition, the Bank shall pay for post-employment health coverage in the same manner as described in Section 7(e) above.  The payments, other than post-employment health benefits, described in this Section 7(f) will be due Executive regardless of any subsequent employment attained by Executive which is not in violation of this Agreement.

8.CHANGE OF CONTROL: Notwithstanding the preceding provisions of this Agreement, upon the occurrence of a Change of Control, the following provisions shall apply:

(a)The Term shall be extended to a period of one (1) year after the date on which the Change of Control occurs if the remaining Term as of the Change of Control effective date is less than one (1) year.

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(b)If, during the Term, as extended pursuant to Section 8(a), either Executive’s employment is Terminated without Cause or Executive Resigns for Good Reason, in either case, Company shall provide to Executive the following severance benefits:

(1)Company shall pay to Executive, in lieu of the compensation specified in Sections 7(e) or 7(f), a severance payment (subject to any applicable payroll or other taxes required to be withheld) equal to three (3) times the sum of (i) Executive’s Base Salary at the rate then in effect, or if greater, in effect immediately preceding the Change of Control and (ii) the average of the cash bonuses paid or accrued on Executive’s behalf with respect to the three (3) completed calendar years preceding the effective date of the Change of Control (or, if Executive has not been employed for three (3) years, the average of the completed calendar years in which Executive was employed) in a lump sum. In addition, the Bank shall pay for Executive’s health coverage in the same manner as set forth in Section 7(e).

(2)The payments described in this Section 8, other than COBRA/health benefits, shall be due Executive regardless of any subsequent employment obtained by Executive.  If payment cannot be made upon the occurrence of the Change of Control, it will be paid on or before the first payroll following the Change of Control.

(c)The  Company shall engage an independent accounting firm or independent tax counsel (“Tax Adviser”), at the Company’s expense, to calculate and determine (i) the amount of payments, distributions and benefits payable or receivable by Executive in the event of a Change of Control (whether under this Agreement or otherwise) that constitute “parachute payments” for purposes of Section 280G of the Code, and (ii) whether any portion of such parachute payments would constitute an “excess parachute payment” subject to the excise tax imposed under Section 4999 of the Code (“Excess Payments”).  The Tax Adviser may rely on reasonable, good faith assumptions and approximations concerning the application of Section 280G and Section 4999.  The calculations and determinations of the Tax Adviser shall be conclusive and binding on the Company and Executive for all purposes.  In the event that the aggregate payments or benefits to be made or afforded to Executive in the event of a Change of Control (whether under this Agreement or otherwise) would be deemed to be Excess Payments, then such payments or benefits shall be reduced to the extent necessary to avoid treatment as an “excess parachute payment”, with the reduction among such payments and benefits to be made first to payments and benefits payable or provided under this Agreement.  In connection with making determinations under this Section 8(c), the Tax Advisor shall take into account the value of any reasonable compensation for services to be rendered by the Executive before or after the Change in Control, including without limitation, the Executive’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, and the Company shall act in good faith in connection with any such valuations and reasonable compensation positions. Without limiting the generality of the foregoing, for purposes of this provision, the Company agrees to allocate as consideration for the covenants set forth in Section 9 the maximum amount of compensation and benefits payable under Section 8 hereof reasonably allocable thereto so as to avoid, to the extent possible, subjecting any payment to tax under Section 4999 of the Code.

9.NONCOMPETITION, NONSOLICITATION AND NONDISCLOSURE:

(a)Executive hereby covenants and agrees that, for a period of one (1) year following a termination of employment in the circumstances described in Sections 7(e), 7(f), or 8, Executive shall not, without the written consent of Company, either directly or indirectly:

(i)become an officer, employee, consultant, director, independent contractor, agent, joint venturer, partner or trustee of any business whatsoever that competes with the business of  Company, the Bank or any Subsidiary other than the Bank;

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(ii)solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of Company, the Bank or any Subsidiary other than the Bank to terminate his employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of Company, the Bank or any Subsidiary other than the Bank; or

(iii)solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any Protected Customer to terminate an existing business or commercial relationship with  Company, the Bank or any Subsidiary other than the Bank.

(iv)For purposes of this Section 9(a), a business that “competes with the business of Company, the Bank or any Subsidiary other than the Bank” shall mean a depository financial institution doing business within twenty-five (25) miles of any office of the Bank in existence on the date of Executive’s termination of employment.

(b)During the Term and thereafter, Executive shall hold in a fiduciary capacity for the benefit of Company and its Subsidiaries all secret or confidential information, knowledge or data relating to Company and its Subsidiaries and their respective businesses, which shall have been obtained by Executive during Executive’s employment by Company, the Bank and any Subsidiary other than the Bank and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). Executive shall not, without the prior written consent of Company, the Bank and such other Subsidiary, as applicable, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Company, the Bank and such other Subsidiary and those designated by them. After the end of the Restricted Period, the existence and identity of the customers and employees of Company, the Bank, and any Subsidiaries other than the Bank shall not constitute secret or confidential information, knowledge or data.

(c)During any period in which Section 9(a) is effective, Section 9(a) shall not preclude Executive from holding any publicly traded stock provided Executive does not acquire any stock interest in any one company in excess of one percent (1%) of the outstanding voting stock of that company.

(d)The parties agree that the restrictions contained in this Section 9 are reasonable and fair. If Executive competes in violation of the terms of this Section 9, the parties agree that Company will be irreparably harmed without an adequate remedy at law. Accordingly, Executive acknowledges that if Executive breaches or threatens to breach any provision of this Section 9, Company shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, but such injunctive relief shall not preclude Company from pursuing all other legal or equitable remedies arising out of such a breach.

10.REFORMATION: The parties have attempted to limit Executive’s right to compete only to the extent necessary to protect Company, the Bank and Subsidiaries other than the Bank from unfair competition. The parties recognize, however, that reasonable people may differ in making such a determination. Consequently, the parties hereby agree that, if the scope or enforceability of a restrictive covenant set forth in Section 9 is in any way disputed at any time, a court or other trier of fact may modify and reform such provision to substitute such other terms as are reasonable to protect the legitimate business interests of Company, the Bank and Subsidiaries other than the Bank.

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11.NOTICES: For the purposes of this Agreement, notices or other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered to the party to whom directed or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to such party at such party’s address last known by the party giving such notice. Each party may, from time to time, and shall, upon request of another party, designate an address to which notices should be sent. Notices of change of address shall be effective only upon receipt.

12.MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by Executive, and on behalf of Company, by such officers as may be specifically designated by Company. No waiver of any breach, condition or provision of this Agreement by any party hereto at any time shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party that are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of North Carolina, except to the extent that federal applies.

13.INVALIDITY - ENFORCEABILITY: The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and shall be binding upon Company and any successor to Company. If Executive should die while any amounts would still be payable to Executive hereunder all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is no such designee, to Executive’s estate.

15.ATTORNEY’S FEES: In the event that either party incurs costs and fees, including attorney’s fees, in enforcing its rights under this Agreement, the party substantially prevailing in such suit or action including any appeal shall be entitled to recover from the other all such costs and reasonable attorney’s fees.

16.EFFECT OF FEDERAL BANKING STATUTES AND REGULATIONS: Notwithstanding anything herein contained to the contrary, any payments to Executive by the Employer whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.   In addition, Executive agrees that this Agreement is subject to amendment at any time in order to comply with laws that are applicable to Company and the Bank (including regulations and rules relating to any governmental program in which Company or the Bank may participate).

17.HEADINGS: Descriptive headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision hereof.

18.EFFECT ON PRIOR AGREEMENTS: This Agreement supersedes all prior agreements, either expressed or implied, between the parties hereto with respect to the employment of Executive.

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19.INTERNAL REVENUE CODE SECTION 409A/CONTINUATION OF BENEFITS/ REIMBURSEMENTS: This Agreement is intended to and shall be interpreted to comply with Section 409A of the Code, or, if applicable, to be exempt from Section 409A of the Code. All references to a termination of employment and separation from service shall mean and be administered to comply with the definition of “separation from service” in Section 409A of the Code. All reimbursements provided under this Agreement shall comply with Section 409A of the Code and shall be subject to the following requirements:

(a)The amount of expenses eligible for reimbursement, during Executive’s taxable year may not affect the expenses eligible for reimbursement to be provided in another taxable year; and

(b)The reimbursement of an eligible expense must be made by December 31 following the taxable year in which the expense was incurred. The right to reimbursement is not subject to liquidation or exchange for another benefit.

If Executive is a “specified employee” (as defined under Section 409A of the Code) at the time of separation from service, to the extent that any amount payable under this Agreement constitutes “deferred compensation” under Section 409A of the Code (and is not otherwise excepted from Section 409A of the Code coverage by virtue of being considered “separation pay” or a “short term deferral” or otherwise) and is payable to Executive based upon a separation from service (other than death or “disability” as defined under Section 409A of the Code), such amount shall not be paid until the first day following the six (6) month anniversary of Executive’s separation from service. Any right to a series of installment payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. Payment of any accrued and unused paid time off, unless expressly provided otherwise herein shall be made in a single lump sum within thirty (30) days of separation from service.

20.ARBITRATION OF DISPUTES:Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a single arbitrator who is certified by the American Arbitration Association and is mutually acceptable to Executive and Company, sitting in a location selected by the Employer within fifty (50) miles from the main office of the Employer, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

21.COUNTERPARTS:This Agreement may be executed in counterparts.

22.[reserved]

23.REGULATORY REQUIREMENTS:

(a)If the Executive is removed and/or permanently prohibited from participating in the conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Employer under this Agreement shall terminate, as of the effective date of such order, except for the payment of Base Salary due and owing under Section 4(a) on the effective date of said order and reimbursement under Section 5(a) of expenses incurred as of the effective date of termination.

(b)If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Employer’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Employer under this Agreement shall be suspended as

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of the date of service unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Employer shall reinstate (in whole or in part) any of its obligations which were suspended.

(c)If the Employer is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but the vested rights of the parties shall not be affected.

(d)All obligations under this Agreement shall be terminated, except to the extent a determination is made that continuation of the contract is necessary for the continued operation of the Employer (1) by the director of the Federal Deposit Insurance Corporation (the “FDIC”) or his or her designee (the “Director”), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Employer under the authority contained in Section 13(c) of the FDIA; or (2) by the Director, at the time the Director approves a supervisory merger to resolve problems related to operation of the Employer when the Employer is determined by the Director to be in an unsafe and unsound condition.  Any rights of the Executive that have already vested, however, shall not be affected by such action.

(e)All obligations under this Agreement are further subject to such conditions, restrictions, limitations and forfeiture provisions as may separately apply pursuant to any applicable state banking laws.

    (f)Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant any provision herein in contravention of the requirements of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)).

[Signatures on following page]

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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written.

ASB BANCORP, INC.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
ASHEVILLE SAVINGS BANK, S.S.B.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
/s/ Suzanne S. DeFerie
Suzanne S. DeFerie

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

Amended and Restated as of June 16, 2015

THIS EMPLOYMENT AGREEMENT (the “Agreement”) amends and restates as of June 16 2015, the Employment Agreement dated as of the 18th day of October, 2011, by and between ASB BANCORP, INC., a North Carolina corporation (“Company”), ASHEVILLE SAVINGS BANK, S.S.B., a North Carolina chartered savings bank (the “Bank”), and KIRBY A. TYNDALL (“Executive”).  For purposes of this Agreement, the term “Employer” shall mean the Company and the Bank.

RECITALS

WHEREAS, Company and the Bank wish to continue to employ Executive in positions of substantial responsibility; and

WHEREAS, Company, the Bank and Executive desire to amend this Agreement to make certain corrections and clarifications which are intended to bring the Agreement further into compliance with the Internal Revenue Code and developments in the law.

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and for other good and valuable consideration, the receipt and adequacy whereof each party hereby acknowledges, Company, the Bank and Executive hereby agree as follows:

1.DEFINITIONS: The following terms shall have the following meanings for all purposes of this Agreement:

Base Salary means the annual base compensation specified in Section 4 below.

Board means, unless otherwise indicated by the context, the Board of Directors of Company and the Board of Directors of the Bank.

Cause means any of the reasons listed in Section 7(d) below for which this Agreement may be terminated or Executive may be discharged prior to the end of the Term hereof.

Change of Control means and shall be deemed to have occurred upon the occurrence of any of the following events.

(1)The acquisition by any “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the Exchange Act) (other than Company, any Subsidiary or any Company or Subsidiary’s employee benefit plan), directly or indirectly, as “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than fifty percent (50%) of either the then outstanding shares or the combined voting power of the then outstanding securities of Company or the Bank;

(2)A majority of the directors of Company elected at Company’s annual stockholders meeting shall have been nominated for election other than by or at the direction of the “incumbent directors” of Company, and the “incumbent directors” shall cease to constitute a majority of the directors of Company during any twelve (12) month period. The term “incumbent director” shall mean any director who was a director of Company on the Effective Date and any individual who becomes a director of Company subsequent to the Effective Date and who is elected or nominated by or at the direction of at least majority of the then incumbent directors; or

(3)The consummation of (x) a merger, consolidation or other business combination of Company with any other “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the 1934 Act) or affiliate thereof, other than a merger or consolidation that would result in the outstanding common stock of Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate

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thereof) more than fifty percent (50%) of the outstanding common stock of Company or such surviving entity or a parent or affiliate thereof outstanding immediately after such merger, consolidation or other business combination, or (y) the sale or disposition of all or substantially all of Company’s or the Bank’s assets.

No event that occurs is a Change of Control unless it complies with Code Section 409A and the regulations thereunder. No event that was not already covered by this definition prior to the amendment and restatement of this Agreement is added by such amendment and restatement.

Code means the Internal Revenue Code of 1986, as amended.

Effective Date means the first day of the initial Term.

Exchange Act means the Securities Exchange Act of 1934, as amended.

Good Reason means the occurrence of any of the conditions listed in Section 7(f) below which is followed by the resignation of Executive within twelve (12) months after such occurrence.

Protected Customer shall mean any person, business or entity who or which:

(1)Was known by Executive to have purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank; or

(2)Purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank, and about whom Executive had access to confidential or proprietary information during this period; or

(3)Was known by Executive to have received (during the one-year period prior to Executive’s last day of employment with the Bank) but not yet acted upon a proposal by Company, the Bank or any Subsidiary other than the Bank for the purchase of products or performance of services.

Resignation for Good Reason means resignation by Executive in accordance with the provisions of Section 7(f) below.

Restricted Period means the one-year period described in Section 9(a) below.

Subsidiary means any corporation at least a majority of the stock of which is owned by Company, either directly or through one or more other Subsidiaries, and any other entity controlled, directly or indirectly, by Company or any other Subsidiary.

Term means the term of this Agreement specified in Section 3 and 8(a) below, including the initial term and any extended term.

Termination for Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(d) below for any of the reasons listed therein.

Termination without Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(e) below.

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2.EMPLOYMENT:

(a)During the Term, Executive shall serve as Executive Vice President and Chief Financial Officer of Company and the Bank, reporting directly to and under the direction of, the President and Chief Executive Officer of Company and the Bank. Executive will perform all duties and have all powers associated with such positions as and as may be set forth in the Bylaws of Company or the Bank. In addition, Executive shall be responsible for such other duties as established and determined within the discretion of the Board.  Executive agrees that, during the Term, Executive will devote full business time and energy to the business, affairs and interests of Company and the Bank and serve diligently and to the best of Executive’s ability. Executive may serve as a director, trustee or officer of other corporations and entities, including without limitation charitable organizations, and engage in other activities to the extent those activities and services do not inhibit the performance of Executive’s duties hereunder or, in the opinion of the Board, conflict with the business of Company, the Bank or any Subsidiary.

(b)References in this Agreement to services rendered for Company and compensation, benefits, indemnification and liability insurance payable or provided by Company shall include services rendered for and compensation, benefits, indemnification and liability insurance payable or provided by the Bank and any Subsidiary other than the Bank, and references in this Agreement to “ Company “ shall mean and include the Bank and any Subsidiary other than the Bank if Executive performs any services therefor, as the context may require.

3.TERM: The initial term of this Agreement shall be for the period beginning on June 16 2015 and continuing for a twenty-four (24) month period through and including June 15, 2017 subject, however, to earlier termination in the manner provided in this Agreement. Commencing as of the first anniversary of the Effective Date and continuing as of each anniversary of the Effective Date thereafter, the disinterested members of the Board may, in the sole discretion of the Board, extend the Agreement term for an additional year, so that the remaining term of the Agreement again becomes twenty-four (24) full months from the applicable anniversary of the Effective Date, unless the Executive elects not to extend the term of this Agreement by giving written notice at least thirty (30) days prior to the applicable anniversary date. Notwithstanding the foregoing, the term of this Agreement shall be extended pursuant to Section 8(a) below upon the occurrence of a Change of Control.

4.BASE SALARY; INCENTIVE COMPENSATION:

(a)Executive shall receive a Base Salary at the rate of $185,004, payable in substantially equal installments no less frequently than monthly (less any amounts withheld as required by law or pursuant to any benefits plan). At least annually, Company shall review and, in its sole discretion, may increase, Executive’s Base Salary. If Executive’s Base Salary is increased by Company, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement.

(b)Executive shall be eligible to participate in any incentive compensation, bonus plans or arrangements of the Company on the same terms as other senior officers. Nothing paid to Executive under any such plans or arrangements will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

5.EMPLOYEE BENEFITS AND REIMBURSEMENTS:

(a)During the Term, Executive shall be eligible to participate in any retirement, group insurance, hospitalization, incentive or deferred compensation and other benefit or compensation plans of the Bank presently in effect or hereafter adopted and generally available to all Company’s senior officers, subject to the terms and conditions specified in such plans. Executive shall also be eligible to any additional compensation, benefits or perquisites, if any, that may be provided specifically to or for Executive by Company or the Bank from time to time. During the Term, to the extent provided by corporate policies, Executive shall be reimbursed for expenditures (including travel, entertainment,

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parking and business meetings) made in pursuance and furtherance of the business and good will of Company

(b)Vacation and Leave. Executive will be entitled to vacation leave, sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior officers.

6.INDEMNIFICATION:

(a)Company, the Bank and any Subsidiary other than the Bank for which Executive provides services shall indemnify and hold Executive harmless from and against all liability and expense resulting from (1) all acts or omissions of Executive while acting in the capacity of a director, officer, trustee, or fiduciary and/or employee of Company, the Bank and any such Subsidiary during Executive’s employment as such director, officer, and/or employee and (2) acts or omissions of Company, the Bank and any such Subsidiary occurring or alleged to have occurred during or prior to Executive’s employment, on terms and conditions no less favorable to Executive than the terms and conditions providing for indemnification of officers and directors under the Articles of Incorporation and the Bylaws of Company, the Bank charter and each such Subsidiary’s governing documents.

(b)The Bank shall carry directors and officers liability insurance in such amounts as the Bank in its discretion deems appropriate, and any payments made under such policy to Executive or on Executive’s behalf shall be offset against the indemnification obligation set forth in Section 6(a).

(c)Notwithstanding the foregoing, the indemnification provided by Section 6(a) shall not apply, and Executive shall not be indemnified, with respect to any acts or omissions which constitute wanton or willful misconduct or willful gross negligence. The indemnity obligation set forth in this Section 6 shall be subject to the prohibitions and limitations established by applicable law and as set forth in applicable regulations adopted by any federal or state bank regulatory agency having jurisdiction over Company, the Bank or any Subsidiary other than the Bank for which Executive performs services.

(d)The provisions of this Section 6 shall survive termination of this Agreement.

7.TERMINATION: Executive’s employment under this Agreement may be terminated under any of the following conditions.

(a)Disability: If Executive is unable to perform the essential functions of Executive’s positions on a full-time basis for a period of six (6) consecutive months (or for such shorter period ending with Executive’s eligibility for and receipt of long-term disability benefits under an insurance policy or employee benefit plan provided or made available to Executive by Company) by reason of illness or other physical or mental disability, Company shall have the right to terminate Executive’s employment under this Agreement at the end of the applicable period by written notice thereof. If Executive’s employment is so terminated, Executive shall be paid any salary and benefits to which Executive may be entitled until the end of the payroll period in which the date of termination occurs, and thereafter, Company shall have no further obligation for additional compensation and benefits under this Agreement. A condition of disability shall be determined by Company on the basis of competent evidence. A written opinion of a licensed physician certified in his field of specialization and acceptable to Company, or Executive’s entitlement to or receipt of long-term disability benefits under any insurance policy or employee benefit plan provided or made available to Executive by Company or under federal Social Security law, shall be conclusive evidence of disability.

(b)Death: In the event of Executive’s death during the Term, Executive’s estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Base Salary at the rate in effect at the time of Executive’s death for a period of one (1) month after the date of Executive’s death and shall be paid for any accrued and unused paid time off. Such additional compensation and accrued and unused paid time off shall be paid in a single lump sum within thirty (30) days from Executive’s date of death.

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(c)Resignation By Executive: Upon thirty (30) days prior notice, Executive may resign or voluntarily leave the employ of Company, other than under circumstances treated as Resignation for Good Reason.  In the event of Executive’s resignation under this Section 7(c), Executive shall be paid any accrued and unpaid salary and accrued and unused paid time off through Executive’s date of resignation.

(d)Termination For Cause: Company may, in its sole discretion, by written notice to Executive, terminate Executive’s employment immediately for Cause upon the occurrence of any of the following:

(1)Executive’s willful failure to follow or to cooperate in carrying out any of the lawful policies of Company or the Bank or the lawful directions of the Board;

(2)Continued and willful neglect by Executive of Executive’s duties for or on behalf of Company, the Bank or any Subsidiary other than the Bank for which Executive provides services;

(3)Willful misconduct of Executive in connection with the performance of any of Executive’s duties, including, by way of example, but not limitation, misappropriation of funds or property of Company, the Bank or a Subsidiary other than the Bank or a depositor therein or borrower therefrom, or securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of Company, the Bank or Subsidiary other than the Bank to the prejudice of the Bank or its Subsidiaries;

(4)Conduct by Executive which results in Executive’s suspension and/or temporary prohibition or removal and/or permanent prohibition from participation in the conduct of the affairs of Company, the Bank or any Subsidiary other than the Bank pursuant to the rules and regulations of the primary federal or state banking agency for Company, the Bank or the other Subsidiary or any other federal or state banking agency having regulatory jurisdiction over Company, the Bank or the other Subsidiary;

(5)Conviction of Executive of a felony or any misdemeanor involving moral turpitude or Executive’s willful violation of any law, rule or regulation to which Company, the Bank or other Subsidiary for which Executive performs services is subject or of a final order or other formal administrative action entered into, by or imposed upon Company, the Bank or any such Subsidiary;

(6)Willful violation of any code of conduct or standards of ethics applicable to employees of Company or the Bank that results in material and demonstrable damage to the business or reputation of Company or the Bank; or

(7)The issuance of a permanent injunction or similar remedy against Executive preventing Executive from executing or performing all or part of this Agreement.

If Executive’s employment is Terminated for Cause or Company has Cause for termination and Executive voluntarily resigns, Executive shall not be entitled to any further compensation or benefits under this Agreement other than payment for any accrued and unused paid time off.

Notwithstanding anything herein to the contrary, except as “willful” may be otherwise defined by the rules and regulations of the primary federal or state banking agency for the Bank for which Executive performs services or any other federal or state banking agency having regulatory jurisdiction over the Bank for which Executive performs services, (x) no act or failure to act on Executive’s part shall be considered “willful” unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interest of Company or the Bank for which Executive performs services, and (y) no failure to act on Executive’s part shall be considered “willful” if such failure is a result of a condition of disability within the meaning of Section 7(a) of this Agreement. Executive shall not be deemed to have been Terminated for Cause under this Agreement unless and until there is delivered to Executive a copy of a resolution adopted at a meeting of the Company Board called and held for the purpose, which resolution shall (x) contain findings that

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Executive has committed an act constituting Cause, and (y) specify the particulars thereof. The resolution of the Board shall be deemed to have been duly adopted if and only if it is adopted by the affirmative vote of a majority of the directors then in office, excluding Executive. Notice of the meeting and the proposed termination for Cause shall be given to Executive a reasonable time before the meeting of the Board. Executive and Executive’s counsel (if the Executive chooses to have counsel present) shall have a reasonable opportunity to be heard by the Board at the meeting.

(e)Termination Without Cause: Company may, in its sole discretion, by written notice to Executive terminate Executive’s employment under this Agreement immediately without Cause at any time (other than following a Change of Control, in which case a termination without Cause is governed by Section 8 of this Agreement).  In the event of such termination, Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive is Terminated without Cause through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. The payments described in this Section 7(e) will be due Executive regardless of any subsequent employment attained by Executive, other than the following benefit. If Executive is eligible for and timely and properly elects continuation coverage under the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”), the Employer shall reimburse the Executive monthly for the monthly COBRA premium paid by Executive for himself and his dependents for a period of eighteen (18) months after the Termination Date (the “COBRA Reimbursement”). If the terms of the applicable plan documents do not allow the Employer to continue to provide COBRA coverage to Executive and Executive's dependents beyond the expiration of the statutorily-proscribed COBRA period, the Employer shall make monthly cash payments to Executive in an amount equal to the monthly COBRA premium for coverage for Executive and Executive's dependents for the duration of the eighteen (18) month period. Provided, however, that Employer’s obligations under this provision for COBRA/health coverage shall terminate on the date on which the Executive enrolls in a group health plan offered by another employer that provides substantially similar coverage.

(f)Resignation For Good Reason:

(1)Executive may Resign for Good Reason upon the occurrence of any of the following conditions without Executive’s prior written consent:

(A)a material change in Executive’s positions, authority and responsibilities relative to Executive’s positions, authority and responsibilities at the Effective Date;

(B)a liquidation or dissolution of Company or the Bank, other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive;

(C)a reduction in Executive’s Base Salary;

(D)a relocation of Executive’s principal place of employment by more than thirty-five (35) miles from its location as of the Effective Date; or

(E)a material breach of this Agreement by Company or the Bank.

(2)Resignation for Good Reason shall be effected by delivering to Company, within twelve (12) months after the occurrence of one of the conditions described above, a written notice specifying a date for termination of employment (a) which is not less than thirty (30) days after the date of the notice, and (b) which is not more than ninety (90) days after the date of the notice. The notice shall also state that Executive is resigning for Good Reason as contemplated by this Section 7(f) and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Resignation for Good Reason hereunder. If within the notice period, Company cures or corrects any circumstances providing a

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basis for Resignation for Good Reason pursuant to Sections 7(f)(1)(A) or (E) only, Executive shall not be entitled to Resign for Good Reason.

(3)If Executive Resigns for Good Reason at any time after the date of this Agreement (other than a Resignation for Good Reason during the Term after a Change of Control, which shall be governed by Section 8 below), then Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive Resigns for Good Reason through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. In addition, the Bank shall pay for post-employment health coverage in the same manner as described in Section 7(e) above.  The payments, other than post-employment health benefits, described in this Section 7(f) will be due Executive regardless of any subsequent employment attained by Executive which is not in violation of this Agreement.

8.CHANGE OF CONTROL: Notwithstanding the preceding provisions of this Agreement, upon the occurrence of a Change of Control, the following provisions shall apply:

(a)The Term shall be extended to a period of one (1) year after the date on which the Change of Control occurs if the remaining Term as of the Change of Control effective date is less than one (1) year.

(b)If, during the Term, as extended pursuant to Section 8(a), either Executive’s employment is Terminated without Cause or Executive Resigns for Good Reason, in either case, Company shall provide to Executive the following severance benefits:

(1)Company shall pay to Executive, in lieu of the compensation specified in Sections 7(e) or 7(f), a severance payment (subject to any applicable payroll or other taxes required to be withheld) equal to three (3) times the sum of (i) Executive’s Base Salary at the rate then in effect, or if greater, in effect immediately preceding the Change of Control and (ii) the average of the cash bonuses paid or accrued on Executive’s behalf with respect to the three (3) completed calendar years preceding the effective date of the Change of Control (or, if Executive has not been employed for three (3) years, the average of the completed calendar years in which Executive was employed) in a lump sum. In addition, the Bank shall pay for Executive’s health coverage in the same manner as set forth in Section 7(e).

(2)The payments described in this Section 8, other than COBRA/health benefits, shall be due Executive regardless of any subsequent employment obtained by Executive.  If payment cannot be made upon the occurrence of the Change of Control, it will be paid on or before the first payroll following the Change of Control.

(c)The  Company shall engage an independent accounting firm or independent tax counsel (“Tax Adviser”), at the Company’s expense, to calculate and determine (i) the amount of payments, distributions and benefits payable or receivable by Executive in the event of a Change of Control (whether under this Agreement or otherwise) that constitute “parachute payments” for purposes of Section 280G of the Code, and (ii) whether any portion of such parachute payments would constitute an “excess parachute payment” subject to the excise tax imposed under Section 4999 of the Code (“Excess Payments”).  The Tax Adviser may rely on reasonable, good faith assumptions and approximations concerning the application of Section 280G and Section 4999.  The calculations and determinations of the Tax Adviser shall be conclusive and binding on the Company and Executive for all purposes.  In the event that the aggregate payments or benefits to be made or afforded to Executive in the event of a Change of Control (whether under this Agreement or otherwise) would be deemed to be Excess Payments, then such payments or benefits shall be reduced to the extent necessary to avoid treatment as an “excess parachute payment”, with the reduction among such payments and benefits to be made first to payments and benefits payable or provided under this Agreement.  In connection with making determinations under this Section 8(c), the Tax Advisor shall take into account the value of any

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reasonable compensation for services to be rendered by the Executive before or after the Change in Control, including without limitation, the Executive’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, and the Company shall act in good faith in connection with any such valuations and reasonable compensation positions. Without limiting the generality of the foregoing, for purposes of this provision, the Company agrees to allocate as consideration for the covenants set forth in Section 9 the maximum amount of compensation and benefits payable under Section 8 hereof reasonably allocable thereto so as to avoid, to the extent possible, subjecting any payment to tax under Section 4999 of the Code.

9.NONCOMPETITION, NONSOLICITATION AND NONDISCLOSURE:

(a)Executive hereby covenants and agrees that, for a period of one (1) year following a termination of employment in the circumstances described in Sections 7(e), 7(f), or 8, Executive shall not, without the written consent of Company, either directly or indirectly:

(i)become an officer, employee, consultant, director, independent contractor, agent, joint venturer, partner or trustee of any business whatsoever that competes with the business of  Company, the Bank or any Subsidiary other than the Bank;

(ii)solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of Company, the Bank or any Subsidiary other than the Bank to terminate his employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of Company, the Bank or any Subsidiary other than the Bank; or

(iii)solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any Protected Customer to terminate an existing business or commercial relationship with  Company, the Bank or any Subsidiary other than the Bank.

(iv)For purposes of this Section 9(a), a business that “competes with the business of Company, the Bank or any Subsidiary other than the Bank” shall mean a depository financial institution doing business within twenty-five (25) miles of any office of the Bank in existence on the date of Executive’s termination of employment.

(b)During the Term and thereafter, Executive shall hold in a fiduciary capacity for the benefit of Company and its Subsidiaries all secret or confidential information, knowledge or data relating to Company and its Subsidiaries and their respective businesses, which shall have been obtained by Executive during Executive’s employment by Company, the Bank and any Subsidiary other than the Bank and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). Executive shall not, without the prior written consent of Company, the Bank and such other Subsidiary, as applicable, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Company, the Bank and such other Subsidiary and those designated by them. After the end of the Restricted Period, the existence and identity of the customers and employees of Company, the Bank, and any Subsidiaries other than the Bank shall not constitute secret or confidential information, knowledge or data.

(c)During any period in which Section 9(a) is effective, Section 9(a) shall not preclude Executive from holding any publicly traded stock provided Executive does not acquire any stock interest in any one company in excess of one percent (1%) of the outstanding voting stock of that company.

