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 September 30, 2016

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 3,787,322 shares of Common Stock, par value $0.01 per share, issued and outstanding as of October 31, 2016.

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 September 30, 2016 and December 31, 2015	1
	Consolidated Statements of Income (Unaudited) For the Three and Nine Months Ended September 30, 2016 and 2015	2
	Consolidated Statements of Comprehensive Income (Unaudited) For the Three and Nine Months Ended September 30, 2016 and 2015	3
	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) For the Nine Months Ended September 30, 2016	4
	Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2016 and 2015	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	66
Item 4.	Controls and Procedures	68
Part II.	Other Information
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	70
Signatures		71

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ASB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except par values)	September 30, 2016			December 31, 2015*
Assets
Cash and due from banks	$	9,591		$	9,563
Interest-earning deposits with banks		35,161			23,838
Total cash and cash equivalents		44,752			33,401
Securities available for sale (amortized cost of $105,034 at September 30, 2016 and $137,137 at December 31, 2015)		106,331			137,555
Securities held to maturity (estimated fair value of $3,968 at September 30, 2016 and $4,086 at December 31, 2015)		3,704			3,809
Investment in Federal Home Loan Bank stock, at cost		2,829			2,807
Loans held for sale		7,091			7,018
Loans receivable (net of deferred loan fees of $371 at September 30, 2016 and $476 at December 31, 2015)		597,935			576,087
Allowance for loan losses		(6,464	)		(6,289	)
Loans receivable, net		591,471			569,798
Premises and equipment, net		11,305			11,616
Foreclosed real estate		4,764			5,646
Deferred income tax assets, net		4,616			4,716
Securities sold but not settled		4,115			-
Bank owned life insurance		10,096			-
Other assets		6,166			6,487
Total assets	$	797,240		$	782,853
Liabilities
Noninterest-bearing deposits	$	129,303		$	113,745
Interest-bearing deposits		513,300			517,159
Total deposits		642,603			630,904
Overnight and short-term borrowings		201			327
Federal Home Loan Bank advances		50,000			50,000
Securities purchased but not settled		4,484			-
Accounts payable and other liabilities		8,609			11,940
Total liabilities		705,897			693,171
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; 3,787,322 shares issued at September 30, 2016 and 3,985,475 shares issued at December 31, 2015		38			40
Additional paid-in capital		19,763			24,056
Retained earnings		80,630			76,088
Accumulated other comprehensive loss, net of tax		(4,504	)		(5,061	)
Unearned Employee Stock Ownership Plan (ESOP) shares		(2,904	)		(3,138	)
Unearned equity incentive plan shares		(1,311	)		(1,960	)
Stock-based deferral plan shares		(369	)		(343	)
Total shareholders’ equity		91,343			89,682
Total liabilities and shareholders’ equity	$	797,240		$	782,853

* 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 September 30,					Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015		2016		2015
Interest and dividend income
Loans, including fees	$	6,341		$	5,762	$	18,484	$	16,947
Securities		556			632		1,704		1,757
Other earning assets		85			65		226		198
Total interest and dividend income		6,982			6,459		20,414		18,902
Interest expense
Deposits		377			382		1,093		1,149
Overnight and short-term borrowings		-			-		2		-
Federal Home Loan Bank advances		494			495		1,474		1,469
Total interest expense		871			877		2,569		2,618
Net interest income		6,111			5,582		17,845		16,284
Provision for (recovery of) loan losses		(92	)		191		411		450
Net interest income after provision for (recovery of) loan losses		6,203			5,391		17,434		15,834
Noninterest income
Mortgage banking income		532			529		1,241		1,382
Deposit and other service charge income		757			719		2,154		1,920
Income from debit card services		420			456		1,327		1,338
Gain on sale of investment securities, net		147			202		1,319		401
Other noninterest income		434			178		774		621
Total noninterest income		2,290			2,084		6,815		5,662
Noninterest expenses
Salaries and employee benefits		3,314			3,383		9,898		10,071
Occupancy expense, net		446			435		1,318		1,347
Foreclosed property expenses		39			65		146		185
Data processing fees		710			621		2,025		1,821
Federal deposit insurance premiums		104			135		307		384
Advertising		171			125		404		385
Professional and outside services		260			258		803		734
Other noninterest expenses		817			815		2,358		2,692
Total noninterest expenses		5,861			5,837		17,259		17,619
Income before income tax provision		2,632			1,638		6,990		3,877
Income tax provision		907			496		2,448		1,248
Net income	$	1,725		$	1,142	$	4,542	$	2,629
Net income per common share – Basic	$	0.51		$	0.29	$	1.29	$	0.67
Net income per common share – Diluted	$	0.48		$	0.28	$	1.23	$	0.65