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(d)The parties agree that the restrictions contained in this Section 9 are reasonable and fair. If Executive competes in violation of the terms of this Section 9, the parties agree that Company will be irreparably harmed without an adequate remedy at law. Accordingly, Executive acknowledges that if Executive breaches or threatens to breach any provision of this Section 9, Company shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, but such injunctive relief shall not preclude Company from pursuing all other legal or equitable remedies arising out of such a breach.

10.REFORMATION: The parties have attempted to limit Executive’s right to compete only to the extent necessary to protect Company, the Bank and Subsidiaries other than the Bank from unfair competition. The parties recognize, however, that reasonable people may differ in making such a determination. Consequently, the parties hereby agree that, if the scope or enforceability of a restrictive covenant set forth in Section 9 is in any way disputed at any time, a court or other trier of fact may modify and reform such provision to substitute such other terms as are reasonable to protect the legitimate business interests of Company, the Bank and Subsidiaries other than the Bank.

11.NOTICES: For the purposes of this Agreement, notices or other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered to the party to whom directed or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to such party at such party’s address last known by the party giving such notice. Each party may, from time to time, and shall, upon request of another party, designate an address to which notices should be sent. Notices of change of address shall be effective only upon receipt.

12.MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by Executive, and on behalf of Company, by such officers as may be specifically designated by Company. No waiver of any breach, condition or provision of this Agreement by any party hereto at any time shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party that are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of North Carolina, except to the extent that federal applies.

13.INVALIDITY - ENFORCEABILITY: The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and shall be binding upon Company and any successor to Company. If Executive should die while any amounts would still be payable to Executive hereunder all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is no such designee, to Executive’s estate.

15.ATTORNEY’S FEES: In the event that either party incurs costs and fees, including attorney’s fees, in enforcing its rights under this Agreement, the party substantially prevailing in such suit or action including any appeal shall be entitled to recover from the other all such costs and reasonable attorney’s fees.

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16.EFFECT OF FEDERAL BANKING STATUTES AND REGULATIONS: Notwithstanding anything herein contained to the contrary, any payments to Executive by the Employer whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.   In addition, Executive agrees that this Agreement is subject to amendment at any time in order to comply with laws that are applicable to Company and the Bank (including regulations and rules relating to any governmental program in which Company or the Bank may participate).

17.HEADINGS: Descriptive headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision hereof.

18.EFFECT ON PRIOR AGREEMENTS: This Agreement supersedes all prior agreements, either expressed or implied, between the parties hereto with respect to the employment of Executive.

19.INTERNAL REVENUE CODE SECTION 409A/CONTINUATION OF BENEFITS/ REIMBURSEMENTS:  This Agreement is intended to and shall be interpreted to comply with Section 409A of the Code, or, if applicable, to be exempt from Section 409A of the Code. All references to a termination of employment and separation from service shall mean and be administered to comply with the definition of “separation from service” in Section 409A of the Code. All reimbursements provided under this Agreement shall comply with Section 409A of the Code and shall be subject to the following requirements:

(a)The amount of expenses eligible for reimbursement, during Executive’s taxable year may not affect the expenses eligible for reimbursement to be provided in another taxable year; and

(b)The reimbursement of an eligible expense must be made by December 31 following the taxable year in which the expense was incurred. The right to reimbursement is not subject to liquidation or exchange for another benefit.

If Executive is a “specified employee” (as defined under Section 409A of the Code) at the time of separation from service, to the extent that any amount payable under this Agreement constitutes “deferred compensation” under Section 409A of the Code (and is not otherwise excepted from Section 409A of the Code coverage by virtue of being considered “separation pay” or a “short term deferral” or otherwise) and is payable to Executive based upon a separation from service (other than death or “disability” as defined under Section 409A of the Code), such amount shall not be paid until the first day following the six (6) month anniversary of Executive’s separation from service. Any right to a series of installment payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. Payment of any accrued and unused paid time off, unless expressly provided otherwise herein shall be made in a single lump sum within thirty (30) days of separation from service.

20.ARBITRATION OF DISPUTES:Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a single arbitrator who is certified by the American Arbitration Association and is mutually acceptable to Executive and Company, sitting in a location selected by the Employer within fifty (50) miles from the main office of the Employer, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

21.COUNTERPARTS:This Agreement may be executed in counterparts.

22.[reserved]

23.REGULATORY REQUIREMENTS:

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(a)If the Executive is removed and/or permanently prohibited from participating in the conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Employer under this Agreement shall terminate, as of the effective date of such order, except for the payment of Base Salary due and owing under Section 4(a) on the effective date of said order, and reimbursement under Section 5(a) of expenses incurred as of the effective date of termination.

(b)If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Employer’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Employer under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Employer shall reinstate (in whole or in part) any of its obligations which were suspended.

(c)If the Employer is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but the vested rights of the parties shall not be affected.

(d)All obligations under this Agreement shall be terminated, except to the extent a determination is made that continuation of the contract is necessary for the continued operation of the Employer (1) by the director of the Federal Deposit Insurance Corporation (the “FDIC”) or his or her designee (the “Director”), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Employer under the authority contained in Section 13(c) of the FDIA; or (2) by the Director, at the time the Director approves a supervisory merger to resolve problems related to operation of the Employer when the Employer is determined by the Director to be in an unsafe and unsound condition.  Any rights of the Executive that have already vested, however, shall not be affected by such action.

(e)All obligations under this Agreement are further subject to such conditions, restrictions, limitations and forfeiture provisions as may separately apply pursuant to any applicable state banking laws.

 (f)Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant any provision herein in contravention of the requirements of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)).

[Signatures on following page]

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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written.

ASB BANCORP, INC.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
ASHEVILLE SAVINGS BANK, S.S.B.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
/s/ Kirby A. Tyndall
Kirby A. Tyndall

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EX-10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT

Amended and Restated as of June 16, 2015

THIS EMPLOYMENT AGREEMENT (the “Agreement”) amends and restates as of June 16, 2015, the Employment Agreement dated as of the 18th day of October, 2011, by and between ASB BANCORP, INC., a North Carolina corporation (“Company”), ASHEVILLE SAVINGS BANK, S.S.B., a North Carolina chartered savings bank (the “Bank”), and DAVID A. KOZAK (“Executive”).  For purposes of this Agreement, the term “Employer” shall mean the Company and the Bank.

RECITALS

WHEREAS, Company and the Bank wish to continue to employ Executive in positions of substantial responsibility; and

WHEREAS, Company, the Bank and Executive desire to amend this Agreement to make certain corrections and clarifications which are intended to bring the Agreement further into compliance with the Internal Revenue Code and developments in the law.

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and for other good and valuable consideration, the receipt and adequacy whereof each party hereby acknowledges, Company, the Bank and Executive hereby agree as follows:

1.DEFINITIONS: The following terms shall have the following meanings for all purposes of this Agreement:

Base Salary means the annual base compensation specified in Section 4 below.

Board means, unless otherwise indicated by the context, the Board of Directors of Company and the Board of Directors of the Bank.

Cause means any of the reasons listed in Section 7(d) below for which this Agreement may be terminated or Executive may be discharged prior to the end of the Term hereof.

Change of Control means and shall be deemed to have occurred upon the occurrence of any of the following events.

(1)The acquisition by any “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the Exchange Act) (other than Company, any Subsidiary or any Company or Subsidiary’s employee benefit plan), directly or indirectly, as “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than fifty percent (50%) of either the then outstanding shares or the combined voting power of the then outstanding securities of Company or the Bank;

(2)A majority of the directors of Company elected at Company’s annual stockholders meeting shall have been nominated for election other than by or at the direction of the “incumbent directors” of Company, and the “incumbent directors” shall cease to constitute a majority of the directors of Company during any twelve (12) month period. The term “incumbent director” shall mean any director who was a director of Company on the Effective Date and any individual who becomes a director of Company subsequent to the Effective Date and who is elected or nominated by or at the direction of at least majority of the then incumbent directors; or

(3)The consummation of (x) a merger, consolidation or other business combination of Company with any other “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the 1934 Act) or affiliate thereof, other than a merger or consolidation that would result in the outstanding common stock of Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate

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thereof) more than fifty percent (50%) of the outstanding common stock of Company or such surviving entity or a parent or affiliate thereof outstanding immediately after such merger, consolidation or other business combination, or (y) the sale or disposition of all or substantially all of Company’s or the Bank’s assets.

No event that occurs is a Change of Control unless it complies with Code Section 409A and the regulations thereunder.  No event that was not already covered by this definition prior to the amendment and restatement of this Agreement is added by such amendment and restatement.

Code means the Internal Revenue Code of 1986, as amended.

Effective Date means the first day of the initial Term.

Exchange Act means the Securities Exchange Act of 1934, as amended.

Good Reason means the occurrence of any of the conditions listed in Section 7(f) below which is followed by the resignation of Executive within twelve (12) months after such occurrence.

Protected Customer shall mean any person, business or entity who or which:

(1)Was known by Executive to have purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank; or

(2)Purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank, and about whom Executive had access to confidential or proprietary information during this period; or

(3)Was known by Executive to have received (during the one-year period prior to Executive’s last day of employment with the Bank) but not yet acted upon a proposal by Company, the Bank or any Subsidiary other than the Bank for the purchase of products or performance of services.

Resignation for Good Reason means resignation by Executive in accordance with the provisions of Section 7(f) below.

Restricted Period means the one-year period described in Section 9(a) below.

Subsidiary means any corporation at least a majority of the stock of which is owned by Company, either directly or through one or more other Subsidiaries, and any other entity controlled, directly or indirectly, by Company or any other Subsidiary.

Term means the term of this Agreement specified in Section 3 and 8(a) below, including the initial term and any extended term.

Termination for Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(d) below for any of the reasons listed therein.

Termination without Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(e) below.

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2.EMPLOYMENT:

(a)During the Term, Executive shall serve as Executive Vice President and Chief Credit Officer of Company and the Bank, reporting directly to and under the direction of, the President and Chief Executive Officer of Company and the Bank. Executive will perform all duties and have all powers associated with such positions as and as may be set forth in the Bylaws of Company or the Bank. In addition, Executive shall be responsible for such other duties as established and determined within the discretion of the Board.  Executive agrees that, during the Term, Executive will devote full business time and energy to the business, affairs and interests of Company and the Bank and serve diligently and to the best of Executive’s ability. Executive may serve as a director, trustee or officer of other corporations and entities, including without limitation charitable organizations, and engage in other activities to the extent those activities and services do not inhibit the performance of Executive’s duties hereunder or, in the opinion of the Board, conflict with the business of Company, the Bank or any Subsidiary.

(b)References in this Agreement to services rendered for Company and compensation, benefits, indemnification and liability insurance payable or provided by Company shall include services rendered for and compensation, benefits, indemnification and liability insurance payable or provided by the Bank and any Subsidiary other than the Bank, and references in this Agreement to “ Company “ shall mean and include the Bank and any Subsidiary other than the Bank if Executive performs any services therefore, as the context may require.

3.TERM: The initial term of this Agreement shall be for the period beginning on June 16, 2015 and continuing for a twenty-four (24) month period through and including June 15, 2017 subject, however, to earlier termination in the manner provided in this Agreement. Commencing as of the first anniversary of the Effective Date and continuing as of each anniversary of the Effective Date thereafter, the disinterested members of the Board may, in the sole discretion of the Board, extend the Agreement term for an additional year, so that the remaining term of the Agreement again becomes twenty-four (24) full months from the applicable anniversary of the Effective Date, unless the Executive elects not to extend the term of this Agreement by giving written notice at least thirty (30) days prior to the applicable anniversary date. Notwithstanding the foregoing, the term of this Agreement shall be extended pursuant to Section 8(a) below upon the occurrence of a Change of Control.

4.BASE SALARY; INCENTIVE COMPENSATION:

(a)Executive shall receive a Base Salary at the rate of $180,000, payable in substantially equal installments no less frequently than monthly (less any amounts withheld as required by law or pursuant to any benefits plan). At least annually, Company shall review and, in its sole discretion, may increase, Executive’s Base Salary. If Executive’s Base Salary is increased by Company, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement.

(b)Executive shall be eligible to participate in any incentive compensation, bonus plans or arrangements of the Company on the same terms as other senior officers. Nothing paid to Executive under any such plans or arrangements will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

5.EMPLOYEE BENEFITS AND REIMBURSEMENTS:

(a)During the Term, Executive shall be eligible to participate in any retirement, group insurance, hospitalization, incentive or deferred compensation and other benefit or compensation plans of the Bank presently in effect or hereafter adopted and generally available to all Company’s senior officers, subject to the terms and conditions specified in such plans. Executive shall also be eligible to any additional compensation, benefits or perquisites, if any, that may be provided specifically to or for Executive by Company or the Bank from time to time. During the Term, to the extent provided by corporate policies, Executive shall be reimbursed for expenditures (including travel, entertainment,

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parking and business meetings) made in pursuance and furtherance of the business and good will of Company.

(b)Vacation and Leave. Executive will be entitled to vacation leave, sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior officers.

6.INDEMNIFICATION:

(a)Company, the Bank and any Subsidiary other than the Bank for which Executive provides services shall indemnify and hold Executive harmless from and against all liability and expense resulting from (1) all acts or omissions of Executive while acting in the capacity of a director, officer, trustee, or fiduciary and/or employee of Company, the Bank and any such Subsidiary during Executive’s employment as such director, officer, and/or employee and (2) acts or omissions of Company, the Bank and any such Subsidiary occurring or alleged to have occurred during or prior to Executive’s employment, on terms and conditions no less favorable to Executive than the terms and conditions providing for indemnification of officers and directors under the Articles of Incorporation and the Bylaws of Company, the Bank charter and each such Subsidiary’s governing documents.

(b)The Bank shall carry directors and officers liability insurance in such amounts as the Bank in its discretion deems appropriate, and any payments made under such policy to Executive or on Executive’s behalf shall be offset against the indemnification obligation set forth in Section 6(a).

(c)Notwithstanding the foregoing, the indemnification provided by Section 6(a) shall not apply, and Executive shall not be indemnified, with respect to any acts or omissions which constitute wanton or willful misconduct or willful gross negligence. The indemnity obligation set forth in this Section 6 shall be subject to the prohibitions and limitations established by applicable law and as set forth in applicable regulations adopted by any federal or state bank regulatory agency having jurisdiction over Company, the Bank or any Subsidiary other than the Bank for which Executive performs services.

(d)The provisions of this Section 6 shall survive termination of this Agreement.

7.TERMINATION: Executive’s employment under this Agreement may be terminated under any of the following conditions.

(a)Disability: If Executive is unable to perform the essential functions of Executive’s positions on a full-time basis for a period of six (6) consecutive months (or for such shorter period ending with Executive’s eligibility for and receipt of long-term disability benefits under an insurance policy or employee benefit plan provided or made available to Executive by Company) by reason of illness or other physical or mental disability, Company shall have the right to terminate Executive’s employment under this Agreement at the end of the applicable period by written notice thereof. If Executive’s employment is so terminated, Executive shall be paid any salary and benefits to which Executive may be entitled until the end of the payroll period in which the date of termination occurs, and thereafter, Company shall have no further obligation for additional compensation and benefits under this Agreement. A condition of disability shall be determined by Company on the basis of competent evidence. A written opinion of a licensed physician certified in his field of specialization and acceptable to Company, or Executive’s entitlement to or receipt of long-term disability benefits under any insurance policy or employee benefit plan provided or made available to Executive by Company or under federal Social Security law, shall be conclusive evidence of disability.

(b)Death: In the event of Executive’s death during the Term, Executive’s estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Base Salary at the rate in effect at the time of Executive’s death for a period of one (1) month after the date of Executive’s death and shall be paid for any accrued and unused paid time off. Such additional compensation and accrued and unused paid time off shall be paid in a single lump sum within thirty (30) days from Executive’s date of death.

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(c)Resignation By Executive: Upon thirty (30) days prior notice, Executive may resign or voluntarily leave the employ of Company, other than under circumstances treated as Resignation for Good Reason.  In the event of Executive’s resignation under this Section 7(c), Executive shall be paid any accrued and unpaid salary and accrued and unused paid time off through Executive’s date of resignation.

(d)Termination For Cause: Company may, in its sole discretion, by written notice to Executive, terminate Executive’s employment immediately for Cause upon the occurrence of any of the following:

(1)Executive’s willful failure to follow or to cooperate in carrying out any of the lawful policies of Company or the Bank or the lawful directions of the Board;

(2)Continued and willful neglect by Executive of Executive’s duties for or on behalf of Company, the Bank or any Subsidiary other than the Bank for which Executive provides services;

(3)Willful misconduct of Executive in connection with the performance of any of Executive’s duties, including, by way of example, but not limitation, misappropriation of funds or property of Company, the Bank or a Subsidiary other than the Bank or a depositor therein or borrower therefrom, or securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of Company, the Bank or Subsidiary other than the Bank to the prejudice of the Bank or its Subsidiaries;

(4)Conduct by Executive which results in Executive’s suspension and/or temporary prohibition or removal and/or permanent prohibition from participation in the conduct of the affairs of Company, the Bank or any Subsidiary other than the Bank pursuant to the rules and regulations of the primary federal or state banking agency for Company, the Bank or the other Subsidiary or any other federal or state banking agency having regulatory jurisdiction over Company, the Bank or the other Subsidiary;

(5)Conviction of Executive of a felony or any misdemeanor involving moral turpitude or Executive’s willful violation of any law, rule or regulation to which Company, the Bank or other Subsidiary for which Executive performs services is subject or of a final order or other formal administrative action entered into, by or imposed upon Company, the Bank or any such Subsidiary;

(6)Willful violation of any code of conduct or standards of ethics applicable to employees of Company or the Bank that results in material and demonstrable damage to the business or reputation of Company or the Bank; or

(7)The issuance of a permanent injunction or similar remedy against Executive preventing Executive from executing or performing all or part of this Agreement.

If Executive’s employment is Terminated for Cause or Company has Cause for termination and Executive voluntarily resigns, Executive shall not be entitled to any further compensation or benefits under this Agreement other than payment for any accrued and unused paid time off.

Notwithstanding anything herein to the contrary, except as “willful” may be otherwise defined by the rules and regulations of the primary federal or state banking agency for the Bank for which Executive performs services or any other federal or state banking agency having regulatory jurisdiction over the Bank for which Executive performs services, (x) no act or failure to act on Executive’s part shall be considered “willful” unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interest of Company or the Bank for which Executive performs services, and (y) no failure to act on Executive’s part shall be considered “willful” if such failure is a result of a condition of disability within the meaning of Section 7(a) of this Agreement. Executive shall not be deemed to have been Terminated for Cause under this Agreement unless and until there is delivered to Executive a copy of a resolution adopted at a meeting of the Company Board called and held for the purpose, which resolution shall (x) contain findings that

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Executive has committed an act constituting Cause, and (y) specify the particulars thereof. The resolution of the Board shall be deemed to have been duly adopted if and only if it is adopted by the affirmative vote of a majority of the directors then in office, excluding Executive. Notice of the meeting and the proposed termination for Cause shall be given to Executive a reasonable time before the meeting of the Board. Executive and Executive’s counsel (if the Executive chooses to have counsel present) shall have a reasonable opportunity to be heard by the Board at the meeting.

(e)Termination Without Cause: Company may, in its sole discretion, by written notice to Executive terminate Executive’s employment under this Agreement immediately without Cause at any time (other than following a Change of Control, in which case a termination without Cause is governed by Section 8 of this Agreement).  In the event of such termination, Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive is Terminated without Cause through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. The payments described in this Section 7(e) will be due Executive regardless of any subsequent employment attained by Executive, other than the following benefit.  If Executive is eligible for and timely and properly elects continuation coverage under the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”), the Employer shall reimburse the Executive monthly for the monthly COBRA premium paid by Executive for himself and his dependents for a period of eighteen (18) months after the Termination Date (the “COBRA Reimbursement”). If the terms of the applicable plan documents do not allow the Employer to continue to provide COBRA coverage to Executive and Executive's dependents beyond the expiration of the statutorily-proscribed COBRA period, the Employer shall make monthly cash payments to Executive in an amount equal to the monthly COBRA premium for coverage for Executive and Executive's dependents for the duration of the eighteen (18) month period. Provided, however, that Employer’s obligations under this provision for COBRA/health coverage shall terminate on the date on which the Executive enrolls in a group health plan offered by another employer that provides substantially similar coverage.

(f)Resignation For Good Reason:

(1)Executive may Resign for Good Reason upon the occurrence of any of the following conditions without Executive’s prior written consent:

(A)a material change in Executive’s positions, authority and responsibilities relative to Executive’s positions, authority and responsibilities at the Effective Date;

(B)a liquidation or dissolution of Company or the Bank, other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive;

(C)a reduction in Executive’s Base Salary;

(D)a relocation of Executive’s principal place of employment by more than thirty-five (35) miles from its location as of the Effective Date; or

(E)a material breach of this Agreement by Company or the Bank.

(2)Resignation for Good Reason shall be effected by delivering to Company, within twelve (12) months after the occurrence of one of the conditions described above, a written notice specifying a date for termination of employment (a) which is not less than thirty (30) days after the date of the notice, and (b) which is not more than ninety (90) days after the date of the notice. The notice shall also state that Executive is resigning for Good Reason as contemplated by this Section 7(f) and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Resignation for Good Reason hereunder. If within the notice period, Company cures or corrects any circumstances providing a

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basis for Resignation for Good Reason pursuant to Sections 7(f)(1)(A) or (E) only, Executive shall not be entitled to Resign for Good Reason.

(3)If Executive Resigns for Good Reason at any time after the date of this Agreement (other than a Resignation for Good Reason during the Term after a Change of Control, which shall be governed by Section 8 below), then Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive Resigns for Good Reason through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. In addition, the Bank shall pay for post-employment health coverage in the same manner as described in Section 7(e) above.  The payments, other than post-employment health benefits, described in this Section 7(f) will be due Executive regardless of any subsequent employment attained by Executive which is not in violation of this Agreement.

8.CHANGE OF CONTROL: Notwithstanding the preceding provisions of this Agreement, upon the occurrence of a Change of Control, the following provisions shall apply:

(a)The Term shall be extended to a period of one (1) year after the date on which the Change of Control occurs if the remaining Term as of the Change of Control effective date is less than one (1) year.

(b)If, during the Term, as extended pursuant to Section 8(a), either Executive’s employment is Terminated without Cause or Executive Resigns for Good Reason, in either case, Company shall provide to Executive the following severance benefits:

(1)Company shall pay to Executive, in lieu of the compensation specified in Sections 7(e) or 7(f), a severance payment (subject to any applicable payroll or other taxes required to be withheld) equal to three (3) times the sum of (i) Executive’s Base Salary at the rate then in effect, or if greater, in effect immediately preceding the Change of Control and (ii) the average of the cash bonuses paid or accrued on Executive’s behalf with respect to the three (3) completed calendar years preceding the effective date of the Change of Control (or, if Executive has not been employed for three (3) years, the average of the completed calendar years in which Executive was employed) in a lump sum. In addition, the Bank shall pay for Executive’s health coverage in the same manner as set forth in Section 7(e).

(2)The payments described in this Section 8, other than COBRA/health benefits, shall be due Executive regardless of any subsequent employment obtained by Executive.  If payment cannot be made upon the occurrence of the Change of Control, it will be paid on or before the first payroll following the Change of Control.

(c)The  Company shall engage an independent accounting firm or independent tax counsel (“Tax Adviser”), at the Company’s expense, to calculate and determine (i) the amount of payments, distributions and benefits payable or receivable by Executive in the event of a Change of Control (whether under this Agreement or otherwise) that constitute “parachute payments” for purposes of Section 280G of the Code, and (ii) whether any portion of such parachute payments would constitute an “excess parachute payment” subject to the excise tax imposed under Section 4999 of the Code (“Excess Payments”).  The Tax Adviser may rely on reasonable, good faith assumptions and approximations concerning the application of Section 280G and Section 4999.  The calculations and determinations of the Tax Adviser shall be conclusive and binding on the Company and Executive for all purposes.  In the event that the aggregate payments or benefits to be made or afforded to Executive in the event of a Change of Control (whether under this Agreement or otherwise) would be deemed to be Excess Payments, then such payments or benefits shall be reduced to the extent necessary to avoid treatment as an “excess parachute payment”, with the reduction among such payments and benefits to be made first to payments and benefits payable or provided under this Agreement.  In connection with making determinations under this Section 8(c), the Tax Advisor shall take into account the value of any

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reasonable compensation for services to be rendered by the Executive before or after the Change in Control, including without limitation, the Executive’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, and the Company shall act in good faith in connection with any such valuations and reasonable compensation positions. Without limiting the generality of the foregoing, for purposes of this provision, the Company agrees to allocate as consideration for the covenants set forth in Section 9 the maximum amount of compensation and benefits payable under Section 8 hereof reasonably allocable thereto so as to avoid, to the extent possible, subjecting any payment to tax under Section 4999 of the Code.

9.NONCOMPETITION, NONSOLICITATION AND NONDISCLOSURE:

(a)Executive hereby covenants and agrees that, for a period of one (1) year following a termination of employment in the circumstances described in Sections 7(e), 7(f), or 8, Executive shall not, without the written consent of Company, either directly or indirectly:

(i)become an officer, employee, consultant, director, independent contractor, agent, joint venturer, partner or trustee of any business whatsoever that competes with the business of  Company, the Bank or any Subsidiary other than the Bank;

(ii)solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of Company, the Bank or any Subsidiary other than the Bank to terminate his employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of Company, the Bank or any Subsidiary other than the Bank; or

(iii)solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any Protected Customer to terminate an existing business or commercial relationship with  Company, the Bank or any Subsidiary other than the Bank.

(iv)For purposes of this Section 9(a), a business that “competes with the business of Company, the Bank or any Subsidiary other than the Bank” shall mean a depository financial institution doing business within twenty-five (25) miles of any office of the Bank in existence on the date of Executive’s termination of employment.

(b)During the Term and thereafter, Executive shall hold in a fiduciary capacity for the benefit of Company and its Subsidiaries all secret or confidential information, knowledge or data relating to Company and its Subsidiaries and their respective businesses, which shall have been obtained by Executive during Executive’s employment by Company, the Bank and any Subsidiary other than the Bank and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). Executive shall not, without the prior written consent of Company, the Bank and such other Subsidiary, as applicable, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Company, the Bank and such other Subsidiary and those designated by them. After the end of the Restricted Period, the existence and identity of the customers and employees of Company, the Bank, and any Subsidiaries other than the Bank shall not constitute secret or confidential information, knowledge or data.

(c)During any period in which Section 9(a) is effective, Section 9(a) shall not preclude Executive from holding any publicly traded stock provided Executive does not acquire any stock interest in any one company in excess of one percent (1%) of the outstanding voting stock of that company.

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(d)The parties agree that the restrictions contained in this Section 9 are reasonable and fair. If Executive competes in violation of the terms of this Section 9, the parties agree that Company will be irreparably harmed without an adequate remedy at law. Accordingly, Executive acknowledges that if Executive breaches or threatens to breach any provision of this Section 9, Company shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, but such injunctive relief shall not preclude Company from pursuing all other legal or equitable remedies arising out of such a breach.

10.REFORMATION: The parties have attempted to limit Executive’s right to compete only to the extent necessary to protect Company, the Bank and Subsidiaries other than the Bank from unfair competition. The parties recognize, however, that reasonable people may differ in making such a determination. Consequently, the parties hereby agree that, if the scope or enforceability of a restrictive covenant set forth in Section 9 is in any way disputed at any time, a court or other trier of fact may modify and reform such provision to substitute such other terms as are reasonable to protect the legitimate business interests of Company, the Bank and Subsidiaries other than the Bank.

11.NOTICES: For the purposes of this Agreement, notices or other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered to the party to whom directed or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to such party at such party’s address last known by the party giving such notice. Each party may, from time to time, and shall, upon request of another party, designate an address to which notices should be sent. Notices of change of address shall be effective only upon receipt.

12.MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by Executive, and on behalf of Company, by such officers as may be specifically designated by Company. No waiver of any breach, condition or provision of this Agreement by any party hereto at any time shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party that are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of North Carolina, except to the extent that federal applies.

13.INVALIDITY - ENFORCEABILITY: The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and shall be binding upon Company and any successor to Company. If Executive should die while any amounts would still be payable to Executive hereunder all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is no such designee, to Executive’s estate.

15.ATTORNEY’S FEES: In the event that either party incurs costs and fees, including attorney’s fees, in enforcing its rights under this Agreement, the party substantially prevailing in such suit or action including any appeal shall be entitled to recover from the other all such costs and reasonable attorney’s fees.

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16.EFFECT OF FEDERAL BANKING STATUTES AND REGULATIONS: Notwithstanding anything herein contained to the contrary, any payments to Executive by the Employer whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.   In addition, Executive agrees that this Agreement is subject to amendment at any time in order to comply with laws that are applicable to Company and the Bank (including regulations and rules relating to any governmental program in which Company or the Bank may participate).

17.HEADINGS: Descriptive headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision hereof.

18.EFFECT ON PRIOR AGREEMENTS: This Agreement supersedes all prior agreements, either expressed or implied, between the parties hereto with respect to the employment of Executive.

19.INTERNAL REVENUE CODE SECTION 409A/CONTINUATION OF BENEFITS/ REIMBURSEMENTS:  This Agreement is intended to and shall be interpreted to comply with Section 409A of the Code, or, if applicable, to be exempt from Section 409A of the Code. All references to a termination of employment and separation from service shall mean and be administered to comply with the definition of “separation from service” in Section 409A of the Code. All reimbursements provided under this Agreement shall comply with Section 409A of the Code and shall be subject to the following requirements:

(a)The amount of expenses eligible for reimbursement, during Executive’s taxable year may not affect the expenses eligible for reimbursement to be provided in another taxable year; and

(b)The reimbursement of an eligible expense must be made by December 31 following the taxable year in which the expense was incurred. The right to reimbursement is not subject to liquidation or exchange for another benefit.

If Executive is a “specified employee” (as defined under Section 409A of the Code) at the time of separation from service, to the extent that any amount payable under this Agreement constitutes “deferred compensation” under Section 409A of the Code (and is not otherwise excepted from Section 409A of the Code coverage by virtue of being considered “separation pay” or a “short term deferral” or otherwise) and is payable to Executive based upon a separation from service (other than death or “disability” as defined under Section 409A of the Code), such amount shall not be paid until the first day following the six (6) month anniversary of Executive’s separation from service. Any right to a series of installment payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. Payment of any accrued and unused paid time off, unless expressly provided otherwise herein shall be made in a single lump sum within thirty (30) days of separation from service.

20.ARBITRATION OF DISPUTES:Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a single arbitrator who is certified by the American Arbitration Association and is mutually acceptable to Executive and Company, sitting in a location selected by the Employer within fifty (50) miles from the main office of the Employer, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

21.COUNTERPARTS:This Agreement may be executed in counterparts.

22.[reserved]

23.REGULATORY REQUIREMENTS:

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(a)If the Executive is removed and/or permanently prohibited from participating in the conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Employer under this Agreement shall terminate, as of the effective date of such order, except for the payment of Base Salary due and owing under Section 4(a) on the effective date of said order, and reimbursement under Section 5(a) of expenses incurred as of the effective date of termination.

(b)If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Employer’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Employer under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Employer shall reinstate (in whole or in part) any of its obligations which were suspended.

(c)If the Employer is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but the vested rights of the parties shall not be affected.

(d)All obligations under this Agreement shall be terminated, except to the extent a determination is made that continuation of the contract is necessary for the continued operation of the Employer (1) by the director of the Federal Deposit Insurance Corporation (the “FDIC”) or his or her designee (the “Director”), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Employer under the authority contained in Section 13(c) of the FDIA; or (2) by the Director, at the time the Director approves a supervisory merger to resolve problems related to operation of the Employer when the Employer is determined by the Director to be in an unsafe and unsound condition.  Any rights of the Executive that have already vested, however, shall not be affected by such action.

(e)All obligations under this Agreement are further subject to such conditions, restrictions, limitations and forfeiture provisions as may separately apply pursuant to any applicable state banking laws.

 (f)Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant any provision herein in contravention of the requirements of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)).

[Signatures on following page]

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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written.

ASB BANCORP, INC.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
ASHEVILLE SAVINGS BANK, S.S.B.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
/s/ David A. Kozak
David A. Kozak

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EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

Amended and Restated as of June 16, 2015

THIS EMPLOYMENT AGREEMENT (the “Agreement”) amends and restates as of June 16, 2015, the Employment Agreement dated as of the 18th day of December, 2012, by and between ASB BANCORP, INC., a North Carolina corporation (“Company”), ASHEVILLE SAVINGS BANK, S.S.B., a North Carolina chartered savings bank (the “Bank”), and Vikki D. Bailey(“Executive”).  For purposes of this Agreement, the term “Employer” shall mean the Company and the Bank.

RECITALS

WHEREAS, Company and the Bank wish to continue to employ Executive in positions of substantial responsibility; and

WHEREAS, Company, the Bank and Executive desire to amend this Agreement to make certain corrections and clarifications which are intended to bring the Agreement further into compliance with the Internal Revenue Code and developments in the law.

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and for other good and valuable consideration, the receipt and adequacy whereof each party hereby acknowledges, Company, the Bank and Executive hereby agree as follows:

1.DEFINITIONS: The following terms shall have the following meanings for all purposes of this Agreement:

Base Salary means the annual base compensation specified in Section 4 below.

Board means, unless otherwise indicated by the context, the Board of Directors of Company and the Board of Directors of the Bank.

Cause means any of the reasons listed in Section 7(d) below for which this Agreement may be terminated or Executive may be discharged prior to the end of the Term hereof.

Change of Control means and shall be deemed to have occurred upon the occurrence of any of the following events.

(1)The acquisition by any “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the Exchange Act) (other than Company, any Subsidiary or any Company or Subsidiary’s employee benefit plan), directly or indirectly, as “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than fifty percent (50%) of either the then outstanding shares or the combined voting power of the then outstanding securities of Company or the Bank;

(2)A majority of the directors of Company elected at Company’s annual stockholders meeting shall have been nominated for election other than by or at the direction of the “incumbent directors” of Company, and the “incumbent directors” shall cease to constitute a majority of the directors of Company during any twelve (12) month period. The term “incumbent director” shall mean any director who was a director of Company on the Effective Date and any individual who becomes a director of Company subsequent to the Effective Date and who is elected or nominated by or at the direction of at least majority of the then incumbent directors; or

(3)The consummation of (x) a merger, consolidation or other business combination of Company with any other “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the 1934 Act) or affiliate thereof, other than a merger or consolidation that would result in the outstanding common stock of Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate

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thereof) more than fifty percent (50%) of the outstanding common stock of Company or such surviving entity or a parent or affiliate thereof outstanding immediately after such merger, consolidation or other business combination, or (y) the sale or disposition of all or substantially all of Company’s or the Bank’s assets.

No event that occurs is a Change of Control unless it complies with Code Section 409A and the regulations thereunder.  No event that was not already covered by this definition prior to the amendment and restatement of this Agreement is added by such amendment and restatement.

Code means the Internal Revenue Code of 1986, as amended.

Effective Date means the first day of the initial Term.

Exchange Act means the Securities Exchange Act of 1934, as amended.

Good Reason means the occurrence of any of the conditions listed in Section 7(f) below which is followed by the resignation of Executive within twelve (12) months after such occurrence.

Protected Customer shall mean any person, business or entity who or which:

(1)Was known by Executive to have purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank; or

(2)Purchased products or services from Company, the Bank or any Subsidiary other than the Bank during the two-year period immediately preceding Executive’s last day of employment with the Bank, and about whom Executive had access to confidential or proprietary information during this period; or

(3)Was known by Executive to have received (during the one-year period prior to Executive’s last day of employment with the Bank) but not yet acted upon a proposal by Company, the Bank or any Subsidiary other than the Bank for the purchase of products or performance of services.

Resignation for Good Reason means resignation by Executive in accordance with the provisions of Section 7(f) below.

Restricted Period means the one-year period described in Section 9(a) below.

Subsidiary means any corporation at least a majority of the stock of which is owned by Company, either directly or through one or more other Subsidiaries, and any other entity controlled, directly or indirectly, by Company or any other Subsidiary.

Term means the term of this Agreement specified in Section 3 and 8(a) below, including the initial term and any extended term.

Termination for Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(d) below for any of the reasons listed therein.

Termination without Cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 7(e) below.

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2.EMPLOYMENT:

(a)During the Term, Executive shall serve as Executive Vice President and Chief Retail Officer of Company and the Bank, reporting directly to and under the direction of, the President and Chief Executive Officer of Company and the Bank. Executive will perform all duties and have all powers associated with such positions as and as may be set forth in the Bylaws of Company or the Bank. In addition, Executive shall be responsible for such other duties as established and determined within the discretion of the Board.  Executive agrees that, during the Term, Executive will devote full business time and energy to the business, affairs and interests of Company and the Bank and serve diligently and to the best of Executive’s ability. Executive may serve as a director, trustee or officer of other corporations and entities, including without limitation charitable organizations, and engage in other activities to the extent those activities and services do not inhibit the performance of Executive’s duties hereunder or, in the opinion of the Board, conflict with the business of Company, the Bank or any Subsidiary.

(b)References in this Agreement to services rendered for Company and compensation, benefits, indemnification and liability insurance payable or provided by Company shall include services rendered for and compensation, benefits, indemnification and liability insurance payable or provided by the Bank and any Subsidiary other than the Bank, and references in this Agreement to “ Company “ shall mean and include the Bank and any Subsidiary other than the Bank if Executive performs any services therefore, as the context may require.

3.TERM: The initial term of this Agreement shall be for the period beginning on June 16, 2015 and continuing for a twenty-four (24) month period through and including June 15, 2017 subject, however, to earlier termination in the manner provided in this Agreement. Commencing as of the first anniversary of the Effective Date and continuing as of each anniversary of the Effective Date thereafter, the disinterested members of the Board may, in the sole discretion of the Board, extend the Agreement term for an additional year, so that the remaining term of the Agreement again becomes twenty-four (24) full months from the applicable anniversary of the Effective Date, unless the Executive elects not to extend the term of this Agreement by giving written notice at least thirty (30) days prior to the applicable anniversary date. Notwithstanding the foregoing, the term of this Agreement shall be extended pursuant to Section 8(a) below upon the occurrence of a Change of Control.

4.BASE SALARY; INCENTIVE COMPENSATION:

(a)Executive shall receive a Base Salary at the rate of $155,000, payable in substantially equal installments no less frequently than monthly (less any amounts withheld as required by law or pursuant to any benefits plan). At least annually, Company shall review and, in its sole discretion, may increase, Executive’s Base Salary. If Executive’s Base Salary is increased by Company, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement.

(b)Executive shall be eligible to participate in any incentive compensation, bonus plans or arrangements of the Company on the same terms as other senior officers. Nothing paid to Executive under any such plans or arrangements will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

5.EMPLOYEE BENEFITS AND REIMBURSEMENTS:

(a)During the Term, Executive shall be eligible to participate in any retirement, group insurance, hospitalization, incentive or deferred compensation and other benefit or compensation plans of the Bank presently in effect or hereafter adopted and generally available to all Company’s senior officers, subject to the terms and conditions specified in such plans. Executive shall also be eligible to any additional compensation, benefits or perquisites, if any, that may be provided specifically to or for Executive by Company or the Bank from time to time. During the Term, to the extent provided by corporate policies, Executive shall be reimbursed for expenditures (including travel, entertainment,

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parking and business meetings) made in pursuance and furtherance of the business and good will of Company.

(b)Vacation and Leave. Executive will be entitled to vacation leave, sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior officers.

6.INDEMNIFICATION:

(a)Company, the Bank and any Subsidiary other than the Bank for which Executive provides services shall indemnify and hold Executive harmless from and against all liability and expense resulting from (1) all acts or omissions of Executive while acting in the capacity of a director, officer, trustee, or fiduciary and/or employee of Company, the Bank and any such Subsidiary during Executive’s employment as such director, officer, and/or employee and (2) acts or omissions of Company, the Bank and any such Subsidiary occurring or alleged to have occurred during or prior to Executive’s employment, on terms and conditions no less favorable to Executive than the terms and conditions providing for indemnification of officers and directors under the Articles of Incorporation and the Bylaws of Company, the Bank charter and each such Subsidiary’s governing documents.

(b)The Bank shall carry directors and officers liability insurance in such amounts as the Bank in its discretion deems appropriate, and any payments made under such policy to Executive or on Executive’s behalf shall be offset against the indemnification obligation set forth in Section 6(a).

(c)Notwithstanding the foregoing, the indemnification provided by Section 6(a) shall not apply, and Executive shall not be indemnified, with respect to any acts or omissions which constitute wanton or willful misconduct or willful gross negligence. The indemnity obligation set forth in this Section 6 shall be subject to the prohibitions and limitations established by applicable law and as set forth in applicable regulations adopted by any federal or state bank regulatory agency having jurisdiction over Company, the Bank or any Subsidiary other than the Bank for which Executive performs services.

(d)The provisions of this Section 6 shall survive termination of this Agreement.

7.TERMINATION: Executive’s employment under this Agreement may be terminated under any of the following conditions.

(a)Disability: If Executive is unable to perform the essential functions of Executive’s positions on a full-time basis for a period of six (6) consecutive months (or for such shorter period ending with Executive’s eligibility for and receipt of long-term disability benefits under an insurance policy or employee benefit plan provided or made available to Executive by Company) by reason of illness or other physical or mental disability, Company shall have the right to terminate Executive’s employment under this Agreement at the end of the applicable period by written notice thereof. If Executive’s employment is so terminated, Executive shall be paid any salary and benefits to which Executive may be entitled until the end of the payroll period in which the date of termination occurs, and thereafter, Company shall have no further obligation for additional compensation and benefits under this Agreement. A condition of disability shall be determined by Company on the basis of competent evidence. A written opinion of a licensed physician certified in his field of specialization and acceptable to Company, or Executive’s entitlement to or receipt of long-term disability benefits under any insurance policy or employee benefit plan provided or made available to Executive by Company or under federal Social Security law, shall be conclusive evidence of disability.

(b)Death: In the event of Executive’s death during the Term, Executive’s estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Base Salary at the rate in effect at the time of Executive’s death for a period of one (1) month after the date of Executive’s death and shall be paid for any accrued and unused paid time off. Such additional compensation and accrued and unused paid time off shall be paid in a single lump sum within thirty (30) days from Executive’s date of death.

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(c)Resignation By Executive: Upon thirty (30) days prior notice, Executive may resign or voluntarily leave the employ of Company, other than under circumstances treated as Resignation for Good Reason.  In the event of Executive’s resignation under this Section 7(c), Executive shall be paid any accrued and unpaid salary and accrued and unused paid time off through Executive’s date of resignation.

(d)Termination For Cause: Company may, in its sole discretion, by written notice to Executive, terminate Executive’s employment immediately for Cause upon the occurrence of any of the following:

(1)Executive’s willful failure to follow or to cooperate in carrying out any of the lawful policies of Company or the Bank or the lawful directions of the Board;

(2)Continued and willful neglect by Executive of Executive’s duties for or on behalf of Company, the Bank or any Subsidiary other than the Bank for which Executive provides services;

(3)Willful misconduct of Executive in connection with the performance of any of Executive’s duties, including, by way of example, but not limitation, misappropriation of funds or property of Company, the Bank or a Subsidiary other than the Bank or a depositor therein or borrower therefrom, or securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of Company, the Bank or Subsidiary other than the Bank to the prejudice of the Bank or its Subsidiaries;

(4)Conduct by Executive which results in Executive’s suspension and/or temporary prohibition or removal and/or permanent prohibition from participation in the conduct of the affairs of Company, the Bank or any Subsidiary other than the Bank pursuant to the rules and regulations of the primary federal or state banking agency for Company, the Bank or the other Subsidiary or any other federal or state banking agency having regulatory jurisdiction over Company, the Bank or the other Subsidiary;

(5)Conviction of Executive of a felony or any misdemeanor involving moral turpitude or Executive’s willful violation of any law, rule or regulation to which Company, the Bank or other Subsidiary for which Executive performs services is subject or of a final order or other formal administrative action entered into, by or imposed upon Company, the Bank or any such Subsidiary;

(6)Willful violation of any code of conduct or standards of ethics applicable to employees of Company or the Bank that results in material and demonstrable damage to the business or reputation of Company or the Bank; or

(7)The issuance of a permanent injunction or similar remedy against Executive preventing Executive from executing or performing all or part of this Agreement.

If Executive’s employment is Terminated for Cause or Company has Cause for termination and Executive voluntarily resigns, Executive shall not be entitled to any further compensation or benefits under this Agreement other than payment for any accrued and unused paid time off.

Notwithstanding anything herein to the contrary, except as “willful” may be otherwise defined by the rules and regulations of the primary federal or state banking agency for the Bank for which Executive performs services or any other federal or state banking agency having regulatory jurisdiction over the Bank for which Executive performs services, (x) no act or failure to act on Executive’s part shall be considered “willful” unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interest of Company or the Bank for which Executive performs services, and (y) no failure to act on Executive’s part shall be considered “willful” if such failure is a result of a condition of disability within the meaning of Section 7(a) of this Agreement. Executive shall not be deemed to have been Terminated for Cause under this Agreement unless and until there is delivered to Executive a copy of a resolution adopted at a meeting of the Company Board called and held for the purpose, which resolution shall (x) contain findings that

5

Executive has committed an act constituting Cause, and (y) specify the particulars thereof. The resolution of the Board shall be deemed to have been duly adopted if and only if it is adopted by the affirmative vote of a majority of the directors then in office, excluding Executive. Notice of the meeting and the proposed termination for Cause shall be given to Executive a reasonable time before the meeting of the Board. Executive and Executive’s counsel (if the Executive chooses to have counsel present) shall have a reasonable opportunity to be heard by the Board at the meeting.

(e)Termination Without Cause: Company may, in its sole discretion, by written notice to Executive terminate Executive’s employment under this Agreement immediately without Cause at any time (other than following a Change of Control, in which case a termination without Cause is governed by Section 8 of this Agreement).  In the event of such termination, Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive is Terminated without Cause through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. The payments described in this Section 7(e) will be due Executive regardless of any subsequent employment attained by Executive, other than the following benefit.  If Executive is eligible for and timely and properly elects continuation coverage under the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”), the Employer shall reimburse the Executive monthly for the monthly COBRA premium paid by Executive for himself and his dependents for a period of eighteen (18) months after the Termination Date (the “COBRA Reimbursement”). If the terms of the applicable plan documents do not allow the Employer to continue to provide COBRA coverage to Executive and Executive's dependents beyond the expiration of the statutorily-proscribed COBRA period, the Employer shall make monthly cash payments to Executive in an amount equal to the monthly COBRA premium for coverage for Executive and Executive's dependents for the duration of the eighteen (18) month period. Provided, however, that Employer’s obligations under this provision for COBRA/health coverage shall terminate on the date on which the Executive enrolls in a group health plan offered by another employer that provides substantially similar coverage.

(f)Resignation For Good Reason:

(1)Executive may Resign for Good Reason upon the occurrence of any of the following conditions without Executive’s prior written consent:

(A)a material change in Executive’s positions, authority and responsibilities relative to Executive’s positions, authority and responsibilities at the Effective Date;

(B)a liquidation or dissolution of Company or the Bank, other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive;

(C)a reduction in Executive’s Base Salary;

(D)a relocation of Executive’s principal place of employment by more than thirty-five (35) miles from its location as of the Effective Date; or

(E)a material breach of this Agreement by Company or the Bank.

(2)Resignation for Good Reason shall be effected by delivering to Company, within twelve (12) months after the occurrence of one of the conditions described above, a written notice specifying a date for termination of employment (a) which is not less than thirty (30) days after the date of the notice, and (b) which is not more than ninety (90) days after the date of the notice. The notice shall also state that Executive is resigning for Good Reason as contemplated by this Section 7(f) and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Resignation for Good Reason hereunder. If within the notice period, Company cures or corrects any circumstances providing a

6

basis for Resignation for Good Reason pursuant to Sections 7(f)(1)(A) or (E) only, Executive shall not be entitled to Resign for Good Reason.

(3)If Executive Resigns for Good Reason at any time after the date of this Agreement (other than a Resignation for Good Reason during the Term after a Change of Control, which shall be governed by Section 8 below), then Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive Resigns for Good Reason through the expiration of the then current Term.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. In addition, the Bank shall pay for post-employment health coverage in the same manner as described in Section 7(e) above.  The payments, other than post-employment health benefits, described in this Section 7(f) will be due Executive regardless of any subsequent employment attained by Executive which is not in violation of this Agreement.

8.CHANGE OF CONTROL: Notwithstanding the preceding provisions of this Agreement, upon the occurrence of a Change of Control, the following provisions shall apply:

(a)The Term shall be extended to a period of one (1) year after the date on which the Change of Control occurs if the remaining Term as of the Change of Control effective date is less than one (1) year.

(b)If, during the Term, as extended pursuant to Section 8(a), either Executive’s employment is Terminated without Cause or Executive Resigns for Good Reason, in either case, Company shall provide to Executive the following severance benefits:

(1)Company shall pay to Executive, in lieu of the compensation specified in Sections 7(e) or 7(f), a severance payment (subject to any applicable payroll or other taxes required to be withheld) equal to three (3) times the sum of (i) Executive’s Base Salary at the rate then in effect, or if greater, in effect immediately preceding the Change of Control and (ii) the average of the cash bonuses paid or accrued on Executive’s behalf with respect to the three (3) completed calendar years preceding the effective date of the Change of Control (or, if Executive has not been employed for three (3) years, the average of the completed calendar years in which Executive was employed) in a lump sum. In addition, the Bank shall pay for Executive’s health coverage in the same manner as set forth in Section 7(e).

(2)The payments described in this Section 8, other than COBRA/health benefits, shall be due Executive regardless of any subsequent employment obtained by Executive.  If payment cannot be made upon the occurrence of the Change of Control, it will be paid on or before the first payroll following the Change of Control.

(c)The  Company shall engage an independent accounting firm or independent tax counsel (“Tax Adviser”), at the Company’s expense, to calculate and determine (i) the amount of payments, distributions and benefits payable or receivable by Executive in the event of a Change of Control (whether under this Agreement or otherwise) that constitute “parachute payments” for purposes of Section 280G of the Code, and (ii) whether any portion of such parachute payments would constitute an “excess parachute payment” subject to the excise tax imposed under Section 4999 of the Code (“Excess Payments”).  The Tax Adviser may rely on reasonable, good faith assumptions and approximations concerning the application of Section 280G and Section 4999.  The calculations and determinations of the Tax Adviser shall be conclusive and binding on the Company and Executive for all purposes.  In the event that the aggregate payments or benefits to be made or afforded to Executive in the event of a Change of Control (whether under this Agreement or otherwise) would be deemed to be Excess Payments, then such payments or benefits shall be reduced to the extent necessary to avoid treatment as an “excess parachute payment”, with the reduction among such payments and benefits to be made first to payments and benefits payable or provided under this Agreement.  In connection with making determinations under this Section 8(c), the Tax Advisor shall take into account the value of any

7

reasonable compensation for services to be rendered by the Executive before or after the Change in Control, including without limitation, the Executive’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, and the Company shall act in good faith in connection with any such valuations and reasonable compensation positions. Without limiting the generality of the foregoing, for purposes of this provision, the Company agrees to allocate as consideration for the covenants set forth in Section 9 the maximum amount of compensation and benefits payable under Section 8 hereof reasonably allocable thereto so as to avoid, to the extent possible, subjecting any payment to tax under Section 4999 of the Code.

9.NONCOMPETITION, NONSOLICITATION AND NONDISCLOSURE:

(a)Executive hereby covenants and agrees that, for a period of one (1) year following a termination of employment in the circumstances described in Sections 7(e), 7(f), or 8, Executive shall not, without the written consent of Company, either directly or indirectly:

(i)become an officer, employee, consultant, director, independent contractor, agent, joint venturer, partner or trustee of any business whatsoever that competes with the business of  Company, the Bank or any Subsidiary other than the Bank;

(ii)solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of Company, the Bank or any Subsidiary other than the Bank to terminate his employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of Company, the Bank or any Subsidiary other than the Bank; or

(iii)solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any Protected Customer to terminate an existing business or commercial relationship with  Company, the Bank or any Subsidiary other than the Bank.

(iv)For purposes of this Section 9(a), a business that “competes with the business of Company, the Bank or any Subsidiary other than the Bank” shall mean a depository financial institution doing business within twenty-five (25) miles of any office of the Bank in existence on the date of Executive’s termination of employment.

(b)During the Term and thereafter, Executive shall hold in a fiduciary capacity for the benefit of Company and its Subsidiaries all secret or confidential information, knowledge or data relating to Company and its Subsidiaries and their respective businesses, which shall have been obtained by Executive during Executive’s employment by Company, the Bank and any Subsidiary other than the Bank and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). Executive shall not, without the prior written consent of Company, the Bank and such other Subsidiary, as applicable, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Company, the Bank and such other Subsidiary and those designated by them. After the end of the Restricted Period, the existence and identity of the customers and employees of Company, the Bank, and any Subsidiaries other than the Bank shall not constitute secret or confidential information, knowledge or data.

(c)During any period in which Section 9(a) is effective, Section 9(a) shall not preclude Executive from holding any publicly traded stock provided Executive does not acquire any stock interest in any one company in excess of one percent (1%) of the outstanding voting stock of that company.

8

(d)The parties agree that the restrictions contained in this Section 9 are reasonable and fair. If Executive competes in violation of the terms of this Section 9, the parties agree that Company will be irreparably harmed without an adequate remedy at law. Accordingly, Executive acknowledges that if Executive breaches or threatens to breach any provision of this Section 9, Company shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, but such injunctive relief shall not preclude Company from pursuing all other legal or equitable remedies arising out of such a breach.

10.REFORMATION: The parties have attempted to limit Executive’s right to compete only to the extent necessary to protect Company, the Bank and Subsidiaries other than the Bank from unfair competition. The parties recognize, however, that reasonable people may differ in making such a determination. Consequently, the parties hereby agree that, if the scope or enforceability of a restrictive covenant set forth in Section 9 is in any way disputed at any time, a court or other trier of fact may modify and reform such provision to substitute such other terms as are reasonable to protect the legitimate business interests of Company, the Bank and Subsidiaries other than the Bank.

11.NOTICES: For the purposes of this Agreement, notices or other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered to the party to whom directed or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to such party at such party’s address last known by the party giving such notice. Each party may, from time to time, and shall, upon request of another party, designate an address to which notices should be sent. Notices of change of address shall be effective only upon receipt.

12.MODIFICATION; WAIVERS; APPLICABLE LAW: No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by Executive, and on behalf of Company, by such officers as may be specifically designated by Company. No waiver of any breach, condition or provision of this Agreement by any party hereto at any time shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party that are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of North Carolina, except to the extent that federal applies.

13.INVALIDITY - ENFORCEABILITY: The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and shall be binding upon Company and any successor to Company. If Executive should die while any amounts would still be payable to Executive hereunder all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is no such designee, to Executive’s estate.

15.ATTORNEY’S FEES: In the event that either party incurs costs and fees, including attorney’s fees, in enforcing its rights under this Agreement, the party substantially prevailing in such suit or action including any appeal shall be entitled to recover from the other all such costs and reasonable attorney’s fees.

9

16.EFFECT OF FEDERAL BANKING STATUTES AND REGULATIONS: Notwithstanding anything herein contained to the contrary, any payments to Executive by the Employer whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.   In addition, Executive agrees that this Agreement is subject to amendment at any time in order to comply with laws that are applicable to Company and the Bank (including regulations and rules relating to any governmental program in which Company or the Bank may participate).

17.HEADINGS: Descriptive headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision hereof.

18.EFFECT ON PRIOR AGREEMENTS: This Agreement supersedes all prior agreements, either expressed or implied, between the parties hereto with respect to the employment of Executive.

19.INTERNAL REVENUE CODE SECTION 409A/CONTINUATION OF BENEFITS/ REIMBURSEMENTS:  This Agreement is intended to and shall be interpreted to comply with Section 409A of the Code, or, if applicable, to be exempt from Section 409A of the Code. All references to a termination of employment and separation from service shall mean and be administered to comply with the definition of “separation from service” in Section 409A of the Code. All reimbursements provided under this Agreement shall comply with Section 409A of the Code and shall be subject to the following requirements:

(a)The amount of expenses eligible for reimbursement, during Executive’s taxable year may not affect the expenses eligible for reimbursement to be provided in another taxable year; and

(b)The reimbursement of an eligible expense must be made by December 31 following the taxable year in which the expense was incurred. The right to reimbursement is not subject to liquidation or exchange for another benefit.

If Executive is a “specified employee” (as defined under Section 409A of the Code) at the time of separation from service, to the extent that any amount payable under this Agreement constitutes “deferred compensation” under Section 409A of the Code (and is not otherwise excepted from Section 409A of the Code coverage by virtue of being considered “separation pay” or a “short term deferral” or otherwise) and is payable to Executive based upon a separation from service (other than death or “disability” as defined under Section 409A of the Code), such amount shall not be paid until the first day following the six (6) month anniversary of Executive’s separation from service. Any right to a series of installment payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. Payment of any accrued and unused paid time off, unless expressly provided otherwise herein shall be made in a single lump sum within thirty (30) days of separation from service.

20.ARBITRATION OF DISPUTES:Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a single arbitrator who is certified by the American Arbitration Association and is mutually acceptable to Executive and Company, sitting in a location selected by the Employer within fifty (50) miles from the main office of the Employer, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

21.COUNTERPARTS:This Agreement may be executed in counterparts.

22.[reserved]

23.REGULATORY REQUIREMENTS:

10

(a)If the Executive is removed and/or permanently prohibited from participating in the conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Employer under this Agreement shall terminate, as of the effective date of such order, except for the payment of Base Salary due and owing under Section 4(a) on the effective date of said order, and reimbursement under Section 5(a) of expenses incurred as of the effective date of termination.

(b)If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Employer’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Employer under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Employer shall reinstate (in whole or in part) any of its obligations which were suspended.

(c)If the Employer is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but the vested rights of the parties shall not be affected.

(d)All obligations under this Agreement shall be terminated, except to the extent a determination is made that continuation of the contract is necessary for the continued operation of the Employer (1) by the director of the Federal Deposit Insurance Corporation (the “FDIC”) or his or her designee (the “Director”), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Employer under the authority contained in Section 13(c) of the FDIA; or (2) by the Director, at the time the Director approves a supervisory merger to resolve problems related to operation of the Employer when the Employer is determined by the Director to be in an unsafe and unsound condition.  Any rights of the Executive that have already vested, however, shall not be affected by such action.

(e)All obligations under this Agreement are further subject to such conditions, restrictions, limitations and forfeiture provisions as may separately apply pursuant to any applicable state banking laws.

 (f)Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant any provision herein in contravention of the requirements of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)).

[Signatures on following page]

11

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written.

ASB BANCORP, INC.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
ASHEVILLE SAVINGS BANK, S.S.B.
By:	/s/ Patricia S. Smith
	Patricia S. Smith
	Chairman of the Board
/s/ Vikki D. Bailey
Vikki D. Bailey

12

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Suzanne S. DeFerie, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ASB Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 7, 2015	/s/ SUZANNE S. DEFERIE
	Suzanne S. DeFerie
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kirby A. Tyndall, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ASB Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and  15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and  presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is  reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 7, 2015	/s/ KIRBY A. TYNDALL
	Kirby A. Tyndall
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.0

Exhibit 32.0

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

 To my knowledge, this Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 of ASB Bancorp, Inc. (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the consolidated financial condition and results of operations of ASB Bancorp, Inc.

August 7, 2015	By:	/s/ SUZANNE S. DEFERIE
		Suzanne S. DeFerie
		President and Chief Executive Officer
		(Principal Executive Officer)
August 7, 2015	By:	/s/ KIRBY A. TYNDALL
		Kirby A. Tyndall
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

XML

LOANS RECEIVABLE, by Segment, Class, and Delinquency (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	$ 2,746	$ 3,142
Current	550,864	519,384
Total loans receivable	553,610	522,526
Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	2,411	1,731
Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	335	1,411
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	749	575
Current	256,481	238,274
Total loans receivable	257,230	238,849
Commercial [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	632	532
Commercial [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	117	43
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Current	27,236	21,661
Total loans receivable	27,236	21,661
Commercial [Member] | Commercial Construction and Land Development [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Commercial [Member] | Commercial Construction and Land Development [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	628	532
Current	212,216	200,784
Total loans receivable	212,844	201,316
Commercial [Member] | Commercial Mortgage [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	628	532
Commercial [Member] | Commercial Mortgage [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	121	43
Current	17,029	15,829
Total loans receivable	17,150	15,872
Commercial [Member] | Commercial and Industrial [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	4	0
Commercial [Member] | Commercial and Industrial [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	117	43
Non-Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,997	2,567
Current	294,383	281,110
Total loans receivable	296,380	283,677
Non-Commercial [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,779	1,199
Non-Commercial [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	218	1,368
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Current	16,174	14,781
Total loans receivable	16,174	14,781
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,587	1,802
Current	172,353	170,361
Total loans receivable	173,940	172,163
Non-Commercial [Member] | Residential Mortgage [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,406	576
Non-Commercial [Member] | Residential Mortgage [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	181	1,226
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	314	537
Current	61,429	55,833
Total loans receivable	61,743	56,370
Non-Commercial [Member] | Revolving Mortgage [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	277	396
Non-Commercial [Member] | Revolving Mortgage [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	37	141
Non-Commercial [Member] | Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	96	228
Current	44,427	40,135
Total loans receivable	44,523	40,363
Non-Commercial [Member] | Consumer [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	96	227
Non-Commercial [Member] | Consumer [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	$ 0	$ 1

XML

FAIR VALUE MEASUREMENTS, Estimated Fair Values and Carrying Amounts of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financial assets [Abstract]
Securities available for sale	$ 134,813	$ 141,462	[1]
Securities held to maturity	3,899	3,999	[1]
Estimated Fair Value [Member]
Financial assets [Abstract]
Cash and cash equivalents	52,990	56,858
Securities available for sale	134,813	141,462
Securities held to maturity	4,209	4,363
Investments in FHLB stock	2,807	2,902
Loans held for sale	8,368	5,350
Loans receivable, net	547,606	516,752
Accrued interest receivable	2,217	2,230
Deferred compensation assets	1,403	1,418
Financial liabilities [Abstract]
Demand deposits	473,674	449,286
Time deposits	150,326	153,994
Repurchase agreements	222	653
Federal Home Loan Bank Advances	52,912	53,382
Deferred compensation liabilities	1,408	1,418
Accrued interest payable	102	115
Estimated Fair Value [Member] | Commitments to Extend or Originate Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Estimated Fair Value [Member] | Commitments under Standby Letters of Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Estimated Fair Value [Member] | Level 1 [Member]
Financial assets [Abstract]
Cash and cash equivalents	52,990	56,858
Securities available for sale	752	746
Securities held to maturity	0	0
Investments in FHLB stock	0	0
Loans held for sale	0	0
Loans receivable, net	0	0
Accrued interest receivable	0	0
Deferred compensation assets	1,403	1,418
Financial liabilities [Abstract]
Demand deposits	0	0
Time deposits	0	0
Repurchase agreements	0	0
Federal Home Loan Bank Advances	0	0
Deferred compensation liabilities	1,408	1,418
Accrued interest payable	0	0
Estimated Fair Value [Member] | Level 1 [Member] | Commitments to Extend or Originate Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Estimated Fair Value [Member] | Level 1 [Member] | Commitments under Standby Letters of Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Estimated Fair Value [Member] | Level 2 [Member]
Financial assets [Abstract]
Cash and cash equivalents	0	0
Securities available for sale	134,061	140,716
Securities held to maturity	4,209	4,363
Investments in FHLB stock	0	0
Loans held for sale	8,368	5,350
Loans receivable, net	0	0
Accrued interest receivable	0	0
Deferred compensation assets	0	0
Financial liabilities [Abstract]
Demand deposits	0	0
Time deposits	0	0
Repurchase agreements	0	0
Federal Home Loan Bank Advances	0	0
Deferred compensation liabilities	0	0
Accrued interest payable	0	0
Estimated Fair Value [Member] | Level 2 [Member] | Commitments to Extend or Originate Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Estimated Fair Value [Member] | Level 2 [Member] | Commitments under Standby Letters of Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Estimated Fair Value [Member] | Level 3 [Member]
Financial assets [Abstract]
Cash and cash equivalents	0	0
Securities available for sale	0	0
Securities held to maturity	0	0
Investments in FHLB stock	2,807	2,902
Loans held for sale	0	0
Loans receivable, net	547,606	516,752
Accrued interest receivable	2,217	2,230
Deferred compensation assets	0	0
Financial liabilities [Abstract]
Demand deposits	473,674	449,286
Time deposits	150,326	153,994
Repurchase agreements	222	653
Federal Home Loan Bank Advances	52,912	53,382
Deferred compensation liabilities	0	0
Accrued interest payable	102	115
Estimated Fair Value [Member] | Level 3 [Member] | Commitments to Extend or Originate Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Estimated Fair Value [Member] | Level 3 [Member] | Commitments under Standby Letters of Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Total Carrying Amount in Balance Sheet [Member]
Financial assets [Abstract]
Cash and cash equivalents	52,990	56,858
Securities available for sale	134,813	141,462
Securities held to maturity	3,899	3,999
Investments in FHLB stock	2,807	2,902
Loans held for sale	8,192	5,237
Loans receivable, net	546,875	515,871
Accrued interest receivable	2,217	2,230
Deferred compensation assets	1,403	1,418
Financial liabilities [Abstract]
Demand deposits	473,674	449,286
Time deposits	150,289	154,093
Repurchase agreements	224	660
Federal Home Loan Bank Advances	50,000	50,000
Deferred compensation liabilities	1,408	1,418
Accrued interest payable	102	115
Total Carrying Amount in Balance Sheet [Member] | Commitments to Extend or Originate Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	0	0
Total Carrying Amount in Balance Sheet [Member] | Commitments under Standby Letters of Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	$ 0	$ 0

[1] Derived from audited consolidated financial statements.