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

2

ASB BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Comprehensive Income
Net income	$	1,725		$	1,142		$	4,542		$	2,629
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale:
Reclassification of securities gains recognized in net income		(147	)		(202	)		(1,319	)		(401	)
Deferred income tax benefit		54			75			483			150
Gains (losses) arising during the period		(1,146	)		1,248			2,198			442
Deferred income tax benefit (expense)		420			(464	)		(805	)		(165	)
Unrealized holding gains (losses) adjustment, net of tax		(819	)		657			557			26
Defined Benefit Pension Plans:
Net periodic pension cost		(174	)		(194	)		(521	)		(583	)
Net pension gain		174			194			521			583
Total other comprehensive income (loss)		(819	)		657			557			26
Comprehensive income	$	906		$	1,799		$	5,099		$	2,655

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)	Nine Months Ended September 30, 2016
Common stock
December 31, 2015	$	40
Repurchase of common stock		(2	)
September 30, 2016	$	38
Additional paid-in capital
December 31, 2015	$	24,056
Repurchase of common stock		(5,010	)
Issuance of common stock		79
ESOP shares allocated		350
Stock-based compensation expense		937
Vesting of restricted stock		(649	)
September 30, 2016	$	19,763
Retained earnings
December 31, 2015	$	76,088
Net income		4,542
September 30, 2016	$	80,630
Accumulated other comprehensive income (loss), net of tax
December 31, 2015	$	(5,061	)
Other comprehensive income		557
September 30, 2016	$	(4,504	)
Unearned ESOP shares
December 31, 2015	$	(3,138	)
ESOP shares allocated		234
September 30, 2016	$	(2,904	)
Unearned equity incentive plan shares
December 31, 2015	$	(1,960	)
Vesting of restricted stock		649
September 30, 2016	$	(1,311	)
Stock-based deferral plan shares
December 31, 2015	$	(343	)
Stock-based deferral plan shares purchased		(26	)
September 30, 2016	$	(369	)
Total shareholders’ equity
December 31, 2015	$	89,682
Repurchase of common stock		(5,012	)
Issuance of common stock		79
Net income		4,542
Other comprehensive income		557
ESOP shares allocated		584
Stock-based compensation expense		937
Stock-based deferral plan shares purchased		(26	)
September 30, 2016	$	91,343

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)

	Nine Months Ended September 30,
(Dollars in thousands)	2016			2015
Operating Activities
Net income	$	4,542		$	2,629
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		411			450
Provision for losses on foreclosed properties		18			6
Depreciation		585			618
Gain on sale of fixed and other assets		-			(20	)
Loss on sale of foreclosed real estate		2			1
Increase in cash surrender value of bank owned life insurance		(96	)		-
Deferred income tax expense (benefit)		(222	)		277
Net amortization of premiums on securities		1,578			1,998
Gain on sale of investment securities		(1,319	)		(401	)
Net amortization (accretion) of deferred fees on loans		52			(48	)
Mortgage loans originated for sale		(47,492	)		(59,321	)
Proceeds from sale of mortgage loans		48,660			60,503
Gain on sale of mortgage loans		(1,241	)		(1,382	)
ESOP compensation expense		584			500
Stock-based compensation expense		802			801
Excess tax benefits from equity awards		(136	)		(59	)
Decrease in income tax receivable		209			634
Decrease (increase) in interest receivable		326			(31	)
Decrease in other liabilities - pension plan contribution		(4,750	)		-
Net change in other assets and liabilities		(2,773	)		2,470
Net cash provided by (used in) operating activities		(260	)		9,625
Investing Activities
Purchases of securities available for sale		(29,691	)		(65,842	)
Proceeds from sales of securities available for sale		57,757			61,756
Principal repayments on mortgage-backed and asset-backed securities		8,367			9,532
Redemption (purchase) of FHLB stock		(22	)		95
Net increase in loans receivable		(22,799	)		(48,131	)
Net proceeds from sales of foreclosed real estate		1,525			748
Purchases of premises and equipment		(274	)		(449	)
Net proceeds from sales of fixed and other assets		-			20
Purchases of bank owned life insurance		(10,000	)		-
Net cash provided by (used in) investing activities		4,863			(42,271	)