XML

BENEFIT PLANS, Employee Stock Ownership Plan (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Shares held by ESOP [Abstract]
ESOP expense			$ 323,000	$ 284,000
Employee Stock Ownership Plan [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
ESOP Loan amount			$ 4,468,000
Number of shares purchased (in shares)			446,764
Common stock purchase price (in dollars per share)			$ 10.00
Interest rate on loan (in hundredths)	3.25%		3.25%
Term of loan			15 years
Shares held by ESOP [Abstract]
Allocated ESOP shares, beginning of period (in shares)	98,624		98,624
ESOP shares committed to be released during the period (in shares)	15,565		15,565
ESOP shares withdrawn during the period (in shares)	(9,219)		(9,219)
Unallocated ESOP shares (in shares)	329,688		329,688
Total ESOP shares (in shares)	434,658		434,658
Fair value of unallocated ESOP shares	$ 7,141,000		$ 7,141,000
ESOP expense	$ 165,000	$ 148,000	$ 323,000	$ 284,000

XML

FAIR VALUE MEASUREMENTS, Assets and Liabilities Recorded at Fair Value On a Recurring Basis (Details) - USD ($) $ in Thousands		Jun. 30, 2015	Dec. 31, 2014
Securities available for sale [Abstract]
Securities available for sale		$ 134,813	$ 141,462	[1]
Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		18,921	28,465
Residential Mortgage-backed Securities Issued by GSE's [Member]
Securities available for sale [Abstract]
Securities available for sale	[2]	54,106	67,421
Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		752	746
Assets/ Liabilities Measured at Fair Value [Member]
Securities available for sale [Abstract]
Securities available for sale		134,813	141,462
Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member]
Securities available for sale [Abstract]
Securities available for sale		752	746
Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member]
Securities available for sale [Abstract]
Securities available for sale		134,061	140,716
Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Total Carrying Amount in Balance Sheet [Member]
Securities available for sale [Abstract]
Securities available for sale		134,813	141,462
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member]
Securities available for sale [Abstract]
Securities available for sale		134,813	141,462
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | U.S. GSE and Agency Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		2,141	2,138
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		18,921	28,465
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Residential Mortgage-backed Securities Issued by GSE's [Member]
Securities available for sale [Abstract]
Securities available for sale		54,106	67,421
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | State and Local Government Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		58,893	42,692
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		752	746
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member]
Securities available for sale [Abstract]
Securities available for sale		752	746
Defined benefit plan assets [Abstract]
Define benefit plan assets		17,409	18,353
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Cash and cash equivalents [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		555	489
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Money market mutual funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		145	145
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Debt Security Mutual Funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		12,910	14,166
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Equity Securities And Mutual Funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		3,799	3,553
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | U.S. GSE and Agency Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Residential Mortgage-backed Securities Issued by GSE's [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | State and Local Government Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		752	746
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member]
Securities available for sale [Abstract]
Securities available for sale		134,061	140,716
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Cash and cash equivalents [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Money market mutual funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Debt Security Mutual Funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Equity Securities And Mutual Funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | U.S. GSE and Agency Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		2,141	2,138
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		18,921	28,465
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Residential Mortgage-backed Securities Issued by GSE's [Member]
Securities available for sale [Abstract]
Securities available for sale		54,106	67,421
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | State and Local Government Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		58,893	42,692
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Cash and cash equivalents [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Money market mutual funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Debt Security Mutual Funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Equity Securities And Mutual Funds [Member]
Defined benefit plan assets [Abstract]
Define benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | U.S. GSE and Agency Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Residential Mortgage-backed Securities Issued by GSE's [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | State and Local Government Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		0	0
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheet [Member]
Securities available for sale [Abstract]
Securities available for sale		134,813	141,462
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheet [Member] | U.S. GSE and Agency Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		2,141	2,138
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheet [Member] | Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		18,921	28,465
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheet [Member] | Residential Mortgage-backed Securities Issued by GSE's [Member]
Securities available for sale [Abstract]
Securities available for sale		54,106	67,421
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheet [Member] | State and Local Government Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		58,893	42,692
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheet [Member] | Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		$ 752	$ 746

[1] Derived from audited consolidated financial statements.

[2] Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

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ALLOWANCE FOR LOAN LOSSES, Loans that were Considered to be TDRs (Details) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Modifications [Line Items]
Restructured loans	$ 5,792,000	$ 5,822,000
Residential real estate loans in process of foreclosure	7,000
Foreclosed residential real estate property included in foreclosed real estate	775,000
Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Restructured loans	1,068,000	1,018,000
Performing [Member]
Financing Receivable, Modifications [Line Items]
Restructured loans	$ 4,724,000	$ 4,804,000

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INVESTMENT SECURITIES, Investment Gross Unrealized Losses and Fair Value (Details) $ in Thousands	Jun. 30, 2015 USD ($) Security		Dec. 31, 2014 USD ($) Security
Securities available for sale in continuous unrealized loss position [Abstract]
Total number of securities with unrealized losses | Security	58		46
U.S. GSE and Agency Securities [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	$ 0		$ 0
Less than 12 months, unrealized losses	0		0
12 months or more, fair value	1,110		2,138
12 months or more, unrealized losses	(14)		(35)
Total, fair value	1,110		2,138
Total, unrealized losses	(14)		(35)
Asset-backed SBA Securities [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	0		1,006
Less than 12 months, unrealized losses	0		(1)
12 months or more, fair value	1,997		2,158
12 months or more, unrealized losses	(17)		(27)
Total, fair value	1,997		3,164
Total, unrealized losses	(17)		(28)
Residential Mortgage-backed Securities Issued by GSE's [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	35,703	[1]	5,579	[2]
Less than 12 months, unrealized losses	(380)	[1]	(13)	[2]
12 months or more, fair value	8,991	[1]	27,089	[2]
12 months or more, unrealized losses	(79)	[1]	(430)	[2]
Total, fair value	44,694	[1]	32,668	[2]
Total, unrealized losses	(459)	[1]	(443)	[2]
State and Local Government Securities [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	42,635		1,867
Less than 12 months, unrealized losses	(751)		(16)
12 months or more, fair value	1,477		13,541
12 months or more, unrealized losses	(57)		(203)
Total, fair value	44,112		15,408
Total, unrealized losses	(808)		(219)
Temporarily Impaired Securities Available for Sale [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	78,338		8,452
Less than 12 months, unrealized losses	(1,131)		(30)
12 months or more, fair value	13,575		44,926
12 months or more, unrealized losses	(167)		(695)
Total, fair value	91,913		53,378
Total, unrealized losses	$ (1,298)		$ (725)

[1] Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 or during the six-month period then ended.

[2] Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at December 31, 2014 or during the twelve-month period then ended.

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FAIR VALUE MEASUREMENTS, Quantitative Information about Financial and Nonfinancial Assets Measured at Fair Value on Nonrecurring (Details) - Level 3 [Member] - USD ($) $ in Thousands		6 Months Ended	12 Months Ended
		Jun. 30, 2015	Dec. 31, 2013	Dec. 31, 2014
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	$ 2,113		$ 1,847
Foreclosed properties	[1]	$ 4,997		$ 4,341
Discounted Appraisals [Member] | Impaired Loans [Member] | Minimum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Collateral discounts (in hundredths)	[2],[3]	0.00%	6.00%
Discounted Appraisals [Member] | Impaired Loans [Member] | Maximum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Collateral discounts (in hundredths)	[2],[3]	36.00%	35.00%
Discounted Appraisals [Member] | Impaired Loans [Member] | Weighted Average [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Collateral discounts (in hundredths)	[2],[3]	20.00%	13.00%
Discounted Appraisals [Member] | Foreclosed Properties[Member] | Minimum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Collateral discounts (in hundredths)	[2],[3]	0.00%	0.00%
Discounted Appraisals [Member] | Foreclosed Properties[Member] | Maximum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Collateral discounts (in hundredths)	[2],[3]	40.00%	40.00%
Discounted Appraisals [Member] | Foreclosed Properties[Member] | Weighted Average [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Collateral discounts (in hundredths)	[2],[3]	9.00%	9.00%

[1] Properties recorded at cost and not market are excluded.

[2] Appraisals of collateral may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

[3] Fair value is generally based on appraisals of the underlying collateral.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Changes in Components of Company's Accumulated Other Comprehensive Loss, Net of Income Taxes (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	[1]			$ 94,397
Net OCI		$ (1,138)	$ 915	(631)	$ 2,265
Ending balance		96,163		96,163
Accumulated Other Comprehensive Income (Loss), Net of Tax [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance		(5,295)	(6,023)	(5,802)	(7,373)
OCI before reclassification		(1,170)	883	(750)	2,215
Amount reclassified		32	32	119	50
Net OCI		(1,138)	915	(631)	2,265
Ending balance		(6,433)	(5,108)	(6,433)	(5,108)
Unrealized Gain (Loss) on Securities [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance		631	(1,602)	124	(2,952)
OCI before reclassification		(1,048)	973	(506)	2,394
Amount reclassified		(90)	(58)	(125)	(129)
Net OCI		(1,138)	915	(631)	2,265
Ending balance		(507)	(687)	(507)	(687)
Benefit Plan Liability [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance		(5,926)	(4,421)	(5,926)	(4,421)
OCI before reclassification		(122)	(90)	(244)	(179)
Amount reclassified		122	90	244	179
Net OCI		0	0	0	0
Ending balance		$ (5,926)	$ (4,421)	$ (5,926)	$ (4,421)

[1] Derived from audited consolidated financial statements.

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BENEFIT PLANS, Restricted Stock Award Activity (Details) - Jun. 30, 2015 - Restricted Stock [Member] - USD ($) $ / shares in Units, $ in Millions	Total
Restricted Stock Awards, Number of Shares [Roll Forward]
Unvested restricted shares, beginning of period (in shares)	161,906
Vested and released to participants (in shares)	(40,296)
Unvested restricted shares, end of period (in shares)	121,610
Restricted Stock Awards, Weighted Average Grant Date Fair Value [Roll Forward]
Unvested restricted shares, beginning of period (in dollars per share)	$ 15.75
Vested and released to participants (in dollars per share)	15.74
Unvested restricted shares, end of period (in dollars per share)	$ 15.75
Granted (in shares)	0
Forfeited (in shares)	0
Exercised (in shares)	0
Unrecognized compensation expense, adjusted for expected forfeitures	$ 1.5
Weighted-average period over which compensation cost related to unvested awards is expected to be recognized	2 years 7 months 17 days

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ALLOWANCE FOR LOAN LOSSES, Ending Balances of Loans and Related Allowance by Segment and Class (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	$ 251		$ 460
Allowance for Loan Losses, Loans Collectively Evaluated	5,873		5,489
Allowance for Loan Losses, Total	6,124	$ 6,042	5,949	$ 5,770	$ 7,189	$ 7,307
Total Loans Receivable, Loans Individually Evaluated for Impairment	7,861		7,763
Total Loans Receivable, Loans Collectively Evaluated	545,749		514,763
Total loans receivable	553,610		522,526
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	66		165
Allowance for Loan Losses, Loans Collectively Evaluated	3,462		3,244
Allowance for Loan Losses, Total	3,528	3,429	3,409	3,441	4,609	4,560
Total Loans Receivable, Loans Individually Evaluated for Impairment	4,169		4,370
Total Loans Receivable, Loans Collectively Evaluated	253,061		234,479
Total loans receivable	257,230		238,849
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	0		0
Allowance for Loan Losses, Loans Collectively Evaluated	247		303
Allowance for Loan Losses, Total	247		303
Total Loans Receivable, Loans Individually Evaluated for Impairment	0		0
Total Loans Receivable, Loans Collectively Evaluated	27,236		21,661
Total loans receivable	27,236		21,661
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	46		67
Allowance for Loan Losses, Loans Collectively Evaluated	2,986		2,796
Allowance for Loan Losses, Total	3,032		2,863
Total Loans Receivable, Loans Individually Evaluated for Impairment	3,884		3,976
Total Loans Receivable, Loans Collectively Evaluated	208,960		197,340
Total loans receivable	212,844		201,316
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	20		98
Allowance for Loan Losses, Loans Collectively Evaluated	229		145
Allowance for Loan Losses, Total	249		243
Total Loans Receivable, Loans Individually Evaluated for Impairment	285		394
Total Loans Receivable, Loans Collectively Evaluated	16,865		15,478
Total loans receivable	17,150		15,872
Non-Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	185		295
Allowance for Loan Losses, Loans Collectively Evaluated	2,411		2,245
Allowance for Loan Losses, Total	2,596	$ 2,613	2,540	$ 2,329	$ 2,580	$ 2,747
Total Loans Receivable, Loans Individually Evaluated for Impairment	3,692		3,393
Total Loans Receivable, Loans Collectively Evaluated	292,688		280,284
Total loans receivable	296,380		283,677
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	0		0
Allowance for Loan Losses, Loans Collectively Evaluated	135		116
Allowance for Loan Losses, Total	135		116
Total Loans Receivable, Loans Individually Evaluated for Impairment	0		0
Total Loans Receivable, Loans Collectively Evaluated	16,174		14,781
Total loans receivable	16,174		14,781
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	97		160
Allowance for Loan Losses, Loans Collectively Evaluated	1,010		969
Allowance for Loan Losses, Total	1,107		1,129
Total Loans Receivable, Loans Individually Evaluated for Impairment	3,502		3,023
Total Loans Receivable, Loans Collectively Evaluated	170,438		169,140
Total loans receivable	173,940		172,163
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	88		135
Allowance for Loan Losses, Loans Collectively Evaluated	708		675
Allowance for Loan Losses, Total	796		810
Total Loans Receivable, Loans Individually Evaluated for Impairment	190		370
Total Loans Receivable, Loans Collectively Evaluated	61,553		56,000
Total loans receivable	61,743		56,370
Non-Commercial [Member] | Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses, Loans Individually Evaluated for Impairment	0		0
Allowance for Loan Losses, Loans Collectively Evaluated	558		485
Allowance for Loan Losses, Total	558		485
Total Loans Receivable, Loans Individually Evaluated for Impairment	0		0
Total Loans Receivable, Loans Collectively Evaluated	44,523		40,363
Total loans receivable	$ 44,523		$ 40,363

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LOANS RECEIVABLE, by Segment and Class (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	$ 553,610	$ 522,526
Less: Deferred loan fees	(611)	(706)	[1]
Total loans receivable net of deferred loan fees	552,999	521,820	[1]
Less: Allowance for loan losses	(6,124)	(5,949)	[1]
Loans receivable, net	546,875	515,871	[1]
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	257,230	238,849
Commercial [Member] | Commercial Construction and Land Development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	27,236	21,661
Commercial [Member] | Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	212,844	201,316
Commercial [Member] | Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	17,150	15,872
Non-Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	296,380	283,677
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	16,174	14,781
Non-Commercial [Member] | Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	173,940	172,163
Non-Commercial [Member] | Revolving Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	61,743	56,370
Non-Commercial [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	$ 44,523	$ 40,363

[1] Derived from audited consolidated financial statements.

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BENEFIT PLANS, Assumptions Used in Determining Fair Value of Options Granted (Details) - Jun. 30, 2015 - USD ($) $ / shares in Units, $ in Millions	Total
Directors and Officers [Member]
Weighted-average assumptions for the Black-Scholes model used in determining the fair value of options granted [Abstract]
Fair value per option award (in dollars per share)	$ 5.91
Expected life in years	6 years 6 months
Expected stock price volatility (in hundredths)	27.34%
Expected dividend yield (in hundredths)	0.00%
Risk-free interest rate (in hundredths)	2.04%
Expected forfeiture rate (in hundredths)	6.39%
Stock Option [Member]
Weighted-average assumptions for the Black-Scholes model used in determining the fair value of options granted [Abstract]
Unrecognized compensation expense, adjusted for expected forfeitures	$ 1.1
Weighted-average period over which compensation cost related to unvested awards is expected to be recognized	2 years 10 months 6 days

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BENEFIT PLANS, Net Periodic Benefit Cost Related to Defined Benefit Plans (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014	Dec. 31, 2013
BENEFIT PLANS [Abstract]
Curtailment credit						$ 499,000
Maximum vested accrued benefits specified to offer immediate lump sum payments to inactive participants					$ 60,000
Aggregate lump sum payments to inactive participants, Maximum					$ 544,000
Non-Qualified Defined Benefit Plan [Member]
Components of Net Periodic Benefit Costs [Abstract]
Interest cost	$ 14,000	$ 12,000	$ 27,000	$ 25,000
Amortization of net loss	14,000	7,000	29,000	14,000
Net periodic pension cost	28,000	19,000	56,000	39,000
Qualified Defined Benefit Plan [Member]
Components of Net Periodic Benefit Costs [Abstract]
Interest cost	247,000	250,000	495,000	500,000
Expected return on plan assets	(236,000)	(248,000)	(472,000)	(495,000)
Amortization of net loss	180,000	137,000	360,000	273,000
Net periodic pension cost	$ 191,000	$ 139,000	$ 383,000	$ 278,000

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INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2015

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

2. INVESTMENT SECURITIES

Securities Available for Sale – The maturities, amortized cost, unrealized gains, unrealized losses and fair values of securities available for sale are as follows:

Type And Maturity Group (Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2015
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,154	$	1	$	(14	)	$	2,141
Asset-backed securities issued by the Small Business Administration (SBA)		18,714		224		(17	)		18,921
Residential mortgage-backed securities issued by GSE’s (1)		54,471		94		(459	)		54,106
State and local government securities due -
After 5 years but within 10 years		8,030		39		(50	)		8,019
After 10 years		51,501		131		(758	)		50,874
Mutual funds		752		-		-			752
Total	$	135,622	$	489	$	(1,298	)	$	134,813
December 31, 2014
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	1,037	$	-	$	(11	)	$	1,026
After 5 years but within 10 years		1,136		-		(24	)		1,112
Asset-backed securities issued by the Small Business Administration (SBA)		28,139		354		(28	)		28,465
Residential mortgage-backed securities issued by GSE’s (1)		67,675		189		(443	)		67,421
State and local government securities due -
After 5 years but within 10 years		9,850		98		(31	)		9,917
After 10 years		32,685		278		(188	)		32,775
Mutual funds		744		2		-			746
Total	$	141,266	$	921	$	(725	)	$	141,462

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises  including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

Securities Held to Maturity – The maturities, amortized cost, unrealized gains, unrealized losses and fair values of securities classified as held to maturity are as follows:

Type And Maturity Group (Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2015
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,031	$	66	$	-	$	1,097
Residential mortgage-backed securities  issued by GSE’s (1)		436		33		-		469
State and local government securities due -
After 5 years but within 10 years		963		85		-		1,048
After 10 years		1,469		126		-		1,595
Total	$	3,899	$	310	$	-	$	4,209
December 31, 2014
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,038	$	73	$	-	$	1,111
Residential mortgage-backed securities  issued by GSE’s (1)		532		40		-		572
State and local government securities due -
After 5 years but within 10 years		961		98		-		1,059
After 10 years		1,468		153		-		1,621
Total	$	3,999	$	364	$	-	$	4,363

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprisesincluding the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

The following tables show investment gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2015 and December 31, 2014. The total number of securities with unrealized losses at June 30, 2015 and December 31, 2014 were 58 and 46, respectively. The unrealized losses relate to debt and equity securities that have incurred fair value reductions due to higher market interest rates since the securities were purchased. The unrealized losses are not likely to reverse unless and until market interest rates decline to the levels that existed when the securities were purchased. Management has the intent to hold securities with unrealized losses until a recovery of the market value occurs. Management has determined that it is more likely than not that the Company will not be required to sell any of the securities with unrealized losses prior to a recovery of market value sufficient to negate the unrealized loss. Management has analyzed the creditworthiness of the underlying issuers and determined that the Company will collect all contractual cash flows and, therefore, all impairment is considered to be temporary.

	June 30, 2015
	Less Than 12 Months					12 Months Or More					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities Available For Sale
US GSE and agency	$	-	$	-		$	1,110	$	(14	)	$	1,110	$	(14	)
Asset-backed SBA		-		-			1,997		(17	)		1,997		(17	)
Residential mortgage- backed GSE (1)		35,703		(380	)		8,991		(79	)		44,694		(459	)
State and local government		42,635		(751	)		1,477		(57	)		44,112		(808	)
Total temporarily impaired securities	$	78,338	$	(1,131	)	$	13,575	$	(167	)	$	91,913	$	(1,298	)

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 or during the six-month period then ended.

	December 31, 2014
	Less Than 12 Months					12 Months Or More					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities Available For Sale
US GSE and agency	$	-	$	-		$	2,138	$	(35	)	$	2,138	$	(35	)
Asset-backed SBA		1,006		(1	)		2,158		(27	)		3,164		(28	)
Residential mortgage-backed GSE (1)		5,579		(13	)		27,089		(430	)		32,668		(443	)
State and local government		1,867		(16	)		13,541		(203	)		15,408		(219	)
Total temporarily impaired securities	$	8,452	$	(30	)	$	44,926	$	(695	)	$	53,378	$	(725	)

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at December 31, 2014 or during the twelve-month period then ended.

Investment securities pledged as collateral follows:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Pledged to Federal Reserve Discount Window	$	6,998	$	3,745
Pledged to repurchase agreements for commercial customers		1,326		1,137

Interest income from taxable and tax-exempt securities recognized in interest and dividend income follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2015		2014		2015		2014
Interest income from taxable securities	$	246	$	329	$	551	$	716
Interest income from tax-exempt securities		311		324		574		673
Total interest income from securities	$	557	$	653	$	1,125	$	1,389

Proceeds and gross realized gains from sales of securities recognized in net income follow:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Proceeds from sales of securities	$	32,089		$	17,774		$	50,624		$	47,679
Gross realized gains from sales of securities		341			328			465			554
Gross realized losses from sales of securities		(198	)		(235	)		(266	)		(347	)

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ALLOWANCE FOR LOAN LOSSES, Impaired Loans and Related Allowance by Segment and Class (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	$ 8,516	$ 8,305
Recorded Investment, With a Recorded Allowance	5,413	6,337
Recorded Investment, With No Recorded Allowance	2,448	1,426
Recorded Investment, Total	7,861	7,763
Related Recorded Allowance	251	460
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	4,741	4,829
Recorded Investment, With a Recorded Allowance	3,524	3,772
Recorded Investment, With No Recorded Allowance	645	598
Recorded Investment, Total	4,169	4,370
Related Recorded Allowance	66	165
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	3,989	4,050
Recorded Investment, With a Recorded Allowance	3,379	3,444
Recorded Investment, With No Recorded Allowance	505	532
Recorded Investment, Total	3,884	3,976
Related Recorded Allowance	46	67
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	752	779
Recorded Investment, With a Recorded Allowance	145	328
Recorded Investment, With No Recorded Allowance	140	66
Recorded Investment, Total	285	394
Related Recorded Allowance	20	98
Non-Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	3,775	3,476
Recorded Investment, With a Recorded Allowance	1,889	2,565
Recorded Investment, With No Recorded Allowance	1,803	828
Recorded Investment, Total	3,692	3,393
Related Recorded Allowance	185	295
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	3,576	3,062
Recorded Investment, With a Recorded Allowance	1,801	2,298
Recorded Investment, With No Recorded Allowance	1,701	725
Recorded Investment, Total	3,502	3,023
Related Recorded Allowance	97	160
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	199	414
Recorded Investment, With a Recorded Allowance	88	267
Recorded Investment, With No Recorded Allowance	102	103
Recorded Investment, Total	190	370
Related Recorded Allowance	$ 88	$ 135

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Employee Stock Ownership Plan (“ESOP”) (Details) - 6 months ended Jun. 30, 2015 - Employee Stock Ownership Plan [Member]	Total
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
ESOP minimum average service hours	1000 hours
ESOP minimum age to participate	21 years
Rate of vesting (in hundredths)	20.00%
ESOP service years to begin vesting	2 years
ESOP service years to fully vest	6 years
ESOP loan amortization period	15 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Pension Plan (Details)	6 Months Ended
	Jun. 30, 2015 Plan
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Number of noncontributory pension plans	2

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FAIR VALUE MEASUREMENTS, Assets and Liabilities Recorded at Fair Value on Nonrecurring Basis (Details) - USD ($) $ in Thousands		Jun. 30, 2015	Dec. 31, 2014
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	$ 2,113	$ 1,847
Foreclosed properties	[1]	4,997	4,341
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	2,113	1,847
Foreclosed properties	[1]	4,997	4,341
Fair Value, Measurements, Nonrecurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans		0	0
Foreclosed properties		0	0
Fair Value, Measurements, Nonrecurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans		0	0
Foreclosed properties		0	0
Fair Value, Measurements, Nonrecurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans		2,113	1,847
Foreclosed properties		4,997	4,341
Fair Value, Measurements, Nonrecurring [Member] | Total Carrying Amount in Statement of Financial Position [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	2,113	1,847
Foreclosed properties	[1]	$ 4,997	$ 4,341

[1] Properties recorded at cost and not market are excluded.

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ALLOWANCE FOR LOAN LOSSES, Average Recorded Investment in Impaired Loans and Interest Income Recognized on Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	$ 7,894	$ 7,431	$ 7,716	$ 7,582
Interest Income Recognized	51	61	109	131
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	4,191	4,377	4,245	4,423
Interest Income Recognized	33	37	67	82
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment			0	46
Interest Income Recognized			0	1
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	3,902	4,100	3,924	4,092
Interest Income Recognized	33	36	66	78
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	289	277	321	285
Interest Income Recognized	0	1	1	3
Non-Commercial [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	3,703	3,054	3,471	3,159
Interest Income Recognized	18	24	42	49
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	3,402	2,803	3,142	2,867
Interest Income Recognized	18	22	42	47
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	301	251	329	292
Interest Income Recognized	$ 0	$ 2	$ 0	$ 2

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Numerator [Abstract]
Net income	$ 865	$ 941	$ 1,487	$ 1,345
Denominator [Abstract]
Weighted average common shares outstanding (in shares)	4,378,411	4,886,313	4,378,411	4,957,586
Less: Weighted average unvested restricted shares (in shares)	(121,610)	(178,706)	(129,565)	(186,987)
Less: Weighted average unallocated ESOP shares (in shares)	(333,602)	(364,989)	(337,471)	(368,858)
Weighted average common shares used to compute net income per common share - Basic (in shares)	3,923,199	4,342,618	3,911,375	4,401,741
Add: Effect of dilutive securities (in shares)	90,133	41,536	83,715	39,269
Weighted average common shares used to compute net income per common share - Diluted (in shares)	4,013,332	4,384,154	3,995,090	4,441,010
Net income per common share - Basic (in dollars per share)	$ 0.22	$ 0.22	$ 0.38	$ 0.31
Net income per common share - Diluted (in dollars per share)	$ 0.22	$ 0.21	$ 0.37	$ 0.30
Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the computation of diluted net loss per share (in shares)	434,771	469,502	443,629	473,020
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the computation of diluted net loss per share (in shares)	93,206	142,668	90,766	141,417

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INVESTMENT SECURITIES, Securities Available For Sale (Details) - USD ($) $ in Thousands		Jun. 30, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		$ 135,622	$ 141,266	[1]
Unrealized gains		489	921
Unrealized losses		(1,298)	(725)
Fair value		134,813	141,462	[1]
U.S. GSE and Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
After 1 year but within 5 years, amortized cost		2,154	1,037
After 1 year but within 5 years, unrealized gains		1	0
After 1 year but within 5 years, unrealized losses		(14)	(11)
After 1 year but within 5 years, fair value		2,141	1,026
After 5 years but within 10 years, amortized cost			1,136
After 5 years but within 10 years, unrealized gains			0
After 5 years but within 10 years, unrealized losses			(24)
After 5 years but within 10 years, fair value			1,112
Asset-backed SBA Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		18,714	28,139
Unrealized gains		224	354
Unrealized losses		(17)	(28)
Fair value		18,921	28,465
Residential Mortgage-backed Securities Issued by GSE's [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	[2]	54,471	67,675
Unrealized gains	[2]	94	189
Unrealized losses	[2]	(459)	(443)
Fair value	[2]	54,106	67,421
State and Local Government Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
After 5 years but within 10 years, amortized cost		8,030	9,850
After 5 years but within 10 years, unrealized gains		39	98
After 5 years but within 10 years, unrealized losses		(50)	(31)
After 5 years but within 10 years, fair value		8,019	9,917
After 10 years, amortized cost		51,501	32,685
After 10 years, unrealized gains		131	278
After 10 years, unrealized losses		(758)	(188)
After 10 years, fair value		50,874	32,775
Mutual Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		752	744
Unrealized gains		0	2
Unrealized losses		0	0
Fair value		$ 752	$ 746

[1] Derived from audited consolidated financial statements.

[2] Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These interim financial statements do not contain all necessary disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for a complete set of financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K of ASB Bancorp, Inc. for the year ended December 31, 2014 filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2015.  These financial statements were prepared on a basis consistent with the audited consolidated financial statements previously referenced and include all normal and recurring adjustments that management believes are necessary in order to conform to GAAP.  The results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or any other future period.

Organization – ASB Bancorp, Inc. (the “Parent”) was incorporated on May 12, 2011 to be the bank holding company for Asheville Savings Bank, S.S.B. (the “Bank”) upon completion of the Bank’s conversion from the mutual to stock form of organization.

The Bank is headquartered in Asheville, North Carolina and provides mortgage, consumer and commercial banking services primarily in Buncombe, Henderson, McDowell, Transylvania, and Madison counties in North Carolina and a loan production office in Mecklenburg County, North Carolina. The Bank is regulated by the Office of the North Carolina Commissioner of Banks (“NCCoB”) and the Federal Deposit Insurance Corporation (“FDIC”). The Parent is regulated by the Board of Governors of the Federal Reserve System (the “FRB”) and the NCCoB.

Principles of Consolidation – The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiary, the Bank (collectively, the “Company”). The Bank has two wholly owned subsidiaries, Appalachian Financial Services, Inc., which has on occasion managed the Bank’s real estate acquired through debt default but is currently inactive, and Wenoca, Inc., which serves as the Bank’s trustee regarding deeds of trust. Both subsidiaries are organized as North Carolina corporations. For purposes of the consolidated financial statements, all significant intercompany accounts and transactions have been eliminated. The accounting and reporting policies of the Company conform to GAAP.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment Securities – Realized gains and losses on sales of investment securities are recognized at the time of sale (“trade date”) based upon the specific identification method.

Interest income includes amortization of purchase premiums and discounts. Realized gains and losses are derived from the amortized cost of the security sold. Declines in the fair value of held to maturity and available for sale debt securities below their cost that are deemed to be other than temporary because of credit risk impairment are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other factors, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (iv) whether it is more likely than not that the Company will be required to sell the investment prior to a recovery.

Loans – Loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized fees and costs on originated loans. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending processes are deferred and amortized to interest income over the contractual lives of the loans.

Loan Segments and Classes

The Bank’s portfolio segments and classes within those segments are subject to risks that could have an adverse impact on the credit quality of the loan portfolio. Management has identified the risks described below as significant risks that are generally similar among the loan segments and classes.

Commercial Loan Segment

The Bank’s commercial loans are centrally underwritten based primarily on the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. The Bank’s commercial lenders and underwriters work to understand the borrower’s businesses and management experiences. The majority of the Bank’s commercial loans are secured by collateral, so collateral values are important to the transaction. In commercial loan transactions where the principals or other parties provide personal guarantees, the Bank’s commercial lenders and underwriters analyze the relative financial strength and liquidity of each guarantor. Risks that are common to the Bank’s commercial loan classes include general economic conditions, demand for the borrowers’ products and services, the personal circumstances of the principals, and reductions in collateral values.

In addition to these common risks for the Bank’s commercial loans, the various commercial loan classes also have certain risks specific to them.

Commercial Construction and Land Development loans are highly dependent on the supply and demand for commercial real estate in the Bank’s markets as well as the demand for the newly constructed residential homes and lots being developed by the Bank’s commercial loan borrowers. Prolonged deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for the Bank’s commercial borrowers.

Commercial Mortgage and Commercial and Industrial loans are primarily dependent on the ability of the Bank’s commercial loan customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a borrower’s actual business results significantly underperform the original projections, the ability of that borrower to service the Bank’s loan on a basis consistent with the contractual terms may be at risk. While these loans are generally secured by real property, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.

Non-Commercial Loan Segment

The Bank underwrites its non-commercial loans using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use, and recent credit inquiries. To the extent that the loan is secured by collateral, the value of the collateral is also evaluated. Common risks to each class of non-commercial loans include general economic conditions within the Bank’s markets, such as unemployment and potential declines in collateral values, and the personal circumstances of the borrowers.

In addition to these common risks for the Bank’s non-commercial loans, various non-commercial loan classes may also have certain risks specific to them.

Residential Mortgage and Non-Commercial Construction and Land Development loans are to individuals and are typically secured by one-to-four family residential property, undeveloped land, and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can cause residential mortgage loan borrowers to have debt levels in excess of the current market value of the collateral, which can result in increased levels of foreclosures. Recent declines in value have led to unprecedented levels of foreclosures and losses within the banking industry. Non-commercial construction and land development loans can experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.

Revolving Mortgage loans are open-end or revolving lines of credit that borrowers may repay and borrow multiple times during the life of the loan and are often secured by second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render the Bank’s second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lien holders that may further weaken collateral positions. In addition, the open-end structure of these loans creates the risk that customers may draw on the lines in excess of the collateral value if there have been significant declines in the value of collateral since origination.

Consumer loans are often closed-end whereby the loan is fully disbursed when the loan closes and is repaid according to agreed upon specified dates.  Consumer loans include loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.

Credit Quality Indicators

Loans are monitored for credit quality on a recurring basis and the composition of the loans outstanding by credit quality indicator is provided below.

Loan credit quality indicators are developed through review of individual borrowers on an ongoing basis, although certain non-commercial loans, including residential mortgage, revolving mortgage and consumer loans, are evaluated upon origination and are reevaluated upon a change in delinquency status. Most commercial loans are evaluated at least annually with more frequent evaluation of more severely criticized loans or leases. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:

Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.

Special Mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the obligor and/or the realizable value of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.

Loss – Assets classified loss are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.

Allowance for Loan Losses – The allowance for loan losses is management’s estimate of probable credit losses that are inherent in the Bank’s loan portfolios at the balance sheet date. The allowance increases when the Bank provides for loan losses through charges to operating earnings and when the Bank recovers amounts from loans previously written down or charged off. The allowance decreases when the Bank writes down or charges off loan amounts that are deemed uncollectible.

Management determines the allowance for loan losses based on periodic evaluations that are inherently subjective and require substantial judgment because the evaluations require the use of material estimates that are susceptible to significant change. The Bank generally uses two allowance methodologies that are primarily based on management’s determination as to whether or not a loan is considered to be impaired.

Commercial loans, as well as non-commercial loans that are classified as substandard and secured by real estate, are evaluated for impairment on a loan-by-loan basis and are considered impaired when it is probable, based on current information, that the borrower will be unable to pay contractual interest or principal as required by the loan agreement. Loans that experience insignificant payment delays and payment shortfalls are not necessarily considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment history, and the amount of the shortfall relative to the principal and interest owed. Loans that are deemed to be troubled debt restructurings, which are discussed below, are also included as impaired loans. Impaired loans are measured at their estimated fair value based on either the value of the loan’s expected future cash flows discounted at the loan’s effective interest rate or on the collateral value, net of the estimated costs of disposal, if the loan is collateral dependent. For loans considered impaired, an individual allowance for loan losses is recorded when the loan principal balance exceeds the estimated fair value.

For loans not considered impaired, management determines the allowance for loan losses based on estimated loss percentages that are determined by and applied to the various classes of loans that comprise the segments of the Bank’s loan portfolio. The estimated loss percentages by loan class are based on a number of factors that include by class (i) average historical losses over the past three years, (ii) levels and trends in delinquencies, impairments, and net charge-offs, (iii) trends in the volume and direction of loan balances within that class, terms, and concentrations, (iv) trends in interest rates, (v) effects of changes in the Bank’s risk tolerance, underwriting standards, lending policies, procedures, and practices, and (vi) national and local business and economic conditions.

Methodology Change – In the second quarter of 2014, the Bank assessed and modified its loan loss methodology for unimpaired commercial construction and land development, unimpaired residential construction and land development, and unimpaired commercial and industrial loans. This modification resulted in further sub-segmentation of these classes of loans and the related historical charge-off rates. The purpose was to allocate the substantial historical charge-off rates created by three sub-segments of these loan classes against the significantly diminished or nonexistent current balances within these same loan sub-segments reflecting no continued credit exposure to the Bank. Specifically, additional sub-segments were identified where the Bank made (i) loans in excess of $2.5 million to construct commercial mixed-use buildings in small communities with low population growth, (ii) speculative loans to construct one-to-four family residences for the greater of 80% of the appraised value of the completed residence or 100% of the actual costs of construction, and (iii) loans secured by equity securities that do not have a readily determinable fair value.  This change in methodology resulted in a nonrecurring reduction of approximately $1.3 million in the Bank’s reserves for loans not considered impaired in the second quarter of 2014.

Future material adjustments to the allowance for loan losses may be necessary due to improving or deteriorating economic conditions, delinquencies, charge-off levels or declining collateral values. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require the Bank to make adjustments to the allowance for loan losses based upon judgments that differ significantly from those of management.

Nonperforming Assets – Nonperforming assets can include loans that are past due 90 days or more and continue to accrue interest, loans on which interest is not being accrued, and foreclosed real estate.

Loans Past Due 90 Days or More, Nonaccruing, Impaired, or Restructured – The Bank’s policies related to loans that are placed on nonaccruing status conform to guidelines prescribed by bank regulatory authorities. Generally, the Bank suspends the accrual of interest on loans (i) that are maintained on a cash basis because of the deterioration of the financial condition of the borrower, (ii) for which payment in full of principal or interest is not expected, or (iii) on which principal or interest has been in default for a period of 90 days or more, unless the loan is both well secured and in the process of collection. While a loan is on nonaccruing status, the Bank recognizes interest income only to the extent cash payments are received in excess of collection of the principal outstanding on the loan. Loans are returned to accruing status when all principal and interest amounts contractually due are brought current and concern no longer exists as to the future collectability of principal and interest, which is generally confirmed when the loan demonstrates  performance for six consecutive months or payment cycles.

A troubled debt restructuring (“TDR”) occurs when a borrower is experiencing financial difficulty and the Bank grants a concession it would not otherwise consider to provide the borrower relief from one or more of the contractual loan conditions. Concessions that the Bank might consider include the allowance of interest-only payments on more than a temporary basis, the reduction of interest rates, the extension of the loan term, the forgiveness of principal, or a combination of these. The Bank might require additional collateral or additional guarantors as conditions to modifying loans as TDRs.

The Bank might consider modifying both accruing or nonaccruing loans as TDRs. When a modification includes a reduction of principal that resulted from a partial charge-off of the loan, the Bank typically accounts for the TDR as a nonaccruing loan.

The Bank classifies TDRs as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis consistent with its evaluation of impaired loans that have not been modified as TDRs. An allowance is based on either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.

The Bank’s policy for recognition of interest income on loans considered to be impaired, including restructured loans, is the same as its interest income recognition policy for loans not considered to be impaired.

Loan Charge-Offs – The Bank charges off loan balances, in whole or in part, when available, verifiable, and documentable information confirms that specific loans, or portions of specific loans, are uncollectible or unrecoverable. For unsecured loans, losses are confirmed when it can be determined that the borrower, or any guarantor, is unwilling or unable to pay the amounts as agreed. When the borrower, or any guarantors, are unwilling or unable to pay the amounts as agreed on a loan secured by collateral and any recovery is dependent upon the sale of the collateral, the loan is deemed to be collateral dependent. Repayments or recoveries for collateral dependent loans are directly affected by the value of the collateral at liquidation.  As such, loan repayment can be affected by factors that influence the amount recoverable, the timing of the recovery, or a combination of the two. Such factors include economic conditions that affect the markets in which the loan or its collateral is sold, bankruptcy, repossession and foreclosure laws, and consumer banking regulations. Losses are also confirmed when the loan, or a portion of the loan, is classified as loss resulting from loan reviews conducted by the Bank.

Charge-offs of loans in the commercial loan segment are recognized when the uncollectibility of the loan balance and the inability to recover sufficient value from the sale of any collateral securing the loan is confirmed. The uncollectibility of the loan balance is evidenced by the inability of the commercial borrower to generate cash flows sufficient to repay the loan as agreed causing the loan to become delinquent. For collateral dependent commercial loans, the Bank determines the fair value of the collateral based on appraisals, current market conditions, and estimated costs to sell the collateral. For collateral dependent commercial loans where the loan balance, including any accrued interest, net deferred fees or costs, and unamortized premiums or discounts, exceeds the fair value of the collateral securing the loan, the deficiency is identified as unrecoverable, is deemed to be a confirmed loss, and is charged off.

Charge-offs of loans in the non-commercial loan segment are generally confirmed and recognized in a manner similar to loans in the commercial loan segment. Secured non-commercial loans that are identified as uncollectible and are deemed to be collateral dependent are confirmed as loss to the extent the fair value of the collateral is insufficient to recover the loan balance. Closed-end consumer loans that become 120 cumulative days past due and open-end consumer loans that become 180 cumulative days past due are charged off to the extent that the fair value of any collateral, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Closed-end and open-end loans secured by residential real estate that become 180 days past due are charged off to the extent that the fair value of the residential real estate securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Loans determined to be fraudulent are charged off within 90 days of discovery. Loans to borrowers in bankruptcy are subject to modification by the bankruptcy court and are charged off to the extent that the fair value of any collateral securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance, unless the Bank expects repayment is likely to occur. Such loans are charged off within 60 days of the receipt of notification from a bankruptcy court or when the loans become 120 days past due, whichever is shorter.

Foreclosed Real Estate – Foreclosed real estate consists of real estate and other assets acquired as a result of customers’ loan defaults. Foreclosed real estate is stated at the lower of the related loan balance or the fair value of the property net of the estimated costs of disposal with a charge to the allowance for loan losses upon foreclosure. Any write-downs subsequent to foreclosure are charged against operating earnings. To the extent recoverable, costs relating to the development and improvement of property are capitalized, whereas those costs relating to holding the property are charged to expense.

Comprehensive Income – Comprehensive income is defined as the change in equity of an enterprise during a period from transactions and other events and circumstances from non-owner sources and, accordingly, includes both net income and amounts referred to as other comprehensive income (“OCI”). The items of other comprehensive income are included in the Consolidated Statements of Comprehensive Income (Loss). The accumulated balance of other comprehensive income is included in the equity section of the Consolidated Balance Sheets. The Company’s components of accumulated other comprehensive income include unrealized gains and/or losses on investment securities classified as available for sale and certain changes in the Company’s benefit obligations under its retirement plans. The Company adjusts the level of accumulated comprehensive income related to its retirement plans on an annual basis, consistent with the receipt of its annual actuarial studies.

The changes in the components of the Company’s accumulated other comprehensive loss, net of income taxes, are presented as follows:

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Three Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	631		$	(1,048	)	$	(90	)	$	(1,138	)	$	(507	)
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,295	)	$	(1,170	)	$	32		$	(1,138	)	$	(6,433	)
Three Months Ended June 30, 2014
Unrealized loss on securities	$	(1,602	)	$	973		$	(58	)	$	915		$	(687	)
Benefit plan liability		(4,421	)		(90	)		90			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(6,023	)	$	883		$	32		$	915		$	(5,108	)

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Six Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	124		$	(506	)	$	(125	)	$	(631	)	$	(507	)
Benefit plan liability		(5,926	)		(244	)		244			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(750	)	$	119		$	(631	)	$	(6,433	)
Six Months Ended June 30, 2014
Unrealized loss on securities	$	(2,952	)	$	2,394		$	(129	)	$	2,265		$	(687	)
Benefit plan liability		(4,421	)		(179	)		179			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(7,373	)	$	2,215		$	50		$	2,265		$	(5,108	)

The Company’s reclassifications out of accumulated other comprehensive income are as follows:

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
(Dollars in thousands)	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(143	)	$	(93	)	Gain on sale of investment securities
Deferred income tax expense		53			35		Income tax provision
Total reclassifications for the period	$	(90	)	$	(58	)	Net of tax
Net periodic pension benefit	$	194		$	144		Salaries and employee benefits
Deferred income tax expense		(72	)		(54	)	Income tax provision
Total reclassifications for the period	$	122		$	90		Net of tax

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
CH OPEN (Dollars in thousands)	Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(199	)	$	(207	)	Gain on sale of investment securities
Deferred income tax expense		74			78		Income tax provision
Total reclassifications for the period	$	(125	)	$	(129	)	Net of tax
Net periodic pension benefit	$	389		$	287		Salaries and employee benefits
Deferred income tax expense		(145	)		(108	)	Income tax provision
Total reclassifications for the period	$	244		$	179		Net of tax

Income Taxes – The establishment of provisions for federal and state income taxes is a complex area of accounting that involves the use of significant judgments and estimates in applying relevant tax statutes. The Company is subject to audit by federal and state tax authorities, the results of which may produce tax liabilities that differ from the Company’s tax estimates and provisions. The Company continually evaluates its exposure to possible tax assessments arising from audits and it records its estimate of possible exposure based on current facts and circumstances. The Parent and the Bank have entered into a formal agreement that will allow them, if so elected, to file consolidated federal and state income tax returns, where permitted, and each to pay its respective share of income taxes due.

Deferred tax assets and liabilities are recognized for the tax effects of differing carrying values of assets and liabilities for tax and financial statement purposes that will reverse in future periods. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. When uncertainty exists concerning the recoverability of a deferred tax asset, the carrying value of the asset may be reduced by a valuation allowance. The amount of any valuation allowance established is based upon an estimate of the deferred tax asset that is more likely than not to be recovered. Increases or decreases in the valuation allowance result in increases or decreases to the provision for income taxes.

The Bank’s loss carry forward period under applicable North Carolina income tax laws is 15 years with a remaining loss carry forward period of 12 years. The Bank includes interest and penalties related to income tax liabilities in noninterest expense. The Bank’s tax filings for the years 2011 and thereafter are currently open to audit under statutes of limitations by the Internal Revenue Service and the North Carolina Department of Revenue.

Pension Plan – The Bank has two noncontributory, defined benefit pension plans. The Bank recognizes the overfunded or underfunded status of the plans as an asset or liability in its consolidated statement of financial position and recognizes changes in the funded status in the year in which the change occurs through comprehensive income. The funded status of a benefit plan is measured as the difference between plan assets at fair value and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation. GAAP also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position and to include additional disclosure in the notes to financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.

Employee Stock Ownership Plan (“ESOP”) – In connection with the mutual-to-stock conversion on October 11, 2011, the Bank established an ESOP for the benefit of all of its eligible employees. Full-time employees of the Bank who have been credited with at least 1,000 hours of service during a twelve-month period and who have attained age 21 are eligible to participate in the ESOP.  Shares allocated under the ESOP vest at the rate of 20% per year of service beginning with the completion of two years of service and fully vest upon the completion of six years of service. The Bank anticipates it will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to the Parent over a period of 15 years in accordance with the terms of the loan.

Unallocated ESOP shares are not considered outstanding (including for the calculation of net income per common share as discussed below) and are shown as a reduction of shareholders’ equity. Dividends on unallocated ESOP shares, if paid, are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. The fair value of the annual share allocations is recorded on a monthly basis with fair value determined by calculating the average closing stock price for each day during the month. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference is recognized in shareholders’ equity. The Company recognizes a tax deduction equal to the cost of the shares released. Because the ESOP is internally leveraged through a loan from the Parent to the ESOP, the loan receivable by the Parent from the ESOP is not reported as an asset nor is the debt of the ESOP shown as a liability in the consolidated financial statements.

Equity Incentive Plan – The Company issued restricted stock and stock options under the 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”) to key officers and outside directors during the first quarter of 2013 and to additional key officers and a newly appointed outside director during 2014.  There were no grants under the 2012 Equity Incentive Plan during the first six months of 2015.  The Company uses a fair value based method of accounting for employee stock compensation plans, whereby  compensation cost is measured based on the fair value of the award as of the grant date and recognized over the vesting period.

Net Income Per Common Share – Where presented, basic net income per common share is the Company’s net income available to common shareholders, which represents net income less dividends paid or payable to preferred stock shareholders, if any, divided by the weighted average number of common shares outstanding during the period. In calculating the weighted average number of common shares outstanding, shares held by the ESOP are not considered to be outstanding until they are committed to be released for allocation.  Also, the weighted average of unvested restricted shares are not considered outstanding until the shares vest.

For diluted income per common share, net income available to common shareholders is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options and restricted stock, as well as any adjustment to income that would result from the assumed issuance. The effects of restricted stock and stock options are excluded from the computation of diluted income per common share in periods in which the effect would be antidilutive. Potential common shares that might be issued by the Company relate solely to outstanding stock options and restricted stock and are determined using the treasury stock method.

Net income per common share has been computed based on the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share data)	2015			2014			2015			2014
Numerator:
Net income	$	865		$	941		$	1,487		$	1,345
Denominator:
Weighted average common shares outstanding		4,378,411			4,886,313			4,378,411			4,957,586
Less: Weighted average unvested restricted shares		(121,610	)		(178,706	)		(129,565	)		(186,987	)
Less: Weighted average unallocated ESOP shares		(333,602	)		(364,989	)		(337,471	)		(368,858	)
Weighted average common shares used to compute net income per common share – Basic		3,923,199			4,342,618			3,911,375			4,401,741
Add: Effect of dilutive securities		90,133			41,536			83,715			39,269
Weighted average common shares used to compute net income per common share – Diluted		4,013,332			4,384,154			3,995,090			4,441,010
Net income per common share – Basic	$	0.22		$	0.22		$	0.38		$	0.31
Net income per common share – Diluted	$	0.22		$	0.21		$	0.37		$	0.30

For the three and six months ended June 30, 2015, options to purchase 434,771 and 443,629 shares of common stock, respectively, and 93,206 and 90,766 restricted shares, respectively, were excluded from the computation of net income per common share because their effect would be anti-dilutive.  For the three and six months ended June 30, 2014, options to purchase 469,502 and 473,020 shares of common stock, respectively, and 142,668 and 141,417 restricted shares, respectively, were excluded from the computation of net income per common share because their effect would be anti-dilutive.

Recent Accounting Pronouncements

Accounting Standards Update ASU 2015-02 – In February, 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis.  The amendments affect business entities that are required toevaluate whether they should consolidate certain legal entities.  For public entities, the amendments in ASU 2015-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  Early adoption, including adoption in an interim period, is permitted.  The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2015-03 – In April, 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.  Under the ASU, an entity presents debt issuance costs in thebalance sheet as a direct deduction from the related debt liability rather than as an asset.  Amortization of the costs is reported as interest expense. For public entities, the amendments in ASU 2015-03 are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption is permitted for financial statements that have not been previously issued.  The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

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INVESTMENT SECURITIES, Securities Held to Maturity (Details) - USD ($) $ in Thousands		Jun. 30, 2015	Dec. 31, 2014
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost		$ 3,899	$ 3,999	[1]
Unrealized Gains		310	364
Unrealized Losses		0	0
Fair Value		4,209	4,363	[1]
U.S. GSE and Agency Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
After 1 year but within 5 years, Amortized Cost		1,031	1,038
After 1 year but within 5 years, Unrealized Gains		66	73
After 1 year but within 5 years, Unrealized Losses		0	0
After 1 year but within 5 years, Fair Value		1,097	1,111
Residential Mortgage-backed Securities Issued by GSE's [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	[2]	436	532
Unrealized Gains	[2]	33	40
Unrealized Losses	[2]	0	0
Fair Value	[2]	469	572
State and Local Government Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
After 5 years but within 10 years, Amortized Cost		963	961
After 5 years but within 10 years, Unrealized Gains		85	98
After 5 years but within 10 years, Unrealized Losses		0	0
After 5 years but within 10 years, Fair Value		1,048	1,059
After 10 years, Amortized Cost		1,469	1,468
After 10 years, Unrealized Gains		126	153
After 10 years, Unrealized Losses		0	0
After 10 years, Fair Value		$ 1,595	$ 1,621

[1] Derived from audited consolidated financial statements.

[2] Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

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LOANS RECEIVABLE, Recorded Investment in Loans by Segment and Class Not Accruing Interest or 90 Days or More Past Due and Accruing Interest (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	$ 2,912	$ 2,688
Loan receivable, Past Due 90 Days or More and Still Accruing	0	0
Bank services loans for Habitat for Humanity of Western North Carolina	15,300	14,900
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	1,102	1,102
Loan receivable, Past Due 90 Days or More and Still Accruing	0	0
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	262	221
Loan receivable, Past Due 90 Days or More and Still Accruing	0	0
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	840	881
Loan receivable, Past Due 90 Days or More and Still Accruing	0	0
Non-Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	1,810	1,586
Loan receivable, Past Due 90 Days or More and Still Accruing	0	0
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	1,589	1,354
Loan receivable, Past Due 90 Days or More and Still Accruing	0	0
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	221	230
Loan receivable, Past Due 90 Days or More and Still Accruing	0	0
Non-Commercial [Member] | Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loan receivable, Nonaccruing	0	2
Loan receivable, Past Due 90 Days or More and Still Accruing	$ 0	$ 0

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($)	3 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	$ 170,728,000	$ 149,626,000
Concentration Risk [Line Items]
Investment commitments				$ 2,000,000
Investment	200,000	250,000	$ 350,000
Commitments to Extend or Originate Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	170,268,000	149,590,000
Commitments under Standby Letters of Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	$ 460,000	$ 36,000
Product Concentration Risk [Member] | Residential Mortgage [Member] | Residential Real Estate [Member] | Maximum [Member]
Concentration Risk [Line Items]
Percentage of loan to value of real estate pledged as collateral (in hundredths)	80.00%
Percentage of loan to value of real estate with private mortgage insurance (in hundredths)	95.00%
Product Concentration Risk [Member] | Commercial Mortgage [Member] | Commercial Real Estate [Member] | Maximum [Member]
Concentration Risk [Line Items]
Percentage of loan to value of real estate pledged as collateral (in hundredths)	85.00%

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CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	[1]
Assets
Cash and due from banks	$ 11,020	$ 9,045
Interest-earning deposits with banks	41,970	47,813
Total cash and cash equivalents	52,990	56,858
Securities available for sale (amortized cost of $135,622 at June 30, 2015 and $141,266 at December 31, 2014)	134,813	141,462
Securities held to maturity (estimated fair value of $4,209 at June 30, 2015 and $4,363 at December 31, 2014)	3,899	3,999
Investment in Federal Home Loan Bank stock, at cost	2,807	2,902
Loans held for sale	8,192	5,237
Loans receivable (net of deferred loan fees of $611 at June 30, 2015 and $706 at December 31, 2014)	552,999	521,820
Allowance for loan losses	(6,124)	(5,949)
Loans receivable, net	546,875	515,871
Premises and equipment, net	11,823	11,932
Foreclosed real estate	9,381	8,814
Deferred income tax assets, net	5,511	5,588
Other assets	7,008	7,387
Total assets	783,299	760,050
Liabilities
Noninterest-bearing deposits	113,984	97,450
Interest-bearing deposits	509,979	505,929
Total deposits	623,963	603,379
Overnight and short-term borrowings	224	660
Federal Home Loan Bank advances	50,000	50,000
Accounts payable and other liabilities	12,949	11,614
Total liabilities	687,136	665,653
Shareholders' Equity
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued	0	0
Common stock, $0.01 par value; 60,000,000 shares authorized; 4,378,411 shares issued at June 30, 2015 and December 31, 2014	44	44
Additional paid-in capital	34,152	34,047
Retained earnings	74,000	72,513
Accumulated other comprehensive loss, net of tax	(6,433)	(5,802)
Unearned Employee Stock Ownership Plan (ESOP) shares	(3,297)	(3,452)
Unearned equity incentive plan shares	(1,960)	(2,610)
Stock-based deferral plan shares	(343)	(343)
Total shareholders' equity	96,163	94,397
Total liabilities and shareholders' equity	$ 783,299	$ 760,050

[1] Derived from audited consolidated financial statements.

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ALLOWANCE FOR LOAN LOSSES, Summary of Banks Recorded Investment in TDRs (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2014 USD ($) Loan
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	2	3
Pre-Modification Outstanding Recorded Investment	$ 182	$ 629
Post-Modification Outstanding Recorded Investment	$ 195	$ 655
Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	1	1
Pre-Modification Outstanding Recorded Investment	$ 153	$ 562
Post-Modification Outstanding Recorded Investment	$ 153	$ 562
Extended Payment Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	1	2
Pre-Modification Outstanding Recorded Investment	$ 29	$ 67
Post-Modification Outstanding Recorded Investment	$ 42	$ 93
Commercial [Member] | Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	1	1
Pre-Modification Outstanding Recorded Investment	$ 153	$ 562
Post-Modification Outstanding Recorded Investment	$ 153	$ 562
Commercial [Member] | Commercial Mortgage [Member] | Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	0	1
Pre-Modification Outstanding Recorded Investment	$ 0	$ 562
Post-Modification Outstanding Recorded Investment	$ 0	$ 562
Commercial [Member] | Commercial and Industrial [Member] | Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	1	0
Pre-Modification Outstanding Recorded Investment	$ 153	$ 0
Post-Modification Outstanding Recorded Investment	$ 153	$ 0
Non-Commercial [Member] | Extended Payment Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	1	2
Pre-Modification Outstanding Recorded Investment	$ 29	$ 67
Post-Modification Outstanding Recorded Investment	$ 42	$ 93
Non-Commercial [Member] | Residential Mortgage [Member] | Extended Payment Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | Loan	1	2
Pre-Modification Outstanding Recorded Investment	$ 29	$ 67
Post-Modification Outstanding Recorded Investment	$ 42	$ 93

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss), Net of Tax [Member]	Unearned ESOP Shares [Member]	Unearned Equity Incentive Plan Shares [Member]	Stock-Based Deferral Plan Shares [Member]	Total
Beginning balance at Dec. 31, 2013				$ (7,373)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income								$ 1,345
Other comprehensive loss				2,265				2,265
Ending balance at Jun. 30, 2014				(5,108)
Beginning balance at Mar. 31, 2014				(6,023)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income								941
Other comprehensive loss				915				915
Ending balance at Jun. 30, 2014				(5,108)
Beginning balance at Dec. 31, 2014	$ 44	$ 34,047	$ 72,513	(5,802)	$ (3,452)	$ (2,610)	$ (343)	94,397	[1]
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income			1,487					1,487
Other comprehensive loss				(631)				(631)
ESOP shares allocated		168			155			323
Stock-based compensation expense		587						587
Vesting of restricted stock		(650)				650
Ending balance at Jun. 30, 2015	44	34,152	74,000	(6,433)	(3,297)	(1,960)	(343)	96,163
Beginning balance at Mar. 31, 2015				(5,295)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income								865
Other comprehensive loss				(1,138)				(1,138)
Ending balance at Jun. 30, 2015	$ 44	$ 34,152	$ 74,000	$ (6,433)	$ (3,297)	$ (1,960)	$ (343)	$ 96,163

[1] Derived from audited consolidated financial statements.