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)

	Nine Months Ended September 30,
(Dollars in thousands)	2016			2015
Financing Activities
Net increase in deposits	$	11,699		$	31,704
Net repayments of overnight and short-term borrowings		(126	)		(534	)
Stock-based deferral plan shares purchased		(26	)		-
Proceeds from the exercise of stock options		79			644
Excess tax benefits from equity awards		136			59
Common stock repurchased		(5,014	)		(320	)
Net cash provided by financing activities		6,748			31,553
Net increase (decrease) in cash and cash equivalents		11,351			(1,093	)
Cash and cash equivalents at beginning of period		33,401			56,858
Cash and cash equivalents at end of period	$	44,752		$	55,765
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits, advances and other borrowings	$	2,567		$	2,612
Income taxes		2,408			281
Non-cash investing and financing transactions:
Transfers from loans to foreclosed real estate	$	663		$	812
Net unsettled security purchases		369			-
Increase in unrealized gains and losses on securities available for sale		2,198			442
Decrease in deferred income taxes resulting from other comprehensive income		(322	)		(15	)

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, 2015 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2016.  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 nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other future period.

Organization – ASB Bancorp, Inc. (the “Parent”) was incorporated on May 12, 2011 by Asheville Savings Bank, S.S.B. (the “Bank”) to be the Bank’s holding company 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 in Mecklenburg County, North Carolina through loan originators. 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 accounting principles generally accepted in the United States of America.

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 and leases 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. 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 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. Further, 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 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.

10

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Methodology change – The Bank made no changes to its allowance methodology in the first nine months of 2016 or 2015.

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.

11

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Bank Owned Life Insurance – The Bank has purchased bank owned life insurance (“BOLI”) as a financing tool for employee benefits. The earnings on the BOLI are recorded as other noninterest income. Since the Bank intends to hold the BOLI until the death of the insured, the Bank benefits from the tax-free nature of income generated from the life insurance policies. The value of the life insurance to the

12

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Bank is the tax preferred treatment of increases in life insurance cash values and death benefits and the cash flow generated at the death of the insured. The largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial condition reviews are completed on all carriers.

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 OCI are included in the Consolidated Statements of Comprehensive Income (Loss). The accumulated balance of OCI is included in the equity section of the Consolidated Balance Sheets. The Company’s components of accumulated OCI 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 OCI 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 September 30, 2016
Unrealized gain on securities	$	1,641		$	(726	)	$	(93	)	$	(819	)	$	822
Benefit plan liability		(5,326	)		(110	)		110			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(3,685	)	$	(836	)	$	17		$	(819	)	$	(4,504	)
Three Months Ended September 30, 2015
Unrealized gain (loss) on securities	$	(507	)	$	784		$	(127	)	$	657		$	150
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(6,433	)	$	662		$	(5	)	$	657		$	(5,776	)
Nine Months Ended September 30, 2016
Unrealized gain on securities	$	265		$	1,393		$	(836	)	$	557		$	822
Benefit plan liability		(5,326	)		(330	)		330			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(5,061	)	$	1,063		$	(506	)	$	557		$	(4,504	)
Nine Months Ended September 30, 2015
Unrealized gain on securities	$	124		$	277		$	(251	)	$	26		$	150
Benefit plan liability		(5,926	)		(366	)		366			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(89	)	$	115		$	26		$	(5,776	)

13

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company’s reclassifications out of accumulated OCI 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 September 30, 2016			Three Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(147	)	$	(202	)	Gain on sale of investment securities
Deferred income tax expense		54			75		Income tax provision
Total reclassifications for the period	$	(93	)	$	(127	)	Net of tax
Net periodic pension benefit	$	174		$	194		Salaries and employee benefits
Deferred income tax expense		(64	)		(72	)	Income tax provision
Total reclassifications for the period	$	110		$	122		Net of tax
(Dollars in thousands)	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(1,319	)	$	(401	)	Gain on sale of investment securities
Deferred income tax expense		483			150		Income tax provision
Total reclassifications for the period	$	(836	)	$	(251	)	Net of tax
Net periodic pension benefit	$	521		$	583		Salaries and employee benefits
Deferred income tax expense		(191	)		(217	)	Income tax provision
Total reclassifications for the period	$	330		$	366		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.

14

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 includes interest and penalties related to income tax liabilities in noninterest expense. The Bank’s tax filings for the years 2012 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 2015 or during the first nine months of 2016.

15

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Numerator:
Net income	$	1,725		$	1,142		$	4,542		$	2,629
Denominator:
Weighted average common shares outstanding		3,798,424			4,394,787			3,922,817			4,383,930
Less: Weighted average unvested restricted shares		(81,313	)		(121,610	)		(86,571	)		(126,884	)
Less: Weighted average unallocated ESOP shares		(294,313	)		(325,732	)		(302,117	)		(333,515	)
Weighted average common shares used to compute net income per common share – Basic		3,422,798			3,947,445			3,534,129			3,923,531
Add: Effect of dilutive securities		151,139			131,584			144,456			101,900
Weighted average common shares used to compute net income per common share – Diluted		3,573,937			4,079,029			3,678,585			4,025,431
Net income per common share – Basic	$	0.51		$	0.29		$	1.29		$	0.67
Net income per common share – Diluted	$	0.48		$	0.28		$	1.23		$	0.65

For the three and nine months ended September 30, 2016, no restricted shares and no stock options were excluded from the computation of net income per share because their effect would be anti-dilutive.  For the three and nine months ended September 30, 2015, no restricted shares were excluded from the computation of net income per share because their effect would be anti-dilutive.  For the three and nine months ended September 30, 2015, options to purchase 1,178 and 3,916 shares of common stock, respectively, were excluded from the computation of net income per share because their effect would be anti-dilutive.

16

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications – Certain reclassifications have been made to the financial statements of the prior periods presented to conform to the current period presentation. The reclassifications had no effect on net income, net income per common share, or shareholders’ equity as previously reported.

Recent Accounting Pronouncements

Accounting Standards Update ASU 2016-01 – In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance on the classification and measurement of financial instruments and also amends certain disclosure requirement associated with the fair value of those instruments.  For public entities, the amendments in ASU 2016-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-02 – In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 introduces a new lease model that refines the evaluation for lease accounting and addresses other concerns related to the current leases model. For public entities, the new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-09 – In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, ASU 2016-09 is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2016.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-13 – In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which improves financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  ASU 2016-13 requires the measurement of all expected credit losses for financial assets not recorded at fair value based on historical experience, current conditions, and reasonable and supportable forecasts.  For public entities that are SEC filers, ASU 2016-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. This standard will be required to be implemented through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the amendments are effective. The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2016-15 – In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments, which was issued to address diversity in practice of how certain cash receipts and cash payments are currently presented and classified in the statement of cash flows.  The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years.  Early adoption is permitted.  The amendments should be applied using a retrospective transition method to each period presented. The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

17

ASB BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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
September 30, 2016
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,106	$	11	$	-		$	2,117
Asset-backed securities issued by the Small Business Administration (SBA)		4,662		31		(8	)		4,685
Residential mortgage-backed securities issued by GSEs (1)		42,725		253		(329	)		42,649
State and local government securities due -
After 10 years		54,768		1,682		(353	)		56,097
Mutual funds		773		10		-			783
Total	$	105,034	$	1,987	$	(690	)	$	106,331
December 31, 2015
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,135	$	-	$	(21	)	$	2,114
Asset-backed securities issued by the Small Business Administration (SBA)		16,974		187		(17	)		17,144
Residential mortgage-backed securities issued by GSEs (1)		51,726		29		(807	)		50,948
State and local government securities due -
After 1 year but within 5 years		682		4		-			686
After 5 years but within 10 years		8,714		222		-			8,936
After 10 years		56,146		835		(12	)		56,969
Mutual funds		760		-		(2	)		758
Total	$	137,137	$	1,277	$	(859	)	$	137,555

(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 September 30, 2016 and December 31, 2015 or during the nine- and twelve-month periods, respectively, then ended.