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INVESTMENT SECURITIES, Interest Income from Taxable and Tax-Exempt Securities Recognized in Interest and Dividend Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
INVESTMENT SECURITIES [Abstract]
Interest income from taxable securities	$ 246	$ 329	$ 551	$ 716
Interest income from tax-exempt securities	311	324	574	673
Total interest income from securities	$ 557	$ 653	$ 1,125	$ 1,389

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS [Abstract]

Estimated Fair Values and Carrying Amounts of Financial Instruments

The estimated fair values and carrying amounts of financial instruments follow:

	Fair Value Measurement Using								Total
(Dollars in thousands)	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount In Balance Sheet
June 30, 2015
Financial assets:
Cash and cash equivalents	$	52,990	$	-	$	-	$	52,990	$	52,990
Securities available for sale		752		134,061		-		134,813		134,813
Securities held to maturity		-		4,209		-		4,209		3,899
Investments in FHLB stock		-		-		2,807		2,807		2,807
Loans held for sale		-		8,368		-		8,368		8,192
Loans receivable, net		-		-		547,606		547,606		546,875
Accrued interest receivable		-		-		2,217		2,217		2,217
Deferred compensation assets		1,403		-		-		1,403		1,403
Financial liabilities:
Demand deposits		-		-		473,674		473,674		473,674
Time deposits		-		-		150,326		150,326		150,289
Repurchase agreements		-		-		222		222		224
Federal Home Loan Bank Advances		-		-		52,912		52,912		50,000
Deferred compensation liabilities		1,408		-		-		1,408		1,408
Accrued interest payable		-		-		102		102		102
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit		-		-		-		-		-
Commitments under standby letters of credit		-		-		-		-		-

	Fair Value Measurement Using								Total
(Dollars in thousands)	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount In Balance Sheet
December 31, 2014
Financial assets:
Cash and cash equivalents	$	56,858	$	-	$	-	$	56,858	$	56,858
Securities available for sale		746		140,716		-		141,462		141,462
Securities held to maturity		-		4,363		-		4,363		3,999
Investments in FHLB stock		-		-		2,902		2,902		2,902
Loans held for sale		-		5,350		-		5,350		5,237
Loans receivable, net		-		-		516,752		516,752		515,871
Accrued interest receivable		-		-		2,230		2,230		2,230
Deferred compensation assets		1,418		-		-		1,418		1,418
Financial liabilities:
Demand deposits		-		-		449,286		449,286		449,286
Time deposits		-		-		153,994		153,994		154,093
Repurchase agreements		-		-		653		653		660
Federal Home Loan Bank Advances		-		-		53,382		53,382		50,000
Deferred compensation liabilities		1,418		-		-		1,418		1,418
Accrued interest payable		-		-		115		115		115
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit		-		-		-		-		-
Commitments under standby letters of credit		-		-		-		-		-

Assets and Liabilities Recorded at Fair Value on Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at fair value on a recurring basis. There were no transfers to or from Levels 1 and 2 during the six months ended June 30, 2015.

(Dollars in thousands)	Fair Value Measurement Using						Total
Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets		Assets/ Liabilities Measured At Fair Value
June 30, 2015
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,141	$	-	$	2,141	$	2,141
Asset-backed SBA securities		-		18,921		-		18,921		18,921
Residential mortgage-backed securities issued by GSE’s		-		54,106		-		54,106		54,106
State and local government securities		-		58,893		-		58,893		58,893
Mutual funds		752		-		-		752		752
Total	$	752	$	134,061	$	-	$	134,813	$	134,813
Defined benefit plan assets:
Cash and cash equivalents	$	555	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		12,910		-		-
Equity security mutual funds		3,799		-		-
Total	$	17,409	$	-	$	-
December 31, 2014
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,138	$	-	$	2,138	$	2,138
Asset-backed SBA securities		-		28,465		-		28,465		28,465
Residential mortgage-backed securities issued by GSE’s		-		67,421		-		67,421		67,421
State and local government securities		-		42,692		-		42,692		42,692
Mutual funds		746		-		-		746		746
Total	$	746	$	140,716	$	-	$	141,462	$	141,462
Defined benefit plan assets:
Cash and cash equivalents	$	489	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		14,166		-		-
Equity security mutual funds		3,553		-		-
Total	$	18,353	$	-	$	-

Assets Recorded at Fair Value on Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy that were held for the periods indicated are in the table below.

(Dollars in thousands)	Fair Value Measurement Using						Total
0 Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets (1)		Assets/ Liabilities Measured At Fair Value (1)
June 30, 2015
Impaired loans	$	-	$	-	$	2,113	$	2,113	$	2,113
Foreclosed properties		-		-		4,997		4,997		4,997
December 31, 2014
Impaired loans	$	-	$	-	$	1,847	$	1,847	$	1,847
Foreclosed properties		-		-		4,341		4,341		4,341

(1) Properties recorded at cost and not market are excluded.

Quantitative Information about Financial and Nonfinancial Assets Measured at Fair Value on Nonrecurring

The following table presents quantitative information about financial and nonfinancial assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs:

(Dollars in thousands)	Fair Value (1)		Valuation Technique	Unobservable Input	Discount Range (Weighted Average)
June 30, 2015
Impaired loans	$	2,113	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (20	%)
Foreclosed properties		4,997	Discounted appraisals (2)	Collateral discounts (3)		0%-40% (9	%)
December 31, 2014
Impaired loans	$	1,847	Discounted appraisals (2)	Collateral discounts (3)		6%-35% (13	%)
Foreclosed properties		4,341	Discounted appraisals (2)	Collateral discounts (3)		0%-40% (9	%)

(1) Properties recorded at cost and not market are excluded.

(2) Fair value is generally based on appraisals of the underlying collateral.

(3) Appraisals of collateral may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

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INVESTMENT SECURITIES, Proceeds and Realized Gains and Losses from Sales of Securities Recognized in Net Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Proceeds and gross realized gains from sales of securities recognized in net income [Abstract]
Proceeds from sales of securities	$ 32,089	$ 17,774	$ 50,624	$ 47,679
Gross realized gains from sales of securities	341	328	465	554
Gross realized losses from sales of securities	$ (198)	$ (235)	$ (266)	$ (347)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Allowance for Loan Losses (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2015
Allowance for Loan Losses [Abstract]
Number of consecutive months or payment cycles of performance after which concern no longer exists as to future collectability of principal and interest		6 months
Period of discovery within which loans determined to be fraudulent are charged off		90 days
Period of receipt of notification from bankruptcy court within which loans to borrowers in bankruptcy are charged off		60 days
Number of days past due after which loans to borrowers in bankruptcy are charged off		120 days
Minimum loan to construct commercial mixed-use buildings in small communities used to identify additional sub-segments	$ 2.5
Reduction in bank's reserves on loans not considered impaired	$ 1.3
Minimum percentage of appraised value of completed residence under speculative loans to construct one-to-four family residences used to identify additional sub-segments (in hundredths)	80.00%
Percentage of actual costs of construction under speculative loans used to identify additional sub-segments (in hundredths)	100.00%
Open-End Real Estate Loan [Member]
Allowance for Loan Losses [Abstract]
Period of average historical losses used in determining estimated loss percentage of loans		3 years
Consumer Loans [Member] | Closed-End Consumer Loan [Member]
Allowance for Loan Losses [Abstract]
Number of cumulative days past due after which loans are charged off		120 days
Consumer Loans [Member] | Open-End Consumer Loan [Member]
Allowance for Loan Losses [Abstract]
Number of cumulative days past due after which loans are charged off		180 days
Residential Loans [Member] | Closed-End Real Estate Loan [Member]
Allowance for Loan Losses [Abstract]
Number of cumulative days past due after which loans are charged off		180 days
Residential Loans [Member] | Open-End Real Estate Loan [Member]
Allowance for Loan Losses [Abstract]
Number of cumulative days past due after which loans are charged off		180 days

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015		Jun. 30, 2014
Operating Activities
Net income	$ 1,487		$ 1,345
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) loan losses	259		(1,458)
Provision for losses on foreclosed properties	0		154
Depreciation	421		467
Gain on sale of fixed and other assets	(20)		(1)
Loss on sale of foreclosed real estate	1		25
Deferred income tax expense	451		885
Net amortization of premiums on securities	1,323		1,752
Gain on sale of investment securities	(199)		(207)
Net accretion of deferred fees on loans	(46)		(37)
Mortgage loans originated for sale	(39,686)		(19,253)
Proceeds from sale of mortgage loans	37,584		21,072
Gain on sale of mortgage loans	(853)		(436)
ESOP compensation expense	323		284
Stock-based compensation expense	528		937
Excess tax benefits from equity awards	(59)		(26)
Decrease (increase) in income tax receivable	218		(217)
Decrease in interest receivable	13		327
Net change in other assets and liabilities	1,542		1,028
Net cash provided by operating activities	3,287		6,641
Investing Activities
Purchases of securities available for sale	(52,209)		(18,117)
Proceeds from sales of securities available for sale	50,624		47,679
Principal repayments on mortgage-backed and asset-backed securities	6,205		8,172
Redemption of FHLB stock	95		229
Net increase in loans receivable	(32,029)		(22,993)
Additions to foreclosed real estate	0		(269)
Net proceeds from sales of foreclosed real estate	244		4,121
Purchases of premises and equipment	(312)		(118)
Net proceeds from sales of fixed and other assets	20		0
Net cash provided by (used in) investing activities	(27,362)		18,704
Financing Activities
Net increase in deposits	20,584		19,897
Net repayments of overnight and short-term borrowings	(436)		(396)
Proceeds from the exercise of stock options	0		25
Excess tax benefits from equity awards	59		26
Common stock repurchased	0		(3,863)
Net cash provided by financing activities	20,207		15,689
Net increase (decrease) in cash and cash equivalents	(3,868)		41,034
Cash and cash equivalents at beginning of period	56,858	[1]	52,791
Cash and cash equivalents at end of period	52,990		93,825
Cash paid for:
Interest on deposits, advances and other borrowings	1,754		1,783
Non-cash investing and financing transactions:
Transfers from loans to foreclosed real estate	812		173
Increase (decrease) in unrealized gains and losses on securities available for sale	(806)		3,837
Increase (decrease) in deferred income taxes resulting from other comprehensive income	$ 374		$ (1,365)

[1] Derived from audited consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	[1]
Assets
Amortized cost of securities available for sale	$ 135,622	$ 141,266
Estimated fair value of securities held to maturity	4,209	4,363
Deferred loan fees on loans receivable	$ 611	$ 706
Shareholders' Equity
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	60,000,000	60,000,000
Common stock, shares issued (in shares)	4,378,411	4,378,411

[1] Derived from audited consolidated financial statements.

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INVESTMENT SECURITIES (Tables)

6 Months Ended

Jun. 30, 2015

INVESTMENT SECURITIES [Abstract]

Securities Available for Sale

Securities Available for Sale – The maturities, amortized cost, unrealized gains, unrealized losses and fair values of securities available for sale are as follows:

Type And Maturity Group (Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2015
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,154	$	1	$	(14	)	$	2,141
Asset-backed securities issued by the Small Business Administration (SBA)		18,714		224		(17	)		18,921
Residential mortgage-backed securities issued by GSE’s (1)		54,471		94		(459	)		54,106
State and local government securities due -
After 5 years but within 10 years		8,030		39		(50	)		8,019
After 10 years		51,501		131		(758	)		50,874
Mutual funds		752		-		-			752
Total	$	135,622	$	489	$	(1,298	)	$	134,813
December 31, 2014
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	1,037	$	-	$	(11	)	$	1,026
After 5 years but within 10 years		1,136		-		(24	)		1,112
Asset-backed securities issued by the Small Business Administration (SBA)		28,139		354		(28	)		28,465
Residential mortgage-backed securities issued by GSE’s (1)		67,675		189		(443	)		67,421
State and local government securities due -
After 5 years but within 10 years		9,850		98		(31	)		9,917
After 10 years		32,685		278		(188	)		32,775
Mutual funds		744		2		-			746
Total	$	141,266	$	921	$	(725	)	$	141,462

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises  including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

Securities Held to Maturity

Securities Held to Maturity – The maturities, amortized cost, unrealized gains, unrealized losses and fair values of securities classified as held to maturity are as follows:

Type And Maturity Group (Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2015
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,031	$	66	$	-	$	1,097
Residential mortgage-backed securities  issued by GSE’s (1)		436		33		-		469
State and local government securities due -
After 5 years but within 10 years		963		85		-		1,048
After 10 years		1,469		126		-		1,595
Total	$	3,899	$	310	$	-	$	4,209
December 31, 2014
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,038	$	73	$	-	$	1,111
Residential mortgage-backed securities  issued by GSE’s (1)		532		40		-		572
State and local government securities due -
After 5 years but within 10 years		961		98		-		1,059
After 10 years		1,468		153		-		1,621
Total	$	3,999	$	364	$	-	$	4,363

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprisesincluding the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 and December 31, 2014 or during the six- and twelve-month periods, respectively, then ended.

Investment Gross Unrealized Losses and Fair Value

The following tables show investment gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2015 and December 31, 2014. The total number of securities with unrealized losses at June 30, 2015 and December 31, 2014 were 58 and 46, respectively. The unrealized losses relate to debt and equity securities that have incurred fair value reductions due to higher market interest rates since the securities were purchased. The unrealized losses are not likely to reverse unless and until market interest rates decline to the levels that existed when the securities were purchased. Management has the intent to hold securities with unrealized losses until a recovery of the market value occurs. Management has determined that it is more likely than not that the Company will not be required to sell any of the securities with unrealized losses prior to a recovery of market value sufficient to negate the unrealized loss. Management has analyzed the creditworthiness of the underlying issuers and determined that the Company will collect all contractual cash flows and, therefore, all impairment is considered to be temporary.

	June 30, 2015
	Less Than 12 Months					12 Months Or More					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities Available For Sale
US GSE and agency	$	-	$	-		$	1,110	$	(14	)	$	1,110	$	(14	)
Asset-backed SBA		-		-			1,997		(17	)		1,997		(17	)
Residential mortgage- backed GSE (1)		35,703		(380	)		8,991		(79	)		44,694		(459	)
State and local government		42,635		(751	)		1,477		(57	)		44,112		(808	)
Total temporarily impaired securities	$	78,338	$	(1,131	)	$	13,575	$	(167	)	$	91,913	$	(1,298	)

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at June 30, 2015 or during the six-month period then ended.

	December 31, 2014
	Less Than 12 Months					12 Months Or More					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities Available For Sale
US GSE and agency	$	-	$	-		$	2,138	$	(35	)	$	2,138	$	(35	)
Asset-backed SBA		1,006		(1	)		2,158		(27	)		3,164		(28	)
Residential mortgage-backed GSE (1)		5,579		(13	)		27,089		(430	)		32,668		(443	)
State and local government		1,867		(16	)		13,541		(203	)		15,408		(219	)
Total temporarily impaired securities	$	8,452	$	(30	)	$	44,926	$	(695	)	$	53,378	$	(725	)

(1) Residential mortgage-backed securities were issued by United States government sponsored enterprises including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company held no private label residential mortgage-backed securities at December 31, 2014 or during the twelve-month period then ended.

Investment Securities Pledged as Collateral

Investment securities pledged as collateral follows:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Pledged to Federal Reserve Discount Window	$	6,998	$	3,745
Pledged to repurchase agreements for commercial customers		1,326		1,137

Interest Income from Taxable and Tax-Exempt Securities Recognized in Interest and Dividend Income

Interest income from taxable and tax-exempt securities recognized in interest and dividend income follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2015		2014		2015		2014
Interest income from taxable securities	$	246	$	329	$	551	$	716
Interest income from tax-exempt securities		311		324		574		673
Total interest income from securities	$	557	$	653	$	1,125	$	1,389

Proceeds and Gross Realized Gains and Losses from Sales of Securities Recognized in Net Income

Proceeds and gross realized gains from sales of securities recognized in net income follow:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Proceeds from sales of securities	$	32,089		$	17,774		$	50,624		$	47,679
Gross realized gains from sales of securities		341			328			465			554
Gross realized losses from sales of securities		(198	)		(235	)		(266	)		(347	)

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 31, 2015
Document And Entity Information [Abstract]
Entity Registrant Name	ASB Bancorp Inc
Entity Central Index Key	0001520300
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		4,384,657
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015

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LOANS RECEIVABLE (Tables)

6 Months Ended

Jun. 30, 2015

LOANS RECEIVABLE [Abstract]

Loans Receivable by Segment and Class

Loans receivable by segment and class follow:

(Dollars in thousands)	June 30, 2015			December 31, 2014
Commercial:
Commercial construction and land development	$	27,236		$	21,661
Commercial mortgage		212,844			201,316
Commercial and industrial		17,150			15,872
Total commercial		257,230			238,849
Non-commercial:
Non-commercial construction and land development		16,174			14,781
Residential mortgage		173,940			172,163
Revolving mortgage		61,743			56,370
Consumer		44,523			40,363
Total non-commercial		296,380			283,677
Total loans receivable		553,610			522,526
Less: Deferred loan fees		(611	)		(706	)
Total loans receivable net of deferred loan fees		552,999			521,820
Less: Allowance for loan losses		(6,124	)		(5,949	)
Loans receivable, net	$	546,875		$	515,871

Loans Receivable by Segment, Class, and Grade

Loans receivable by segment, class, and grade follow:

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans
June 30, 2015
Commercial:
Commercial construction and land development	$	27,085	$	151	$	-	$	-	$	-	$	27,236
Commercial mortgage		198,371		13,006		1,467		-		-		212,844
Commercial and industrial		16,285		603		262		-		-		17,150
Total commercial		241,741		13,760		1,729		-		-		257,230
Non-commercial:
Non-commercial construction and land development		16,174		-		-		-		-		16,174
Residential mortgage		165,117		6,642		2,181		-		-		173,940
Revolving mortgage		58,396		2,729		618		-		-		61,743
Consumer		44,116		330		77		-		-		44,523
Total non-commercial		283,803		9,701		2,876		-		-		296,380
Total loans receivable	$	525,544	$	23,461	$	4,605	$	-	$	-	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	21,336	$	323	$	2	$	-	$	-	$	21,661
Commercial mortgage		184,992		14,809		1,515		-		-		201,316
Commercial and industrial		14,628		873		371		-		-		15,872
Total commercial		220,956		16,005		1,888		-		-		238,849
Non-commercial:
Non-commercial construction and land development		14,781		-		-		-		-		14,781
Residential mortgage		161,859		8,544		1,760		-		-		172,163
Revolving mortgage		52,700		3,119		551		-		-		56,370
Consumer		39,965		294		104		-		-		40,363
Total non-commercial		269,305		11,957		2,415		-		-		283,677
Total loans receivable	$	490,261	$	27,962	$	4,303	$	-	$	-	$	522,526

Loans Receivable by Segment, Class, and Delinquency Status

Loans receivable by segment, class, and delinquency status follow:

	Past Due
(Dollars in thousands)	31-89 Days		90 Days Or More		Total		Current		Total Loans
June 30, 2015
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	27,236	$	27,236
Commercial mortgage		628		-		628		212,216		212,844
Commercial and industrial		4		117		121		17,029		17,150
Total commercial		632		117		749		256,481		257,230
Non-commercial:
Non-commercial construction and land development		-		-		-		16,174		16,174
Residential mortgage		1,406		181		1,587		172,353		173,940
Revolving mortgage		277		37		314		61,429		61,743
Consumer		96		-		96		44,427		44,523
Total non-commercial		1,779		218		1,997		294,383		296,380
Total loans receivable	$	2,411	$	335	$	2,746	$	550,864	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	21,661	$	21,661
Commercial mortgage		532		-		532		200,784		201,316
Commercial and industrial		-		43		43		15,829		15,872
Total commercial		532		43		575		238,274		238,849
Non-commercial:
Non-commercial construction and land development		-		-		-		14,781		14,781
Residential mortgage		576		1,226		1,802		170,361		172,163
Revolving mortgage		396		141		537		55,833		56,370
Consumer		227		1		228		40,135		40,363
Total non-commercial		1,199		1,368		2,567		281,110		283,677
Total loans receivable	$	1,731	$	1,411	$	3,142	$	519,384	$	522,526

Recorded Investment in Loans by Segment and Class Not Accruing Interest or 90 Days or More Past Due and Accruing Interest

The recorded investment in loans, by segment and class, that are not accruing interest or are 90 days or more past due and still accruing interest follows:

	June 30, 2015				December 31, 2014
(Dollars in thousands)	Nonaccruing		Past Due 90 Days Or More And Still Accruing		Nonaccruing		Past Due 90 Days Or More And Still Accruing
Commercial:
Commercial mortgage	$	840	$	-	$	881	$	-
Commercial and industrial		262		-		221		-
Total commercial		1,102		-		1,102		-
Non-commercial:
Residential mortgage		1,589		-		1,354		-
Revolving mortgage		221		-		230		-
Consumer		-		-		2		-
Total non-commercial		1,810		-		1,586		-
Total loans receivable	$	2,912	$	-	$	2,688	$	-

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Interest and dividend income
Loans, including fees	$ 5,664	$ 5,024	$ 11,185	$ 9,946
Securities	557	653	1,125	1,389
Other earning assets	68	94	133	177
Total interest and dividend income	6,289	5,771	12,443	11,512
Interest expense
Deposits	390	395	767	798
Overnight and short-term borrowings	0	1	0	1
Federal Home Loan Bank advances	490	490	974	974
Total interest expense	880	886	1,741	1,773
Net interest income	5,409	4,885	10,702	9,739
Provision for (recovery of) loan losses	65	(1,390)	259	(1,458)
Net interest income after provision for (recovery of) loan losses	5,344	6,275	10,443	11,197
Noninterest income
Mortgage banking income	498	216	853	436
Deposit and other service charge income	618	626	1,201	1,212
Income from debit card services	462	425	882	799
Gain on sale of investment securities, net	143	93	199	207
Other noninterest income	247	194	443	356
Total noninterest income	1,968	1,554	3,578	3,010
Noninterest expenses
Salaries and employee benefits	3,344	3,521	6,688	6,819
Occupancy expense, net	444	482	912	969
Foreclosed property expenses	54	242	120	392
Data processing fees	623	674	1,200	1,322
Federal deposit insurance premiums	124	141	249	274
Advertising	146	161	260	262
Professional and outside services	276	277	476	455
Other noninterest expenses	999	852	1,877	1,717
Total noninterest expenses	6,010	6,350	11,782	12,210
Income before income tax provision	1,302	1,479	2,239	1,997
Income tax provision	437	538	752	652
Net income	$ 865	$ 941	$ 1,487	$ 1,345
Net income per common share - Basic (in dollars per share)	$ 0.22	$ 0.22	$ 0.38	$ 0.31
Net income per common share - Diluted (in dollars per share)	$ 0.22	$ 0.21	$ 0.37	$ 0.30

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BENEFIT PLANS

6 Months Ended

Jun. 30, 2015

BENEFIT PLANS [Abstract]

BENEFIT PLANS

5. BENEFIT PLANS

Defined Benefit Plans – In January 2013, the Board of Directors amended the Bank’s Qualified and Non-Qualified pension plans, effective March 31, 2013, to curtail or eliminate benefits under the plans for services to be performed in future periods.  During 2013, pension expense was decreased by a $499,000 one-time credit that resulted from the curtailment of benefits for future service.

In June 2014, the Board of Directors further amended the Bank’s Qualified and Non-Qualified pension plans,  effective September 16, 2014, to offer immediate lump sum payments to inactive participants having an  actuarial equivalent of vested accrued benefits below $60,000, determined as of November, 1, 2014, as available.  The election deadline for the inactive participant to make the lump sum selection was October 17, 2014.  The total of immediate aggregate lump sum payments to all inactive participants making this selection was approximately $544,000 for 2014.

Net periodic cost (benefit) related to defined benefit plans include the following components for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Non-Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs
Interest cost	$	14		$	12		$	27		$	25
Amortization of net loss		14			7			29			14
Net periodic pension cost	$	28		$	19		$	56		$	39
Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs
Interest cost	$	247		$	250		$	495		$	500
Expected return on plan assets		(236	)		(248	)		(472	)		(495	)
Amortization of net loss		180			137			360			273
Net periodic pension cost	$	191		$	139		$	383		$	278

Employee Stock Ownership Plan – In conjunction with the Parent’s initial public offering in 2011, the Bank established an ESOP to provide eligible employees the opportunity to own Parent stock. The Parent provided a loan to the ESOP in the amount of $4,468,000, which was used to purchase 446,764 shares of the Parent’s common stock at a price of $10.00 per share in the Parent’s initial public offering. The loan bears a fixed interest rate of 3.25% and provides for annual payments of interest and principal over the 15 year term of the loan.

The Bank committed to make contributions to the ESOP sufficient to support the debt service of the loan. The loan is secured by the shares purchased, which are held in a suspense account until released for allocation to the participants as principal and interest payments are made by the ESOP to the Parent.

Shares released are allocated to each eligible participant based on the ratio of each participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. Forfeited shares shall be reallocated among other participants in the Plan. At the discretion of the Bank, cash dividends, when paid on allocated shares, will be distributed to participants’ accounts or used to repay the principal and interest on the ESOP loan used to acquire Parent stock on which dividends were paid. Cash dividends on unallocated shares will be used to repay the outstanding debt of the ESOP.

Shares held by the ESOP include the following:

	June 30, 2015
Allocated ESOP shares, December 31, 2014		98,624
ESOP shares committed to be released during the period		15,565
ESOP shares withdrawn during the period		(9,219	)
Unallocated ESOP shares		329,688
Total ESOP shares		434,658
Fair value of unallocated ESOP shares (dollars in thousands)	$	7,141

As ESOP shares are earned by the participants, the Company recognizes compensation expense equal to the fair value of the earned ESOP shares during the periods in which they become committed to be released.

Total expense recognized in connection with the ESOP follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2015		2014		2015		2014
ESOP expense	$	165	$	148	$	323	$	284

2012 Equity Incentive Plan - The Company’s 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”) provides for awards of restricted stock and stock options to key officers and outside directors. Cost recognized under the 2012 Equity Incentive Plan is based on the fair value of restricted stock and stock option awards on their grant date.  The maximum number of shares that may be awarded under the plan is 781,837 shares, including 223,382 for restricted stock shares and 558,455 shares for stock options.

Shares of common stock granted under the 2012 Equity Incentive Plan may be issued from authorized but unissued shares or, in the case of restricted stock awards, may be awarded with shares purchased on the open market.  During 2012, the Company purchased the 223,382 shares of its common stock in the open market at a total cost of $3.6 million, or an average of $16.12 per share, through an independent trustee to fulfill anticipated restricted stock awards.  The share-based awards granted under the 2012 Equity Incentive Plan have some similar characteristics, except some awards have been granted in restricted stock and other awards have been granted in stock options.  Therefore, the following disclosures have been disaggregated for the restricted stock awards and the stock option grants under the plan due to their dissimilar characteristics.

Share-based compensation expenses related to restricted stock and stock options recognized for the three and six months ended June 30, 2015 were $263,000 and $528,000, respectively, and were $660,000 and $937,000, respectively, for the same periods of 2014.  Compensation expense for the three and six months ended June 30, 2014 included $380,000 that was recognized for accelerated vesting of restricted stock and stock options due to the medical disability of an executive officer.

The table below presents restricted stock award activity for the periods indicated:

	Restricted Stock Awards			Weighted Average Grant Date Fair Value
Unvested restricted shares at December 31, 2014		161,906		$	15.75
Vested and released to participants		(40,296	)		15.74
Unvested restricted shares at June 30, 2015		121,610		$	15.75

There were no restricted stock awards granted, forfeited or exercised during the six-month period ended June 30, 2015.

At June 30, 2015, unrecognized compensation expense, adjusted for expected forfeitures, was $1.5 million related to restricted stock.  The weighted-average period over which compensation cost related to unvested awards is expected to be recognized was 2.63 years at June 30, 2015.

The table below presents stock option activity for the periods indicated:

	Stock Options Available For Granting		Stock Options Outstanding		Weighted Average Exercise Price		Remaining Contractual Life (In Years)		Aggregate Intrinsic Value (In Thousands)
Outstanding at December 31, 2014		60,355		496,500	$	16.00		7.61	$	2,731
Outstanding at June 30, 2015		60,355		496,500	$	16.00		7.11	$	2,810
Options exercisable at June 30, 2015				209,800	$	15.77		6.17	$	1,235

There were no stock options granted, forfeited or exercised during the six-month period ended June 30, 2015.

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model. The following table illustrates the weighted-average assumptions for the Black-Scholes model used in determining the fair value of options granted to directors and officers in the six months ended June 30, 2014.  There were no options granted for the six months ended June 30, 2015.

	Six Months Ended June 30, 2014
Fair value per option award		$5.91
Expected life in years		6.5 years
Expected stock price volatility		27.34%
Expected dividend yield		0.00%
Risk-free interest rate		2.04%
Expected forfeiture rate		6.39%

At June 30, 2015, the Company had $1.1 million of unrecognized compensation expense related to stock options.  The weighted average period over which compensation cost related to unvested stock options is expected to be recognized was 2.85 years at June 30, 2015.  There were 209,800 options vested and exercisable at June 30, 2015.

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ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2015

ALLOWANCE FOR LOAN LOSSES [Abstract]

ALLOWANCE FOR LOAN LOSSES

4. ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses by segment follows:

	Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
(Dollars in thousands)	Commercial			Non- Commercial			Total			Commercial			Non- Commercial			Total
Balance at beginning of period	$	3,429		$	2,613		$	6,042		$	3,409		$	2,540		$	5,949
Provision for (recovery of) loan losses		96			(31	)		65			92			167			259
Charge-offs		-			(137	)		(137	)		(79	)		(310	)		(389	)
Recoveries		3			151			154			106			199			305
Balance at end of period	$	3,528		$	2,596		$	6,124		$	3,528		$	2,596		$	6,124
	Three Months Ended June 30, 2014									Six Months Ended June 30, 2014
(Dollars in thousands)	Commercial			Non- Commercial			Total			Commercial			Non- Commercial			Total
Balance at beginning of period	$	4,609		$	2,580		$	7,189		$	4,560		$	2,747		$	7,307
Recovery of loan losses		(1,184	)		(206	)		(1,390	)		(1,137	)		(321	)		(1,458	)
Charge-offs		-			(56	)		(56	)		-			(150	)		(150	)
Recoveries		16			11			27			18			53			71
Balance at end of period	$	3,441		$	2,329		$	5,770		$	3,441		$	2,329		$	5,770

Ending balances of loans and the related allowance, by segment and class, follow:

	Allowance For Loan Losses						Total Loans Receivable
(Dollars in thousands)	Loans Individually Evaluated For Impairment		Loans Collectively Evaluated		Total		Loans Individually Evaluated For Impairment		Loans Collectively Evaluated		Total
June 30, 2015
Commercial:
Commercial construction and land development	$	-	$	247	$	247	$	-	$	27,236	$	27,236
Commercial mortgage		46		2,986		3,032		3,884		208,960		212,844
Commercial and industrial		20		229		249		285		16,865		17,150
Total commercial		66		3,462		3,528		4,169		253,061		257,230
Non-commercial:
Non-commercial construction and land development		-		135		135		-		16,174		16,174
Residential mortgage		97		1,010		1,107		3,502		170,438		173,940
Revolving mortgage		88		708		796		190		61,553		61,743
Consumer		-		558		558		-		44,523		44,523
Total non-commercial		185		2,411		2,596		3,692		292,688		296,380
Total loans receivable	$	251	$	5,873	$	6,124	$	7,861	$	545,749	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	-	$	303	$	303	$	-	$	21,661	$	21,661
Commercial mortgage		67		2,796		2,863		3,976		197,340		201,316
Commercial and industrial		98		145		243		394		15,478		15,872
Total commercial		165		3,244		3,409		4,370		234,479		238,849
Non-commercial:
Non-commercial construction and land development		-		116		116		-		14,781		14,781
Residential mortgage		160		969		1,129		3,023		169,140		172,163
Revolving mortgage		135		675		810		370		56,000		56,370
Consumer		-		485		485		-		40,363		40,363
Total non-commercial		295		2,245		2,540		3,393		280,284		283,677
Total loans receivable	$	460	$	5,489	$	5,949	$	7,763	$	514,763	$	522,526

Impaired loans and the related allowance, by segment and class, follow:

			Recorded Investment
(Dollars in thousands)	Unpaid Principal Balance		With A Recorded Allowance		With No Recorded Allowance		Total		Related Recorded Allowance
June 30, 2015
Commercial:
Commercial mortgage	$	3,989	$	3,379	$	505	$	3,884	$	46
Commercial and industrial		752		145		140		285		20
Total commercial		4,741		3,524		645		4,169		66
Non-commercial:
Residential mortgage		3,576		1,801		1,701		3,502		97
Revolving mortgage		199		88		102		190		88
Total non-commercial		3,775		1,889		1,803		3,692		185
Total impaired loans	$	8,516	$	5,413	$	2,448	$	7,861	$	251
December 31, 2014
Commercial:
Commercial mortgage	$	4,050	$	3,444	$	532	$	3,976	$	67
Commercial and industrial		779		328		66		394		98
Total commercial		4,829		3,772		598		4,370		165
Non-commercial:
Residential mortgage		3,062		2,298		725		3,023		160
Revolving mortgage		414		267		103		370		135
Total non-commercial		3,476		2,565		828		3,393		295
Total impaired loans	$	8,305	$	6,337	$	1,426	$	7,763	$	460

The average recorded investment in impaired loans and interest income recognized on impaired loans follows:

	Three Months Ended June 30, 2015				Three Months Ended June 30, 2014
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial mortgage	$	3,902	$	33	$	4,100	$	36
Commercial and industrial		289		-		277		1
Total commercial		4,191		33		4,377		37
Non-commercial:
Residential mortgage		3,402		18		2,803		22
Revolving mortgage		301		-		251		2
Total non-commercial		3,703		18		3,054		24
Total loans receivable	$	7,894	$	51	$	7,431	$	61
	Six Months Ended June 30, 2015				Six Months Ended June 30, 2014
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial construction and land development	$	-	$	-	$	46	$	1
Commercial mortgage		3,924		66		4,092		78
Commercial and industrial		321		1		285		3
Total commercial		4,245		67		4,423		82
Non-commercial:
Residential mortgage		3,142		42		2,867		47
Revolving mortgage		329		-		292		2
Total non-commercial		3,471		42		3,159		49
Total loans receivable	$	7,716	$	109	$	7,582	$	131

The following table summarizes the Bank’s recorded investment in TDRs before and after their modifications during the periods indicated. There were no new restructured loans by the Bank during the three months ended June 30, 2015 or June 30, 2014.  The Bank extended the payment terms on one loan and reduced the interest rate below market levels on one loan during the six months ended June 30, 2015. The Bank extended payment terms on two loans and reduced the interest rate below market levels on one loan during the six months ended June 30, 2014.