18

 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
September 30, 2016
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,013	$	28	$	-	$	1,041
Residential mortgage-backed securities issued by GSEs (1)		253		21		-		274
State and local government securities due -
After 5 years but within 10 years		2,438		215		-		2,653
Total	$	3,704	$	264	$	-	$	3,968
December 31, 2015
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,024	$	46	$	-	$	1,070
Residential mortgage-backed securities issued by GSEs (1)		351		25		-		376
State and local government securities due -
After 5 years but within 10 years		965		89		-		1,054
After 10 years		1,469		117		-		1,586
Total	$	3,809	$	277	$	-	$	4,086

(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 September 30, 2016 and December 31, 2015 or during the nine- 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 September 30, 2016 and December 31, 2015. The total number of securities with unrealized losses at September 30, 2016 and December 31, 2015 were 31 and 34, 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.

	September 30, 2016
	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
Asset-backed SBA	$	517	$	(1	)	$	693	$	(7	)	$	1,210	$	(8	)
Residential mortgage- backed GSE (1)		9,846		(139	)		19,516		(190	)		29,362		(329	)
State and local government		19,330		(353	)		-		-			19,330		(353	)
Total temporarily impaired securities	$	29,693	$	(493	)	$	20,209	$	(197	)	$	49,902	$	(690	)

(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 September 30, 2016 or during the nine-month period then ended.

20

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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2. INVESTMENT SECURITIES (Continued)

	December 31, 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	$	1,018	$	(6	)	$	1,096	$	(15	)	$	2,114	$	(21	)
Asset-backed SBA		623		(1	)		1,821		(16	)		2,444		(17	)
Residential mortgage- backed GSE (1)		36,960		(672	)		9,591		(135	)		46,551		(807	)
State and local government		3,721		(5	)		557		(7	)		4,278		(12	)
Mutual funds		760		(2	)		-		-			760		(2	)
Total temporarily impaired securities	$	43,082	$	(686	)	$	13,065	$	(173	)	$	56,147	$	(859	)

(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, 2015 or during the twelve-month period then ended.

Investment securities pledged as collateral follows:

(Dollars in thousands)	September 30, 2016		December 31, 2015
Pledged to Federal Reserve Discount Window	$	8,791	$	14,533
Pledged to repurchase agreements for commercial customers		919		1,131

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Interest income from taxable securities	$	191	$	231	$	624	$	780
Interest income from tax-exempt securities		365		401		1,080		977
Total interest income from securities	$	556	$	632	$	1,704	$	1,757

21

 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016			2015
Proceeds from sales of securities	$	7,607	$	11,132	$	57,757		$	61,756
Gross realized gains from sales of securities		147		202		1,363			667
Gross realized losses from sales of securities		-		-		(44	)		(266	)

3. LOANS RECEIVABLE

Loans receivable by segment and class follow:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Commercial:
Commercial construction and land development	$	28,420		$	38,313
Commercial mortgage		234,464			209,397
Commercial and industrial		23,358			22,878
Total commercial		286,242			270,588
Non-commercial:
Non-commercial construction and land development		17,268			16,587
Residential mortgage		202,553			186,839
Revolving mortgage		66,728			66,258
Consumer		25,515			36,291
Total non-commercial		312,064			305,975
Total loans receivable		598,306			576,563
Less: Deferred loan fees		(371	)		(476	)
Total loans receivable net of deferred loan fees		597,935			576,087
Less: Allowance for loan losses		(6,464	)		(6,289	)
Loans receivable, net	$	591,471		$	569,798

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
September 30, 2016
Commercial:
Commercial construction and land development	$	28,247	$	138	$	35	$	-	$	-	$	28,420
Commercial mortgage		222,746		11,115		603		-		-		234,464
Commercial and industrial		22,353		805		200		-		-		23,358
Total commercial		273,346		12,058		838		-		-		286,242
Non-commercial:
Non-commercial construction and land development		17,268		-		-		-		-		17,268
Residential mortgage		194,826		6,675		1,052		-		-		202,553
Revolving mortgage		63,207		2,968		553		-		-		66,728
Consumer		25,026		392		97		-		-		25,515
Total non-commercial		300,327		10,035		1,702		-		-		312,064
Total loans receivable	$	573,673	$	22,093	$	2,540	$	-	$	-	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	38,168	$	145	$	-	$	-	$	-	$	38,313
Commercial mortgage		195,551		12,412		1,434		-		-		209,397
Commercial and industrial		21,709		942		227		-		-		22,878
Total commercial		255,428		13,499		1,661		-		-		270,588
Non-commercial:
Non-commercial construction and land development		16,587		-		-		-		-		16,587
Residential mortgage		178,403		6,674		1,762		-		-		186,839
Revolving mortgage		62,922		2,812		524		-		-		66,258
Consumer		35,847		415		29		-		-		36,291
Total non-commercial		293,759		9,901		2,315		-		-		305,975
Total loans receivable	$	549,187	$	23,400	$	3,976	$	-	$	-	$	576,563

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
September 30, 2016
Commercial:
Commercial construction and land development	$	-	$	35	$	35	$	28,385	$	28,420
Commercial mortgage		-		-		-		234,464		234,464
Commercial and industrial		-		68		68		23,290		23,358
Total commercial		-		103		103		286,139		286,242
Non-commercial:
Non-commercial construction and land development		-		-		-		17,268		17,268
Residential mortgage		603		520		1,123		201,430		202,553
Revolving mortgage		201		145		346		66,382		66,728
Consumer		166		-		166		25,349		25,515
Total non-commercial		970		665		1,635		310,429		312,064
Total loans receivable	$	970	$	768	$	1,738	$	596,568	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	38,313	$	38,313
Commercial mortgage		-		496		496		208,901		209,397
Commercial and industrial		-		87		87		22,791		22,878
Total commercial		-		583		583		270,005		270,588
Non-commercial:
Non-commercial construction and land development		-		-		-		16,587		16,587
Residential mortgage		685		1,193		1,878		184,961		186,839
Revolving mortgage		104		98		202		66,056		66,258
Consumer		151		-		151		36,140		36,291
Total non-commercial		940		1,291		2,231		303,744		305,975
Total loans receivable	$	940	$	1,874	$	2,814	$	573,749	$	576,563

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:

	September 30, 2016				December 31, 2015
(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 construction and land development	$	35	$	-	$	-	$	-
Commercial mortgage		-		-		818		-
Commercial and industrial		200		-		227		-
Total commercial		235		-		1,045		-
Non-commercial:
Residential mortgage		731		-		1,309		-
Revolving mortgage		229		-		194		-
Consumer		42		-		-		-
Total non-commercial		1,002		-		1,503		-
Total loans receivable	$	1,237	$	-	$	2,548	$	-

The Bank services loans for Habitat for Humanity of Western North Carolina as an in-kind donation.  The balances of these loans were $16.5 million at September 30, 2016 and $15.8 million at December 31, 2015.

Loans made to directors and executive officers in the ordinary course of business with terms consistent with those offered to the Bank’s other customers follow:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Director and executive officer loans, beginning of period	$	3,530		$	4,022
New loans		181			718
Repayments of loans		(309	)		(1,210	)
Director and executive officer loans, end of period	$	3,402		$	3,530

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 September 30, 2016									Nine Months Ended September 30, 2016
				Non-									Non-
(Dollars in thousands)	Commercial			Commercial			Total			Commercial			Commercial			Total
Balance at beginning of period	$	3,986		$	2,597		$	6,583		$	3,710		$	2,579		$	6,289
Provision for (recovery of) loan losses		(109	)		17			(92	)		381			30			411
Charge-offs		(3	)		(40	)		(43	)		(227	)		(84	)		(311	)
Recoveries		5			11			16			15			60			75
Balance at end of period	$	3,879		$	2,585		$	6,464		$	3,879		$	2,585		$	6,464
	Three Months Ended September 30, 2015									Nine Months Ended September 30, 2015
				Non-									Non-
(Dollars in thousands)	Commercial			Commercial			Total			Commercial			Commercial			Total
Balance at beginning of period	$	3,528		$	2,596		$	6,124		$	3,409		$	2,540		$	5,949
Provision for (recovery of) loan losses		204			(13	)		191			296			154			450
Charge-offs		-			(46	)		(46	)		(79	)		(356	)		(435	)
Recoveries		4			24			28			110			223			333
Balance at end of period	$	3,736		$	2,561		$	6,297		$	3,736		$	2,561		$	6,297