	Six Months Ended June 30, 2015						Six Months Ended June 30, 2014
(Dollars in thousands)	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Below market interest rate
Commercial:
Commercial mortgage		-	$	-	$	-		1	$	562	$	562
Commercial and industrial		1		153		153		-		-		-
Total commercial		1		153		153		1		562		562
Total loans modified with below market interest rate		1		153		153		1		562		562
Extended payment terms
Non-commercial:
Residential mortgage		1		29		42		2		67		93
Total non-commercial		1		29		42		2		67		93
Total loans modified with extended payment terms		1		29		42		2		67		93
Total loans modified		2	$	182	$	195		3	$	629	$	655

There were no loans modified as TDRs within the preceding 12 months that stopped performing during the three months or six months ended June 30, 2015 and June 30, 2014.

In the determination of the allowance for loan losses, management considers TDRs on loans and the subsequent nonperformance in accordance with their modified terms, by measuring impairment loan-by-loan based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

The Bank’s loans that were considered to be TDRs follow:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Nonperforming restructured loans	$	1,068	$	1,018
Performing restructured loans		4,724		4,804
Total	$	5,792	$	5,822

As of June 30, 2015, the Bank had $7,000 of residential real estate loans in the process of foreclosure and $775,000 of foreclosed residential real estate property included in foreclosed real estate.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Jun. 30, 2015	Subsidiary Subsegment
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Number of wholly owned subsidiaries	2
Number of sub-segments | Subsegment	3

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ALLOWANCE FOR LOAN LOSSES (Tables)

6 Months Ended

Jun. 30, 2015

ALLOWANCE FOR LOAN LOSSES [Abstract]

Allowance for Loan Losses by Segment

An analysis of the allowance for loan losses by segment follows:

	Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
(Dollars in thousands)	Commercial			Non- Commercial			Total			Commercial			Non- Commercial			Total
Balance at beginning of period	$	3,429		$	2,613		$	6,042		$	3,409		$	2,540		$	5,949
Provision for (recovery of) loan losses		96			(31	)		65			92			167			259
Charge-offs		-			(137	)		(137	)		(79	)		(310	)		(389	)
Recoveries		3			151			154			106			199			305
Balance at end of period	$	3,528		$	2,596		$	6,124		$	3,528		$	2,596		$	6,124
	Three Months Ended June 30, 2014									Six Months Ended June 30, 2014
(Dollars in thousands)	Commercial			Non- Commercial			Total			Commercial			Non- Commercial			Total
Balance at beginning of period	$	4,609		$	2,580		$	7,189		$	4,560		$	2,747		$	7,307
Recovery of loan losses		(1,184	)		(206	)		(1,390	)		(1,137	)		(321	)		(1,458	)
Charge-offs		-			(56	)		(56	)		-			(150	)		(150	)
Recoveries		16			11			27			18			53			71
Balance at end of period	$	3,441		$	2,329		$	5,770		$	3,441		$	2,329		$	5,770

Ending Balances of Loans and Related Allowance

Ending balances of loans and the related allowance, by segment and class, follow:

	Allowance For Loan Losses						Total Loans Receivable
(Dollars in thousands)	Loans Individually Evaluated For Impairment		Loans Collectively Evaluated		Total		Loans Individually Evaluated For Impairment		Loans Collectively Evaluated		Total
June 30, 2015
Commercial:
Commercial construction and land development	$	-	$	247	$	247	$	-	$	27,236	$	27,236
Commercial mortgage		46		2,986		3,032		3,884		208,960		212,844
Commercial and industrial		20		229		249		285		16,865		17,150
Total commercial		66		3,462		3,528		4,169		253,061		257,230
Non-commercial:
Non-commercial construction and land development		-		135		135		-		16,174		16,174
Residential mortgage		97		1,010		1,107		3,502		170,438		173,940
Revolving mortgage		88		708		796		190		61,553		61,743
Consumer		-		558		558		-		44,523		44,523
Total non-commercial		185		2,411		2,596		3,692		292,688		296,380
Total loans receivable	$	251	$	5,873	$	6,124	$	7,861	$	545,749	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	-	$	303	$	303	$	-	$	21,661	$	21,661
Commercial mortgage		67		2,796		2,863		3,976		197,340		201,316
Commercial and industrial		98		145		243		394		15,478		15,872
Total commercial		165		3,244		3,409		4,370		234,479		238,849
Non-commercial:
Non-commercial construction and land development		-		116		116		-		14,781		14,781
Residential mortgage		160		969		1,129		3,023		169,140		172,163
Revolving mortgage		135		675		810		370		56,000		56,370
Consumer		-		485		485		-		40,363		40,363
Total non-commercial		295		2,245		2,540		3,393		280,284		283,677
Total loans receivable	$	460	$	5,489	$	5,949	$	7,763	$	514,763	$	522,526

Impaired Loans and Related Allowance

Impaired loans and the related allowance, by segment and class, follow:

			Recorded Investment
(Dollars in thousands)	Unpaid Principal Balance		With A Recorded Allowance		With No Recorded Allowance		Total		Related Recorded Allowance
June 30, 2015
Commercial:
Commercial mortgage	$	3,989	$	3,379	$	505	$	3,884	$	46
Commercial and industrial		752		145		140		285		20
Total commercial		4,741		3,524		645		4,169		66
Non-commercial:
Residential mortgage		3,576		1,801		1,701		3,502		97
Revolving mortgage		199		88		102		190		88
Total non-commercial		3,775		1,889		1,803		3,692		185
Total impaired loans	$	8,516	$	5,413	$	2,448	$	7,861	$	251
December 31, 2014
Commercial:
Commercial mortgage	$	4,050	$	3,444	$	532	$	3,976	$	67
Commercial and industrial		779		328		66		394		98
Total commercial		4,829		3,772		598		4,370		165
Non-commercial:
Residential mortgage		3,062		2,298		725		3,023		160
Revolving mortgage		414		267		103		370		135
Total non-commercial		3,476		2,565		828		3,393		295
Total impaired loans	$	8,305	$	6,337	$	1,426	$	7,763	$	460

Average Recorded Investment in Impaired Loans and Interest Income Recognized on Impaired Loans

The average recorded investment in impaired loans and interest income recognized on impaired loans follows:

	Three Months Ended June 30, 2015				Three Months Ended June 30, 2014
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial mortgage	$	3,902	$	33	$	4,100	$	36
Commercial and industrial		289		-		277		1
Total commercial		4,191		33		4,377		37
Non-commercial:
Residential mortgage		3,402		18		2,803		22
Revolving mortgage		301		-		251		2
Total non-commercial		3,703		18		3,054		24
Total loans receivable	$	7,894	$	51	$	7,431	$	61
	Six Months Ended June 30, 2015				Six Months Ended June 30, 2014
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial construction and land development	$	-	$	-	$	46	$	1
Commercial mortgage		3,924		66		4,092		78
Commercial and industrial		321		1		285		3
Total commercial		4,245		67		4,423		82
Non-commercial:
Residential mortgage		3,142		42		2,867		47
Revolving mortgage		329		-		292		2
Total non-commercial		3,471		42		3,159		49
Total loans receivable	$	7,716	$	109	$	7,582	$	131

Summary of Banks Recorded Investment in TDRs

The following table summarizes the Bank’s recorded investment in TDRs before and after their modifications during the periods indicated. There were no new restructured loans by the Bank during the three months ended June 30, 2015 or June 30, 2014.  The Bank extended the payment terms on one loan and reduced the interest rate below market levels on one loan during the six months ended June 30, 2015. The Bank extended payment terms on two loans and reduced the interest rate below market levels on one loan during the six months ended June 30, 2014.

	Six Months Ended June 30, 2015						Six Months Ended June 30, 2014
(Dollars in thousands)	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Below market interest rate
Commercial:
Commercial mortgage		-	$	-	$	-		1	$	562	$	562
Commercial and industrial		1		153		153		-		-		-
Total commercial		1		153		153		1		562		562
Total loans modified with below market interest rate		1		153		153		1		562		562
Extended payment terms
Non-commercial:
Residential mortgage		1		29		42		2		67		93
Total non-commercial		1		29		42		2		67		93
Total loans modified with extended payment terms		1		29		42		2		67		93
Total loans modified		2	$	182	$	195		3	$	629	$	655

Loans That Were Considered to Be TDRs

The Bank’s loans that were considered to be TDRs follow:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Nonperforming restructured loans	$	1,068	$	1,018
Performing restructured loans		4,724		4,804
Total	$	5,792	$	5,822

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Organization

Organization – ASB Bancorp, Inc. (the “Parent”) was incorporated on May 12, 2011 to be the bank holding company for Asheville Savings Bank, S.S.B. (the “Bank”) upon completion of the Bank’s conversion from the mutual to stock form of organization.

The Bank is headquartered in Asheville, North Carolina and provides mortgage, consumer and commercial banking services primarily in Buncombe, Henderson, McDowell, Transylvania, and Madison counties in North Carolina and a loan production office in Mecklenburg County, North Carolina. The Bank is regulated by the Office of the North Carolina Commissioner of Banks (“NCCoB”) and the Federal Deposit Insurance Corporation (“FDIC”). The Parent is regulated by the Board of Governors of the Federal Reserve System (the “FRB”) and the NCCoB.

Principles of Consolidation

Principles of Consolidation – The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiary, the Bank (collectively, the “Company”). The Bank has two wholly owned subsidiaries, Appalachian Financial Services, Inc., which has on occasion managed the Bank’s real estate acquired through debt default but is currently inactive, and Wenoca, Inc., which serves as the Bank’s trustee regarding deeds of trust. Both subsidiaries are organized as North Carolina corporations. For purposes of the consolidated financial statements, all significant intercompany accounts and transactions have been eliminated. The accounting and reporting policies of the Company conform to GAAP.

Use of Estimates

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment Securities

Investment Securities – Realized gains and losses on sales of investment securities are recognized at the time of sale (“trade date”) based upon the specific identification method.

Interest income includes amortization of purchase premiums and discounts. Realized gains and losses are derived from the amortized cost of the security sold. Declines in the fair value of held to maturity and available for sale debt securities below their cost that are deemed to be other than temporary because of credit risk impairment are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other factors, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (iv) whether it is more likely than not that the Company will be required to sell the investment prior to a recovery.

Loans

Loans – Loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized fees and costs on originated loans. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending processes are deferred and amortized to interest income over the contractual lives of the loans.

Loan Segments and Classes

The Bank’s portfolio segments and classes within those segments are subject to risks that could have an adverse impact on the credit quality of the loan portfolio. Management has identified the risks described below as significant risks that are generally similar among the loan segments and classes.

Commercial Loan Segment

The Bank’s commercial loans are centrally underwritten based primarily on the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. The Bank’s commercial lenders and underwriters work to understand the borrower’s businesses and management experiences. The majority of the Bank’s commercial loans are secured by collateral, so collateral values are important to the transaction. In commercial loan transactions where the principals or other parties provide personal guarantees, the Bank’s commercial lenders and underwriters analyze the relative financial strength and liquidity of each guarantor. Risks that are common to the Bank’s commercial loan classes include general economic conditions, demand for the borrowers’ products and services, the personal circumstances of the principals, and reductions in collateral values.

In addition to these common risks for the Bank’s commercial loans, the various commercial loan classes also have certain risks specific to them.

Commercial Construction and Land Development loans are highly dependent on the supply and demand for commercial real estate in the Bank’s markets as well as the demand for the newly constructed residential homes and lots being developed by the Bank’s commercial loan borrowers. Prolonged deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for the Bank’s commercial borrowers.

Commercial Mortgage and Commercial and Industrial loans are primarily dependent on the ability of the Bank’s commercial loan customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a borrower’s actual business results significantly underperform the original projections, the ability of that borrower to service the Bank’s loan on a basis consistent with the contractual terms may be at risk. While these loans are generally secured by real property, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.

Non-Commercial Loan Segment

The Bank underwrites its non-commercial loans using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use, and recent credit inquiries. To the extent that the loan is secured by collateral, the value of the collateral is also evaluated. Common risks to each class of non-commercial loans include general economic conditions within the Bank’s markets, such as unemployment and potential declines in collateral values, and the personal circumstances of the borrowers.

In addition to these common risks for the Bank’s non-commercial loans, various non-commercial loan classes may also have certain risks specific to them.

Residential Mortgage and Non-Commercial Construction and Land Development loans are to individuals and are typically secured by one-to-four family residential property, undeveloped land, and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can cause residential mortgage loan borrowers to have debt levels in excess of the current market value of the collateral, which can result in increased levels of foreclosures. Recent declines in value have led to unprecedented levels of foreclosures and losses within the banking industry. Non-commercial construction and land development loans can experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.

Revolving Mortgage loans are open-end or revolving lines of credit that borrowers may repay and borrow multiple times during the life of the loan and are often secured by second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render the Bank’s second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lien holders that may further weaken collateral positions. In addition, the open-end structure of these loans creates the risk that customers may draw on the lines in excess of the collateral value if there have been significant declines in the value of collateral since origination.

Consumer loans are often closed-end whereby the loan is fully disbursed when the loan closes and is repaid according to agreed upon specified dates.  Consumer loans include loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.

Credit Quality Indicators

Loans are monitored for credit quality on a recurring basis and the composition of the loans outstanding by credit quality indicator is provided below.

Loan credit quality indicators are developed through review of individual borrowers on an ongoing basis, although certain non-commercial loans, including residential mortgage, revolving mortgage and consumer loans, are evaluated upon origination and are reevaluated upon a change in delinquency status. Most commercial loans are evaluated at least annually with more frequent evaluation of more severely criticized loans or leases. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:

Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.

Special Mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the obligor and/or the realizable value of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.

Loss – Assets classified loss are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.

Allowance for Loan Losses

Allowance for Loan Losses – The allowance for loan losses is management’s estimate of probable credit losses that are inherent in the Bank’s loan portfolios at the balance sheet date. The allowance increases when the Bank provides for loan losses through charges to operating earnings and when the Bank recovers amounts from loans previously written down or charged off. The allowance decreases when the Bank writes down or charges off loan amounts that are deemed uncollectible.

Management determines the allowance for loan losses based on periodic evaluations that are inherently subjective and require substantial judgment because the evaluations require the use of material estimates that are susceptible to significant change. The Bank generally uses two allowance methodologies that are primarily based on management’s determination as to whether or not a loan is considered to be impaired.

Commercial loans, as well as non-commercial loans that are classified as substandard and secured by real estate, are evaluated for impairment on a loan-by-loan basis and are considered impaired when it is probable, based on current information, that the borrower will be unable to pay contractual interest or principal as required by the loan agreement. Loans that experience insignificant payment delays and payment shortfalls are not necessarily considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment history, and the amount of the shortfall relative to the principal and interest owed. Loans that are deemed to be troubled debt restructurings, which are discussed below, are also included as impaired loans. Impaired loans are measured at their estimated fair value based on either the value of the loan’s expected future cash flows discounted at the loan’s effective interest rate or on the collateral value, net of the estimated costs of disposal, if the loan is collateral dependent. For loans considered impaired, an individual allowance for loan losses is recorded when the loan principal balance exceeds the estimated fair value.

For loans not considered impaired, management determines the allowance for loan losses based on estimated loss percentages that are determined by and applied to the various classes of loans that comprise the segments of the Bank’s loan portfolio. The estimated loss percentages by loan class are based on a number of factors that include by class (i) average historical losses over the past three years, (ii) levels and trends in delinquencies, impairments, and net charge-offs, (iii) trends in the volume and direction of loan balances within that class, terms, and concentrations, (iv) trends in interest rates, (v) effects of changes in the Bank’s risk tolerance, underwriting standards, lending policies, procedures, and practices, and (vi) national and local business and economic conditions.

Methodology Change – In the second quarter of 2014, the Bank assessed and modified its loan loss methodology for unimpaired commercial construction and land development, unimpaired residential construction and land development, and unimpaired commercial and industrial loans. This modification resulted in further sub-segmentation of these classes of loans and the related historical charge-off rates. The purpose was to allocate the substantial historical charge-off rates created by three sub-segments of these loan classes against the significantly diminished or nonexistent current balances within these same loan sub-segments reflecting no continued credit exposure to the Bank. Specifically, additional sub-segments were identified where the Bank made (i) loans in excess of $2.5 million to construct commercial mixed-use buildings in small communities with low population growth, (ii) speculative loans to construct one-to-four family residences for the greater of 80% of the appraised value of the completed residence or 100% of the actual costs of construction, and (iii) loans secured by equity securities that do not have a readily determinable fair value.  This change in methodology resulted in a nonrecurring reduction of approximately $1.3 million in the Bank’s reserves for loans not considered impaired in the second quarter of 2014.

Future material adjustments to the allowance for loan losses may be necessary due to improving or deteriorating economic conditions, delinquencies, charge-off levels or declining collateral values. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require the Bank to make adjustments to the allowance for loan losses based upon judgments that differ significantly from those of management.

Nonperforming Assets

Nonperforming Assets – Nonperforming assets can include loans that are past due 90 days or more and continue to accrue interest, loans on which interest is not being accrued, and foreclosed real estate.

Loans Past Due 90 Days or More, Nonaccruing, Impaired, or Restructured – The Bank’s policies related to loans that are placed on nonaccruing status conform to guidelines prescribed by bank regulatory authorities. Generally, the Bank suspends the accrual of interest on loans (i) that are maintained on a cash basis because of the deterioration of the financial condition of the borrower, (ii) for which payment in full of principal or interest is not expected, or (iii) on which principal or interest has been in default for a period of 90 days or more, unless the loan is both well secured and in the process of collection. While a loan is on nonaccruing status, the Bank recognizes interest income only to the extent cash payments are received in excess of collection of the principal outstanding on the loan. Loans are returned to accruing status when all principal and interest amounts contractually due are brought current and concern no longer exists as to the future collectability of principal and interest, which is generally confirmed when the loan demonstrates  performance for six consecutive months or payment cycles.

A troubled debt restructuring (“TDR”) occurs when a borrower is experiencing financial difficulty and the Bank grants a concession it would not otherwise consider to provide the borrower relief from one or more of the contractual loan conditions. Concessions that the Bank might consider include the allowance of interest-only payments on more than a temporary basis, the reduction of interest rates, the extension of the loan term, the forgiveness of principal, or a combination of these. The Bank might require additional collateral or additional guarantors as conditions to modifying loans as TDRs.

The Bank might consider modifying both accruing or nonaccruing loans as TDRs. When a modification includes a reduction of principal that resulted from a partial charge-off of the loan, the Bank typically accounts for the TDR as a nonaccruing loan.

The Bank classifies TDRs as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis consistent with its evaluation of impaired loans that have not been modified as TDRs. An allowance is based on either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.

The Bank’s policy for recognition of interest income on loans considered to be impaired, including restructured loans, is the same as its interest income recognition policy for loans not considered to be impaired.

Loan Charge-Offs – The Bank charges off loan balances, in whole or in part, when available, verifiable, and documentable information confirms that specific loans, or portions of specific loans, are uncollectible or unrecoverable. For unsecured loans, losses are confirmed when it can be determined that the borrower, or any guarantor, is unwilling or unable to pay the amounts as agreed. When the borrower, or any guarantors, are unwilling or unable to pay the amounts as agreed on a loan secured by collateral and any recovery is dependent upon the sale of the collateral, the loan is deemed to be collateral dependent. Repayments or recoveries for collateral dependent loans are directly affected by the value of the collateral at liquidation.  As such, loan repayment can be affected by factors that influence the amount recoverable, the timing of the recovery, or a combination of the two. Such factors include economic conditions that affect the markets in which the loan or its collateral is sold, bankruptcy, repossession and foreclosure laws, and consumer banking regulations. Losses are also confirmed when the loan, or a portion of the loan, is classified as loss resulting from loan reviews conducted by the Bank.

Charge-offs of loans in the commercial loan segment are recognized when the uncollectibility of the loan balance and the inability to recover sufficient value from the sale of any collateral securing the loan is confirmed. The uncollectibility of the loan balance is evidenced by the inability of the commercial borrower to generate cash flows sufficient to repay the loan as agreed causing the loan to become delinquent. For collateral dependent commercial loans, the Bank determines the fair value of the collateral based on appraisals, current market conditions, and estimated costs to sell the collateral. For collateral dependent commercial loans where the loan balance, including any accrued interest, net deferred fees or costs, and unamortized premiums or discounts, exceeds the fair value of the collateral securing the loan, the deficiency is identified as unrecoverable, is deemed to be a confirmed loss, and is charged off.

Charge-offs of loans in the non-commercial loan segment are generally confirmed and recognized in a manner similar to loans in the commercial loan segment. Secured non-commercial loans that are identified as uncollectible and are deemed to be collateral dependent are confirmed as loss to the extent the fair value of the collateral is insufficient to recover the loan balance. Closed-end consumer loans that become 120 cumulative days past due and open-end consumer loans that become 180 cumulative days past due are charged off to the extent that the fair value of any collateral, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Closed-end and open-end loans secured by residential real estate that become 180 days past due are charged off to the extent that the fair value of the residential real estate securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Loans determined to be fraudulent are charged off within 90 days of discovery. Loans to borrowers in bankruptcy are subject to modification by the bankruptcy court and are charged off to the extent that the fair value of any collateral securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance, unless the Bank expects repayment is likely to occur. Such loans are charged off within 60 days of the receipt of notification from a bankruptcy court or when the loans become 120 days past due, whichever is shorter.

Foreclosed Real Estate – Foreclosed real estate consists of real estate and other assets acquired as a result of customers’ loan defaults. Foreclosed real estate is stated at the lower of the related loan balance or the fair value of the property net of the estimated costs of disposal with a charge to the allowance for loan losses upon foreclosure. Any write-downs subsequent to foreclosure are charged against operating earnings. To the extent recoverable, costs relating to the development and improvement of property are capitalized, whereas those costs relating to holding the property are charged to expense.

Comprehensive Income

Comprehensive Income – Comprehensive income is defined as the change in equity of an enterprise during a period from transactions and other events and circumstances from non-owner sources and, accordingly, includes both net income and amounts referred to as other comprehensive income (“OCI”). The items of other comprehensive income are included in the Consolidated Statements of Comprehensive Income (Loss). The accumulated balance of other comprehensive income is included in the equity section of the Consolidated Balance Sheets. The Company’s components of accumulated other comprehensive income include unrealized gains and/or losses on investment securities classified as available for sale and certain changes in the Company’s benefit obligations under its retirement plans. The Company adjusts the level of accumulated comprehensive income related to its retirement plans on an annual basis, consistent with the receipt of its annual actuarial studies.

The changes in the components of the Company’s accumulated other comprehensive loss, net of income taxes, are presented as follows:

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Three Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	631		$	(1,048	)	$	(90	)	$	(1,138	)	$	(507	)
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,295	)	$	(1,170	)	$	32		$	(1,138	)	$	(6,433	)
Three Months Ended June 30, 2014
Unrealized loss on securities	$	(1,602	)	$	973		$	(58	)	$	915		$	(687	)
Benefit plan liability		(4,421	)		(90	)		90			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(6,023	)	$	883		$	32		$	915		$	(5,108	)

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Six Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	124		$	(506	)	$	(125	)	$	(631	)	$	(507	)
Benefit plan liability		(5,926	)		(244	)		244			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(750	)	$	119		$	(631	)	$	(6,433	)
Six Months Ended June 30, 2014
Unrealized loss on securities	$	(2,952	)	$	2,394		$	(129	)	$	2,265		$	(687	)
Benefit plan liability		(4,421	)		(179	)		179			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(7,373	)	$	2,215		$	50		$	2,265		$	(5,108	)

The Company’s reclassifications out of accumulated other comprehensive income are as follows:

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
(Dollars in thousands)	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(143	)	$	(93	)	Gain on sale of investment securities
Deferred income tax expense		53			35		Income tax provision
Total reclassifications for the period	$	(90	)	$	(58	)	Net of tax
Net periodic pension benefit	$	194		$	144		Salaries and employee benefits
Deferred income tax expense		(72	)		(54	)	Income tax provision
Total reclassifications for the period	$	122		$	90		Net of tax

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
CH OPEN (Dollars in thousands)	Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(199	)	$	(207	)	Gain on sale of investment securities
Deferred income tax expense		74			78		Income tax provision
Total reclassifications for the period	$	(125	)	$	(129	)	Net of tax
Net periodic pension benefit	$	389		$	287		Salaries and employee benefits
Deferred income tax expense		(145	)		(108	)	Income tax provision
Total reclassifications for the period	$	244		$	179		Net of tax

Income Taxes

Income Taxes – The establishment of provisions for federal and state income taxes is a complex area of accounting that involves the use of significant judgments and estimates in applying relevant tax statutes. The Company is subject to audit by federal and state tax authorities, the results of which may produce tax liabilities that differ from the Company’s tax estimates and provisions. The Company continually evaluates its exposure to possible tax assessments arising from audits and it records its estimate of possible exposure based on current facts and circumstances. The Parent and the Bank have entered into a formal agreement that will allow them, if so elected, to file consolidated federal and state income tax returns, where permitted, and each to pay its respective share of income taxes due.

Deferred tax assets and liabilities are recognized for the tax effects of differing carrying values of assets and liabilities for tax and financial statement purposes that will reverse in future periods. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. When uncertainty exists concerning the recoverability of a deferred tax asset, the carrying value of the asset may be reduced by a valuation allowance. The amount of any valuation allowance established is based upon an estimate of the deferred tax asset that is more likely than not to be recovered. Increases or decreases in the valuation allowance result in increases or decreases to the provision for income taxes.

The Bank’s loss carry forward period under applicable North Carolina income tax laws is 15 years with a remaining loss carry forward period of 12 years. The Bank includes interest and penalties related to income tax liabilities in noninterest expense. The Bank’s tax filings for the years 2011 and thereafter are currently open to audit under statutes of limitations by the Internal Revenue Service and the North Carolina Department of Revenue.

Pension Plan

Pension Plan – The Bank has two noncontributory, defined benefit pension plans. The Bank recognizes the overfunded or underfunded status of the plans as an asset or liability in its consolidated statement of financial position and recognizes changes in the funded status in the year in which the change occurs through comprehensive income. The funded status of a benefit plan is measured as the difference between plan assets at fair value and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation. GAAP also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position and to include additional disclosure in the notes to financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.

Employee Stock Ownership Plan ("ESOP")

Employee Stock Ownership Plan (“ESOP”) – In connection with the mutual-to-stock conversion on October 11, 2011, the Bank established an ESOP for the benefit of all of its eligible employees. Full-time employees of the Bank who have been credited with at least 1,000 hours of service during a twelve-month period and who have attained age 21 are eligible to participate in the ESOP.  Shares allocated under the ESOP vest at the rate of 20% per year of service beginning with the completion of two years of service and fully vest upon the completion of six years of service. The Bank anticipates it will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to the Parent over a period of 15 years in accordance with the terms of the loan.

Unallocated ESOP shares are not considered outstanding (including for the calculation of net income per common share as discussed below) and are shown as a reduction of shareholders’ equity. Dividends on unallocated ESOP shares, if paid, are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. The fair value of the annual share allocations is recorded on a monthly basis with fair value determined by calculating the average closing stock price for each day during the month. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference is recognized in shareholders’ equity. The Company recognizes a tax deduction equal to the cost of the shares released. Because the ESOP is internally leveraged through a loan from the Parent to the ESOP, the loan receivable by the Parent from the ESOP is not reported as an asset nor is the debt of the ESOP shown as a liability in the consolidated financial statements.

Equity Incentive Plan

Equity Incentive Plan – The Company issued restricted stock and stock options under the 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”) to key officers and outside directors during the first quarter of 2013 and to additional key officers and a newly appointed outside director during 2014.  There were no grants under the 2012 Equity Incentive Plan during the first six months of 2015.  The Company uses a fair value based method of accounting for employee stock compensation plans, whereby  compensation cost is measured based on the fair value of the award as of the grant date and recognized over the vesting period.

Net Income Per Common Share

Net Income Per Common Share – Where presented, basic net income per common share is the Company’s net income available to common shareholders, which represents net income less dividends paid or payable to preferred stock shareholders, if any, divided by the weighted average number of common shares outstanding during the period. In calculating the weighted average number of common shares outstanding, shares held by the ESOP are not considered to be outstanding until they are committed to be released for allocation.  Also, the weighted average of unvested restricted shares are not considered outstanding until the shares vest.

For diluted income per common share, net income available to common shareholders is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options and restricted stock, as well as any adjustment to income that would result from the assumed issuance. The effects of restricted stock and stock options are excluded from the computation of diluted income per common share in periods in which the effect would be antidilutive. Potential common shares that might be issued by the Company relate solely to outstanding stock options and restricted stock and are determined using the treasury stock method.

Net income per common share has been computed based on the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share data)	2015			2014			2015			2014
Numerator:
Net income	$	865		$	941		$	1,487		$	1,345
Denominator:
Weighted average common shares outstanding		4,378,411			4,886,313			4,378,411			4,957,586
Less: Weighted average unvested restricted shares		(121,610	)		(178,706	)		(129,565	)		(186,987	)
Less: Weighted average unallocated ESOP shares		(333,602	)		(364,989	)		(337,471	)		(368,858	)
Weighted average common shares used to compute net income per common share – Basic		3,923,199			4,342,618			3,911,375			4,401,741
Add: Effect of dilutive securities		90,133			41,536			83,715			39,269
Weighted average common shares used to compute net income per common share – Diluted		4,013,332			4,384,154			3,995,090			4,441,010
Net income per common share – Basic	$	0.22		$	0.22		$	0.38		$	0.31
Net income per common share – Diluted	$	0.22		$	0.21		$	0.37		$	0.30

For the three and six months ended June 30, 2015, options to purchase 434,771 and 443,629 shares of common stock, respectively, and 93,206 and 90,766 restricted shares, respectively, were excluded from the computation of net income per common share because their effect would be anti-dilutive.  For the three and six months ended June 30, 2014, options to purchase 469,502 and 473,020 shares of common stock, respectively, and 142,668 and 141,417 restricted shares, respectively, were excluded from the computation of net income per common share because their effect would be anti-dilutive.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Accounting Standards Update ASU 2015-02 – In February, 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis.  The amendments affect business entities that are required toevaluate whether they should consolidate certain legal entities.  For public entities, the amendments in ASU 2015-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  Early adoption, including adoption in an interim period, is permitted.  The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2015-03 – In April, 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.  Under the ASU, an entity presents debt issuance costs in thebalance sheet as a direct deduction from the related debt liability rather than as an asset.  Amortization of the costs is reported as interest expense. For public entities, the amendments in ASU 2015-03 are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption is permitted for financial statements that have not been previously issued.  The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2015

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

6. COMMITMENTS AND CONTINGENCIES

The Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheet.

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 are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial real estate.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

The Bank’s commitments to extend or originate credit and under standby letters of credit follow:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit	$	170,268	$	149,590
Commitments under standby letters of credit		460		36
Total	$	170,728	$	149,626

Concentrations of Credit Risk - The Bank’s primary market area consists of Buncombe, Henderson, McDowell, Transylvania and Madison counties of North Carolina.  The majority of the Bank’s loans are residential mortgage loans and commercial real estate loans. The Bank’s policy generally will allow residential mortgage loans up to 80% of the value of the real estate that is pledged as collateral or up to 95% with private mortgage insurance and commercial real estate loans up to 85% of the value of the real estate that serves as collateral to secure the loan.

Interest Rate Risk - The Bank’s profitability depends to a large extent on its net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Like most financial institutions, the Bank’s interest income and interest expense are significantly affected by changes in market interest rates and other economic factors beyond its control. The Bank’s interest-earning assets consist primarily of long-term, fixed-rate mortgage loans, adjustable rate mortgage loans and investments that typically adjust more slowly to changes in interest rates than its interest-bearing liabilities, which are primarily term deposits. Accordingly, the Bank’s earnings are usually adversely affected during periods of rising interest rates and positively impacted during periods of declining interest rates. However, based on the results of the Bank’s interest rate risk simulation model, which management believes accurately reflects the extraordinary stress currently existing in the financial markets with respect to potential margin compression resulting from the Bank’s difficulty in reducing its cost of funds further in this competitive pricing environment, the Bank’s earnings may well be adversely affected if interest rates decline further. Such a decline in rates could result from, among other factors, the Federal Reserve Board's purchase of government securities and/or mortgage-backed securities in an effort to further stimulate the economy. Accordingly, the Bank is carefully monitoring, through its Asset/Liability management process, the competitive landscape related to interest rates as well as various economic indicators in order to optimally position the Bank in terms of changes in interest rates.

Litigation - The Bank is periodically involved in legal actions in the normal course of business. The Bank is  not a party to any pending legal proceedings that, after consultation with its legal counsel, the Bank’s management believes would have a material adverse effect on the Bank’s financial condition, results of operations, or cash flows.

Investment Commitments - During 2012, the Bank entered into an agreement to invest $2.0 million as a  limited partner in a Small Business Investment Company. The Bank invested $350,000 of its investment commitment in 2013, $250,000 in 2014 and $200,000 in the second quarter of 2015.  This investment is recognized using the cost method and is included in “other assets” on the balance sheet.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

7. FAIR VALUE MEASUREMENTS

FASB ASC Topic 820: Fair Value Measurements and Disclosures (“FASB ASC Topic 820”) requires  disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed below.  The estimated fair value amounts shown below have been determined by the Bank using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. The use of different market assumptions and/or valuation methodologies could have a material effect on the estimated fair value amounts.

Fair value estimates are made at a specific point in time, based on relevant market information and  information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.

The fair value estimates presented below are based on pertinent information available to management as of  June 30, 2015 and December 31, 2014. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued  since the dates presented herein and, therefore, current estimates of fair value may differ significantly from  the amounts presented.

The fair value measurement and disclosure guidance contained in FASB ASC Topic 820 defines fair value  as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the  principal or most advantageous market for the asset or liability in an orderly transaction between market  participants on the measurement date. The guidance also establishes a fair value hierarchy which requires  an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

Level 1

The fair values of Level 1 assets are determined by quoted prices in active markets for identical assets or  liabilities. Level 1 assets and liabilities include debt and equity securities that are traded in an active exchange  market, as well as certain U.S. Treasury debt securities.

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted  prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, SBA asset-backed securities, securities issued by state and local governments, and corporate debt securities.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value  of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is  determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as  instruments for which the determination of fair value requires significant management judgment or  estimation. This category generally includes certain private equity investments, loans receivable held for investment, accrued interest receivable and payable, time deposits, repurchase agreements, and FHLB advances.

The methodologies for estimating fair values of financial assets and financial liabilities are determined as  discussed below. The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest, Federal Home Loan Bank Stock and demand deposits.

Investment Securities – Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is primarily based upon quoted prices of like or similar securities, if available. If quoted prices are not available, fair values are measured using independent pricing models or other  model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The fair values of  investments in mutual funds are determined by quoted prices and are included as recurring Level 1 assets. The fair values of investments in securities issued by U.S. GSE’s, asset-backed securities issued by the SBA, residential mortgage-backed securities issued by U.S. GSE’s, and securities issued by state and local  governments are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions and are included as recurring Level 2 assets.

Loans Held for Sale –Loans held for sale are residential mortgages carried at the lower of cost or market  value. The market values of loans held for sale are based on what mortgage buyers are currently offering on a “best efforts” basis to buy the loans. As such, mortgages held for sale are classified as nonrecurring Level 2 assets.

Loans Receivable – For variable rate loans, carrying value is a reasonable estimate of fair value. For fixed  rate loans, fair values are estimated based on discounted future cash flows using the current interest rates at  which loans with similar terms would be made to borrowers of similar credit quality. Valuation adjustments  are made for credit risk, which are represented by the allowance for loan losses, but do not include  adjustments for illiquidity or other market risks.

The Bank does not record loans at fair value on a recurring basis. However, from time to time, a loan is  considered impaired and an allowance for loan losses is established. Loans for which it is probable that  payment of interest and principal will not be made in accordance with the contractual terms of the loan  agreement are considered impaired. Once a loan is identified as individually impaired, management measures  impairment in accordance with the accounting guidance contained in FASB ASC Topic 310: Receivables (“FASB ASC Topic 310”). The fair value of impaired loans is estimated using one of several methods,  including collateral value, market value of similar debt, enterprise value, liquidation value, or discounted  cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the  expected repayments or collateral exceed the recorded investments in such loans. Substantially all of the total impaired loans are evaluated based on the fair value of the collateral. In accordance with the fair  value measurement and disclosure guidance contained in FASB ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.

When the fair value of the collateral is based on an observable market price or a current appraised value, the impaired loan is recorded as nonrecurring Level 2 assets. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the impaired loan as nonrecurring Level 3 assets.

Accrued Interest Receivable and Payable – The carrying amount is a reasonable estimate of fair value.

Deferred Compensation Assets – Assets include debt and equity securities that are traded in an active  exchange market. Fair values are obtained from quoted prices in active markets for identical assets.

Demand and Savings Deposits – By definition, the carrying values are equal to the fair values.

Time Deposits and Repurchase Agreements – Fair value of fixed maturity certificates of deposit is estimated using the FHLB Rate Curve for similar remaining maturities. Fair value of repurchase agreements is estimated using the borrowing rate for overnight borrowings.

Federal Home Loan Bank Advances – The fair value of Federal Home Loan Bank advances is estimated  using the rates currently offered for advances of similar remaining maturities.

Deferred Compensation Liabilities – Fair values are measured based on the fair values of the related deferred compensation assets.

Defined Benefit Plan Assets – The Nonqualified Defined Benefit Plan had no plan assets because it was not funded. The assets of the Qualified Defined Benefit Plan, which are invested in interest-bearing depository accounts and money market, debt and equity security mutual funds, are included at fair value in the Qualified Plan’s separate financial statements. Fair value measurement is based upon quoted prices of like or similar securities. The fair values of the Plan’s investments in interest-bearing depository accounts and money market, debt and equity security mutual funds are determined by quoted prices and are included as recurring Level 1 assets.

Foreclosed Properties – Foreclosed properties are measured and recorded at the lower of cost or estimated  fair value. The fair value of foreclosed properties is measured using the current appraised value of the  property less the estimated expenses necessary to sell the property. Foreclosed properties are classified as  nonrecurring Level 3 assets.

The estimated fair values and carrying amounts of financial instruments follow:

	Fair Value Measurement Using								Total
(Dollars in thousands)	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount In Balance Sheet
June 30, 2015
Financial assets:
Cash and cash equivalents	$	52,990	$	-	$	-	$	52,990	$	52,990
Securities available for sale		752		134,061		-		134,813		134,813
Securities held to maturity		-		4,209		-		4,209		3,899
Investments in FHLB stock		-		-		2,807		2,807		2,807
Loans held for sale		-		8,368		-		8,368		8,192
Loans receivable, net		-		-		547,606		547,606		546,875
Accrued interest receivable		-		-		2,217		2,217		2,217
Deferred compensation assets		1,403		-		-		1,403		1,403
Financial liabilities:
Demand deposits		-		-		473,674		473,674		473,674
Time deposits		-		-		150,326		150,326		150,289
Repurchase agreements		-		-		222		222		224
Federal Home Loan Bank Advances		-		-		52,912		52,912		50,000
Deferred compensation liabilities		1,408		-		-		1,408		1,408
Accrued interest payable		-		-		102		102		102
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit		-		-		-		-		-
Commitments under standby letters of credit		-		-		-		-		-

	Fair Value Measurement Using								Total
(Dollars in thousands)	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount In Balance Sheet
December 31, 2014
Financial assets:
Cash and cash equivalents	$	56,858	$	-	$	-	$	56,858	$	56,858
Securities available for sale		746		140,716		-		141,462		141,462
Securities held to maturity		-		4,363		-		4,363		3,999
Investments in FHLB stock		-		-		2,902		2,902		2,902
Loans held for sale		-		5,350		-		5,350		5,237
Loans receivable, net		-		-		516,752		516,752		515,871
Accrued interest receivable		-		-		2,230		2,230		2,230
Deferred compensation assets		1,418		-		-		1,418		1,418
Financial liabilities:
Demand deposits		-		-		449,286		449,286		449,286
Time deposits		-		-		153,994		153,994		154,093
Repurchase agreements		-		-		653		653		660
Federal Home Loan Bank Advances		-		-		53,382		53,382		50,000
Deferred compensation liabilities		1,418		-		-		1,418		1,418
Accrued interest payable		-		-		115		115		115
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit		-		-		-		-		-
Commitments under standby letters of credit		-		-		-		-		-

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at fair value on a recurring basis. There were no transfers to or from Levels 1 and 2 during the six months ended June 30, 2015.

(Dollars in thousands)	Fair Value Measurement Using						Total
Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets		Assets/ Liabilities Measured At Fair Value
June 30, 2015
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,141	$	-	$	2,141	$	2,141
Asset-backed SBA securities		-		18,921		-		18,921		18,921
Residential mortgage-backed securities issued by GSE’s		-		54,106		-		54,106		54,106
State and local government securities		-		58,893		-		58,893		58,893
Mutual funds		752		-		-		752		752
Total	$	752	$	134,061	$	-	$	134,813	$	134,813
Defined benefit plan assets:
Cash and cash equivalents	$	555	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		12,910		-		-
Equity security mutual funds		3,799		-		-
Total	$	17,409	$	-	$	-
December 31, 2014
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,138	$	-	$	2,138	$	2,138
Asset-backed SBA securities		-		28,465		-		28,465		28,465
Residential mortgage-backed securities issued by GSE’s		-		67,421		-		67,421		67,421
State and local government securities		-		42,692		-		42,692		42,692
Mutual funds		746		-		-		746		746
Total	$	746	$	140,716	$	-	$	141,462	$	141,462
Defined benefit plan assets:
Cash and cash equivalents	$	489	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		14,166		-		-
Equity security mutual funds		3,553		-		-
Total	$	18,353	$	-	$	-

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

As may be required from time to time, certain assets may be recorded at fair value on a nonrecurring basis in certain circumstances such as evidence of impairment in accordance with U.S. GAAP. Assets measured at fair value on a nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy that were held for the periods indicated are in the table below.

(Dollars in thousands)	Fair Value Measurement Using						Total
0 Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets (1)		Assets/ Liabilities Measured At Fair Value (1)
June 30, 2015
Impaired loans	$	-	$	-	$	2,113	$	2,113	$	2,113
Foreclosed properties		-		-		4,997		4,997		4,997
December 31, 2014
Impaired loans	$	-	$	-	$	1,847	$	1,847	$	1,847
Foreclosed properties		-		-		4,341		4,341		4,341

(1) Properties recorded at cost and not market are excluded.

There were no transfers between valuation levels for any asset during the six-month period ended June 30, 2015.  If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the period when the assets are valued.

Quantitative Information About Level 3 Fair Value Measurements

The following table presents quantitative information about financial and nonfinancial assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs:

(Dollars in thousands)	Fair Value (1)		Valuation Technique	Unobservable Input	Discount Range (Weighted Average)
June 30, 2015
Impaired loans	$	2,113	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (20	%)
Foreclosed properties		4,997	Discounted appraisals (2)	Collateral discounts (3)		0%-40% (9	%)
December 31, 2014
Impaired loans	$	1,847	Discounted appraisals (2)	Collateral discounts (3)		6%-35% (13	%)
Foreclosed properties		4,341	Discounted appraisals (2)	Collateral discounts (3)		0%-40% (9	%)

(1) Properties recorded at cost and not market are excluded.

(2) Fair value is generally based on appraisals of the underlying collateral.

(3) Appraisals of collateral may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Changes in Components of Company's Accumulated Other Comprehensive Loss, Net of Income Taxes

The changes in the components of the Company’s accumulated other comprehensive loss, net of income taxes, are presented as follows:

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Three Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	631		$	(1,048	)	$	(90	)	$	(1,138	)	$	(507	)
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,295	)	$	(1,170	)	$	32		$	(1,138	)	$	(6,433	)
Three Months Ended June 30, 2014
Unrealized loss on securities	$	(1,602	)	$	973		$	(58	)	$	915		$	(687	)
Benefit plan liability		(4,421	)		(90	)		90			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(6,023	)	$	883		$	32		$	915		$	(5,108	)

(Dollars in thousands)	Beginning Balance			OCI Before Reclassification			Amount Reclassified			Net OCI			Ending Balance
Six Months Ended June 30, 2015
Unrealized gain (loss) on securities	$	124		$	(506	)	$	(125	)	$	(631	)	$	(507	)
Benefit plan liability		(5,926	)		(244	)		244			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(750	)	$	119		$	(631	)	$	(6,433	)
Six Months Ended June 30, 2014
Unrealized loss on securities	$	(2,952	)	$	2,394		$	(129	)	$	2,265		$	(687	)
Benefit plan liability		(4,421	)		(179	)		179			-			(4,421	)
Accumulated other comprehensive income (loss), net of tax	$	(7,373	)	$	2,215		$	50		$	2,265		$	(5,108	)

Reclassification of Accumulated Other Comprehensive Income

The Company’s reclassifications out of accumulated other comprehensive income are as follows:

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
(Dollars in thousands)	Three Months Ended June 30, 2015			Three Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(143	)	$	(93	)	Gain on sale of investment securities
Deferred income tax expense		53			35		Income tax provision
Total reclassifications for the period	$	(90	)	$	(58	)	Net of tax
Net periodic pension benefit	$	194		$	144		Salaries and employee benefits
Deferred income tax expense		(72	)		(54	)	Income tax provision
Total reclassifications for the period	$	122		$	90		Net of tax

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income						Affected Line Item In The Statement Where Net Income Is Presented
CH OPEN (Dollars in thousands)	Six Months Ended June 30, 2015			Six Months Ended June 30, 2014
Reclassification of securities gains recognized in net income	$	(199	)	$	(207	)	Gain on sale of investment securities
Deferred income tax expense		74			78		Income tax provision
Total reclassifications for the period	$	(125	)	$	(129	)	Net of tax
Net periodic pension benefit	$	389		$	287		Salaries and employee benefits
Deferred income tax expense		(145	)		(108	)	Income tax provision
Total reclassifications for the period	$	244		$	179		Net of tax

Net Income per Common Share

Net income per common share has been computed based on the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share data)	2015			2014			2015			2014
Numerator:
Net income	$	865		$	941		$	1,487		$	1,345
Denominator:
Weighted average common shares outstanding		4,378,411			4,886,313			4,378,411			4,957,586
Less: Weighted average unvested restricted shares		(121,610	)		(178,706	)		(129,565	)		(186,987	)
Less: Weighted average unallocated ESOP shares		(333,602	)		(364,989	)		(337,471	)		(368,858	)
Weighted average common shares used to compute net income per common share – Basic		3,923,199			4,342,618			3,911,375			4,401,741
Add: Effect of dilutive securities		90,133			41,536			83,715			39,269
Weighted average common shares used to compute net income per common share – Diluted		4,013,332			4,384,154			3,995,090			4,441,010
Net income per common share – Basic	$	0.22		$	0.22		$	0.38		$	0.31
Net income per common share – Diluted	$	0.22		$	0.21		$	0.37		$	0.30

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INVESTMENT SECURITIES, Investment Securities Pledged as Collateral (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Investment securities pledged as collateral [Abstract]
Pledged to Federal Reserve Discount Window	$ 6,998	$ 3,745
Pledged to repurchase agreements for commercial customers	$ 1,326	$ 1,137

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BENEFIT PLANS, Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Stock Options Outstanding [Roll Forward]
Stock options granted (in shares)	0
Stock options forfeited (in shares)	0
Stock options exercised (in shares)	0
Stock Option [Member]
Stock Options Available for Granting [Roll Forward]
Balance, beginning of period (in shares)	60,355
Balance, end of period (in shares)	60,355	60,355
Stock Options Outstanding [Roll Forward]
Balance, beginning of period (in shares)	496,500
Balance, end of period (in shares)	496,500	496,500
Options exercisable, end of period (in shares)	209,800
Stock Options Outstanding, Weighted Average Exercise Price [Abstract]
Balance, beginning of period (in dollars per share)	$ 16.00
Balance, end of period (in dollars per share)	16.00	$ 16.00
Options exercisable, end of period (in dollars per share)	$ 15.77
Stock Options Outstanding, Remaining Contractual Life [Abstract]
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2	7 years 1 month 10 days	7 years 7 months 10 days
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2	7 years 1 month 10 days	7 years 7 months 10 days
Options exercisable, end of period	6 years 2 months 1 day
Stock Options Outstanding, Aggregate Intrinsic Value [Abstract]
Balance, beginning of period	$ 2,731
Balance, end of period	2,810	$ 2,731
Options exercisable, end of period	$ 1,235

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COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2015

COMMITMENTS AND CONTINGENCIES [Abstract]

Commitments to Extend or Originate Credit and Under Standby Letters of Credit

The Bank’s commitments to extend or originate credit and under standby letters of credit follow:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit	$	170,268	$	149,590
Commitments under standby letters of credit		460		36
Total	$	170,728	$	149,626

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Reclassifications of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale of investment securities	$ (143)	$ (93)	$ (199)	$ (207)
Salaries and employee benefits	3,344	3,521	6,688	6,819
Income tax provision	437	538	752	652
Net of tax	(865)	(941)	(1,487)	(1,345)
Reclassification of Securities Gains Recognized in Net Income [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale of investment securities	(143)	(93)	(199)	(207)
Income tax provision	53	35	74	78
Net of tax	(90)	(58)	(125)	(129)
Net Periodic Pension Benefit [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	194	144	389	287
Income tax provision	(72)	(54)	(145)	(108)
Net of tax	$ 122	$ 90	$ 244	$ 179

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BENEFIT PLANS, 2012 Equity Incentive Plan (Details) - 2012 Equity Incentive Plan [Member] - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares that may be awarded (in shares)	781,837		781,837
Number of shares purchased (in shares)					223,382
Total cost of shares purchased					$ 3,600,000
Average cost of shares purchased (in dollars per share)					$ 16.12
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares that may be awarded (in shares)	223,382		223,382
Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares that may be awarded (in shares)	558,455		558,455
Restricted Stock and Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense	$ 263,000	$ 660,000	$ 528,000	$ 937,000
Recognized for accelerated vesting due to medical disability of executive officer		$ 380,000		$ 380,000

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ALLOWANCE FOR LOAN LOSSES, Analysis of Allowance for Loan Losses by Segment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance at beginning of period	$ 6,042	$ 7,189	$ 5,949	$ 7,307
Provision for (recovery of) loan losses	65	(1,390)	259	(1,458)
Charge-offs	(137)	(56)	(389)	(150)
Recoveries	154	27	305	71
Balance at end of period	6,124	5,770	6,124	5,770
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance at beginning of period	3,429	4,609	3,409	4,560
Provision for (recovery of) loan losses	96	(1,184)	92	(1,137)
Charge-offs	0	0	(79)	0
Recoveries	3	16	106	18
Balance at end of period	3,528	3,441	3,528	3,441
Non-Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance at beginning of period	2,613	2,580	2,540	2,747
Provision for (recovery of) loan losses	(31)	(206)	167	(321)
Charge-offs	(137)	(56)	(310)	(150)
Recoveries	151	11	199	53
Balance at end of period	$ 2,596	$ 2,329	$ 2,596	$ 2,329

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Comprehensive Income (Loss)
Net income	$ 865	$ 941	$ 1,487	$ 1,345
Unrealized holding gains (losses) on securities available for sale:
Reclassification of securities gains recognized in net income	(143)	(93)	(199)	(207)
Deferred income tax benefit	53	35	74	78
Gains (losses) arising during the period	(1,673)	1,560	(806)	3,837
Deferred income tax benefit (expense)	625	(587)	300	(1,443)
Unrealized holding gains (losses) adjustment, net of tax	(1,138)	915	(631)	2,265
Defined Benefit Pension Plans:
Net periodic pension cost	194	144	389	287
Net pension loss	(194)	(144)	(389)	(287)
Total other comprehensive income (loss)	(1,138)	915	(631)	2,265
Comprehensive income (loss)	$ (273)	$ 1,856	$ 856	$ 3,610

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LOANS RECEIVABLE

6 Months Ended

Jun. 30, 2015

LOANS RECEIVABLE [Abstract]

LOANS RECEIVABLE

3. LOANS RECEIVABLE

Loans receivable by segment and class follow:

(Dollars in thousands)	June 30, 2015			December 31, 2014
Commercial:
Commercial construction and land development	$	27,236		$	21,661
Commercial mortgage		212,844			201,316
Commercial and industrial		17,150			15,872
Total commercial		257,230			238,849
Non-commercial:
Non-commercial construction and land development		16,174			14,781
Residential mortgage		173,940			172,163
Revolving mortgage		61,743			56,370
Consumer		44,523			40,363
Total non-commercial		296,380			283,677
Total loans receivable		553,610			522,526
Less: Deferred loan fees		(611	)		(706	)
Total loans receivable net of deferred loan fees		552,999			521,820
Less: Allowance for loan losses		(6,124	)		(5,949	)
Loans receivable, net	$	546,875		$	515,871

Loans receivable by segment, class, and grade follow:

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans
June 30, 2015
Commercial:
Commercial construction and land development	$	27,085	$	151	$	-	$	-	$	-	$	27,236
Commercial mortgage		198,371		13,006		1,467		-		-		212,844
Commercial and industrial		16,285		603		262		-		-		17,150
Total commercial		241,741		13,760		1,729		-		-		257,230
Non-commercial:
Non-commercial construction and land development		16,174		-		-		-		-		16,174
Residential mortgage		165,117		6,642		2,181		-		-		173,940
Revolving mortgage		58,396		2,729		618		-		-		61,743
Consumer		44,116		330		77		-		-		44,523
Total non-commercial		283,803		9,701		2,876		-		-		296,380
Total loans receivable	$	525,544	$	23,461	$	4,605	$	-	$	-	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	21,336	$	323	$	2	$	-	$	-	$	21,661
Commercial mortgage		184,992		14,809		1,515		-		-		201,316
Commercial and industrial		14,628		873		371		-		-		15,872
Total commercial		220,956		16,005		1,888		-		-		238,849
Non-commercial:
Non-commercial construction and land development		14,781		-		-		-		-		14,781
Residential mortgage		161,859		8,544		1,760		-		-		172,163
Revolving mortgage		52,700		3,119		551		-		-		56,370
Consumer		39,965		294		104		-		-		40,363
Total non-commercial		269,305		11,957		2,415		-		-		283,677
Total loans receivable	$	490,261	$	27,962	$	4,303	$	-	$	-	$	522,526

Loans receivable by segment, class, and delinquency status follow:

	Past Due
(Dollars in thousands)	31-89 Days		90 Days Or More		Total		Current		Total Loans
June 30, 2015
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	27,236	$	27,236
Commercial mortgage		628		-		628		212,216		212,844
Commercial and industrial		4		117		121		17,029		17,150
Total commercial		632		117		749		256,481		257,230
Non-commercial:
Non-commercial construction and land development		-		-		-		16,174		16,174
Residential mortgage		1,406		181		1,587		172,353		173,940
Revolving mortgage		277		37		314		61,429		61,743
Consumer		96		-		96		44,427		44,523
Total non-commercial		1,779		218		1,997		294,383		296,380
Total loans receivable	$	2,411	$	335	$	2,746	$	550,864	$	553,610
December 31, 2014
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	21,661	$	21,661
Commercial mortgage		532		-		532		200,784		201,316
Commercial and industrial		-		43		43		15,829		15,872
Total commercial		532		43		575		238,274		238,849
Non-commercial:
Non-commercial construction and land development		-		-		-		14,781		14,781
Residential mortgage		576		1,226		1,802		170,361		172,163
Revolving mortgage		396		141		537		55,833		56,370
Consumer		227		1		228		40,135		40,363
Total non-commercial		1,199		1,368		2,567		281,110		283,677
Total loans receivable	$	1,731	$	1,411	$	3,142	$	519,384	$	522,526

The recorded investment in loans, by segment and class, that are not accruing interest or are 90 days or more past due and still accruing interest follows:

	June 30, 2015				December 31, 2014
(Dollars in thousands)	Nonaccruing		Past Due 90 Days Or More And Still Accruing		Nonaccruing		Past Due 90 Days Or More And Still Accruing
Commercial:
Commercial mortgage	$	840	$	-	$	881	$	-
Commercial and industrial		262		-		221		-
Total commercial		1,102		-		1,102		-
Non-commercial:
Residential mortgage		1,589		-		1,354		-
Revolving mortgage		221		-		230		-
Consumer		-		-		2		-
Total non-commercial		1,810		-		1,586		-
Total loans receivable	$	2,912	$	-	$	2,688	$	-

The Bank services loans for Habitat for Humanity of Western North Carolina as an in-kind donation.  The balances of these loans were $15.3 million at June 30, 2015 and $14.9 million at December 31, 2014.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Income Taxes (Details) - North Carolina [Member]	6 Months Ended
	Jun. 30, 2015
Operating Loss Carryforwards [Line Items]
Loss carry forward period	15 years
Remaining loss carry forward period	12 years

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LOANS RECEIVABLE, by Segment, Class, and Grade (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	$ 553,610	$ 522,526
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	525,544	490,261
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	23,461	27,962
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	4,605	4,303
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	257,230	238,849
Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	241,741	220,956
Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	13,760	16,005
Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	1,729	1,888
Commercial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	27,236	21,661
Commercial [Member] | Commercial Construction and Land Development [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	27,085	21,336
Commercial [Member] | Commercial Construction and Land Development [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	151	323
Commercial [Member] | Commercial Construction and Land Development [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	2
Commercial [Member] | Commercial Construction and Land Development [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member] | Commercial Construction and Land Development [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	212,844	201,316
Commercial [Member] | Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	198,371	184,992
Commercial [Member] | Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	13,006	14,809
Commercial [Member] | Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	1,467	1,515
Commercial [Member] | Commercial Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member] | Commercial Mortgage [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	17,150	15,872
Commercial [Member] | Commercial and Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	16,285	14,628
Commercial [Member] | Commercial and Industrial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	603	873
Commercial [Member] | Commercial and Industrial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	262	371
Commercial [Member] | Commercial and Industrial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Commercial [Member] | Commercial and Industrial [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	296,380	283,677
Non-Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	283,803	269,305
Non-Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	9,701	11,957
Non-Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	2,876	2,415
Non-Commercial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	16,174	14,781
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	16,174	14,781
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	173,940	172,163
Non-Commercial [Member] | Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	165,117	161,859
Non-Commercial [Member] | Residential Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	6,642	8,544
Non-Commercial [Member] | Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	2,181	1,760
Non-Commercial [Member] | Residential Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Residential Mortgage [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	61,743	56,370
Non-Commercial [Member] | Revolving Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	58,396	52,700
Non-Commercial [Member] | Revolving Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	2,729	3,119
Non-Commercial [Member] | Revolving Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	618	551
Non-Commercial [Member] | Revolving Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Revolving Mortgage [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	44,523	40,363
Non-Commercial [Member] | Consumer [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	44,116	39,965
Non-Commercial [Member] | Consumer [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	330	294
Non-Commercial [Member] | Consumer [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	77	104
Non-Commercial [Member] | Consumer [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	0	0
Non-Commercial [Member] | Consumer [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	$ 0	$ 0

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BENEFIT PLANS (Tables)

6 Months Ended

Jun. 30, 2015

BENEFIT PLANS [Abstract]

Net Periodic Benefit Cost Related to Defined Benefit Plans

Net periodic cost (benefit) related to defined benefit plans include the following components for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Non-Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs
Interest cost	$	14		$	12		$	27		$	25
Amortization of net loss		14			7			29			14
Net periodic pension cost	$	28		$	19		$	56		$	39
Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs
Interest cost	$	247		$	250		$	495		$	500
Expected return on plan assets		(236	)		(248	)		(472	)		(495	)
Amortization of net loss		180			137			360			273
Net periodic pension cost	$	191		$	139		$	383		$	278

Employee Stock Ownership Plan

Shares held by the ESOP include the following:

	June 30, 2015
Allocated ESOP shares, December 31, 2014		98,624
ESOP shares committed to be released during the period		15,565
ESOP shares withdrawn during the period		(9,219	)
Unallocated ESOP shares		329,688
Total ESOP shares		434,658
Fair value of unallocated ESOP shares (dollars in thousands)	$	7,141

As ESOP shares are earned by the participants, the Company recognizes compensation expense equal to the fair value of the earned ESOP shares during the periods in which they become committed to be released.

Total expense recognized in connection with the ESOP follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2015		2014		2015		2014
ESOP expense	$	165	$	148	$	323	$	284

Restricted Stock Award Activity

The table below presents restricted stock award activity for the periods indicated:

	Restricted Stock Awards			Weighted Average Grant Date Fair Value
Unvested restricted shares at December 31, 2014		161,906		$	15.75
Vested and released to participants		(40,296	)		15.74
Unvested restricted shares at June 30, 2015		121,610		$	15.75

Stock Option Activity

The table below presents stock option activity for the periods indicated:

	Stock Options Available For Granting		Stock Options Outstanding		Weighted Average Exercise Price		Remaining Contractual Life (In Years)		Aggregate Intrinsic Value (In Thousands)
Outstanding at December 31, 2014		60,355		496,500	$	16.00		7.61	$	2,731
Outstanding at June 30, 2015		60,355		496,500	$	16.00		7.11	$	2,810
Options exercisable at June 30, 2015				209,800	$	15.77		6.17	$	1,235

Assumptions Used in Determining Fair Value of Options Granted

The following table illustrates the weighted-average assumptions for the Black-Scholes model used in determining the fair value of options granted to directors and officers in the six months ended June 30, 2014.  There were no options granted for the six months ended June 30, 2015.

	Six Months Ended June 30, 2014
Fair value per option award		$5.91
Expected life in years		6.5 years
Expected stock price volatility		27.34%
Expected dividend yield		0.00%
Risk-free interest rate		2.04%
Expected forfeiture rate		6.39%