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
September 30, 2016
Commercial:
Commercial construction and land development	$	-	$	277	$	277	$	35	$	28,385	$	28,420
Commercial mortgage		13		3,293		3,306		2,919		231,545		234,464
Commercial and industrial		8		288		296		205		23,153		23,358
Total commercial		21		3,858		3,879		3,159		283,083		286,242
Non-commercial:
Non-commercial construction and land development		-		134		134		-		17,268		17,268
Residential mortgage		29		1,301		1,330		2,363		200,190		202,553
Revolving mortgage		84		766		850		135		66,593		66,728
Consumer		-		271		271		-		25,515		25,515
Total non-commercial		113		2,472		2,585		2,498		309,566		312,064
Total loans receivable	$	134	$	6,330	$	6,464	$	5,657	$	592,649	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	-	$	385	$	385	$	-	$	38,313	$	38,313
Commercial mortgage		39		2,982		3,021		3,811		205,586		209,397
Commercial and industrial		13		291		304		252		22,626		22,878
Total commercial		52		3,658		3,710		4,063		266,525		270,588
Non-commercial:
Non-commercial construction and land development		-		139		139		-		16,587		16,587
Residential mortgage		42		1,140		1,182		2,895		183,944		186,839
Revolving mortgage		86		788		874		97		66,161		66,258
Consumer		-		384		384		-		36,291		36,291
Total non-commercial		128		2,451		2,579		2,992		302,983		305,975
Total loans receivable	$	180	$	6,109	$	6,289	$	7,055	$	569,508	$	576,563

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
September 30, 2016
Commercial:
Commercial construction and land development	$	35	$	-	$	35	$	35	$	-
Commercial mortgage		2,919		2,919		-		2,919		13
Commercial and industrial		703		133		72		205		8
Total commercial		3,657		3,052		107		3,159		21
Non-commercial:
Residential mortgage		2,366		1,142		1,220		2,362		29
Revolving mortgage		145		84		52		136		84
Total non-commercial		2,511		1,226		1,272		2,498		113
Total impaired loans	$	6,168	$	4,278	$	1,379	$	5,657	$	134
December 31, 2015
Commercial:
Commercial mortgage	$	3,934	$	3,315	$	496	$	3,811	$	39
Commercial and industrial		722		140		112		252		13
Total commercial		4,656		3,455		608		4,063		52
Non-commercial:
Residential mortgage		2,965		2,125		770		2,895		42
Revolving mortgage		107		86		11		97		86
Total non-commercial		3,072		2,211		781		2,992		128
Total impaired loans	$	7,728	$	5,666	$	1,389	$	7,055	$	180

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 September 30, 2016				Three Months Ended September 30, 2015
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest
							Income
							Recognized
Commercial:
Commercial construction and land development	$	16	$	-	$	-	$	-
Commercial mortgage		3,182		198		3,847		33
Commercial and industrial		210		-		274		-
Total commercial		3,408		198		4,121		33
Non-commercial:
Residential mortgage		2,965		14		3,304		19
Revolving mortgage		101		-		155		1
Total non-commercial		3,066		14		3,459		20
Total loans receivable	$	6,474	$	212	$	7,580	$	53

	Nine Months Ended September 30, 2016				Nine Months Ended September 30, 2015
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial construction and land development	$	89	$	-	$	-	$	-
Commercial mortgage		3,392		262		3,898		99
Commercial and industrial		227		-		306		1
Total commercial		3,708		262		4,204		100
Non-commercial:
Residential mortgage		2,949		42		3,195		61
Revolving mortgage		93		-		271		1
Total non-commercial		3,042		42		3,466		62
Total loans receivable	$	6,750	$	304	$	7,670	$	162

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.  No loans were restructured during the three months or nine months ended September 30, 2016.  The Bank reduced the interest rate below market levels on one loan during the three months ended September 30, 2015. The Bank reduced the interest rate below market levels on two loans and extended payment terms on one loan during the nine months ended September 30, 2015.

	Three Months Ended September 30, 2016						Three Months Ended September 30, 2015
(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
Non-commercial:
Residential mortgage		-	$	-	$	-		1	$	45	$	45
Total non-commercial		-		-		-		1		45		45
Total loans modified with below market interest rate		-		-		-		1		45		45
Total loans modified		-	$	-	$	-		1	$	45	$	45

30

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4. ALLOWANCE FOR LOAN LOSSES (Continued)

	Nine Months Ended September 30, 2016						Nine Months Ended September 30, 2015
(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 and industrial		-	$	-	$	-		1	$	153	$	153
Total commercial		-		-		-		1		153		153
Non-commercial:
Residential mortgage		-		-		-		1		45		45
Total non-commercial		-		-		-		1		45		45
Total loans modified with below market interest rate		-		-		-		2		198		198
Extended payment terms
Non-commercial:
Residential mortgage		-		-		-		1		29		42
Total non-commercial		-		-		-		1		29		42
Total loans modified with extended payment terms		-		-		-		1		29		42
Total loans modified		-	$	-	$	-		3	$	227	$	240

There were no loans modified as TDRs within the preceding 12 months that stopped performing during the three months or nine months ended September 30, 2016 and September 30, 2015.

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)	September 30, 2016		December 31, 2015
Nonperforming restructured loans	$	146	$	979
Performing restructured loans		4,433		4,552
Total	$	4,579	$	5,531

As of September 30, 2016 and December 31, 2015, the Bank had $344,000 and $1.3 million, respectively, of residential real estate loans in the process of foreclosure and $658,000 and $705,000, respectively, of foreclosed residential real estate property included in foreclosed real estate.

31

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. BENEFIT PLANS

Defined Benefit Plans – The Bank has a Qualified defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation during employment. The Bank’s funding policy is based on actuarially determined amounts. Prior service costs are amortized using the straight line method. Contributions are intended to provide for not only benefits attributed to service to date but also for those expected to be earned in the future. In addition, the Bank also has a Non-Qualified plan covering certain officers whose benefit under the Qualified plan would be reduced as a result of Internal Revenue Code limitations. The Non-Qualified plan is an unfunded plan and any benefits payable shall be paid from the general assets of the Bank.

In January 2013, the Board of Directors amended the Bank’s Qualified and Non-Qualified pension plans (the “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 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 total of immediate aggregate lump sum payments to all inactive participants making the lump sum selection was approximately $544,000 for 2014.

In June 2015, the Board of Directors further amended the Bank’s Plans, effective September 1, 2015, to offer immediate lump sum payments to inactive vested participants, determined as of October 31, 2015, as available.  The total of immediate aggregate lump sum payments to all inactive participants making the lump sum selection was approximately $846,000 for 2015.

In April 2016, the Bank decided to settle its qualified pension plan liability for all remaining participants effective July 1, 2016.  The settlement is expected to be recognized in the fourth quarter of 2016 when participants receive annuities or lump sum payments of their accrued benefit balances.  Based on the most recently available information, the estimate of the one-time settlement charge is in the range of $7.6 million to $7.7 million before income taxes, or $4.8 million to $4.9 million after income taxes, of which $8.0 million before income taxes, or $5.1 million after income taxes, was recognized as a reduction of tangible common shareholders’ equity in the form of accumulated other comprehensive loss as of December 31, 2015.  The most recently available estimate of the range of earnings per share dilution is $1.34 to $1.36 per share, while little or no common equity book value dilution is expected.  For periods following the settlement in the fourth quarter of 2016, the Bank estimates annual periodic expense savings of approximately $810,000 before income taxes, or $513,000 after income taxes, or $0.14 per share.  The Bank contributed $4.8 million to the qualified pension plan during the third quarter of 2016.  Actual settlement expenses may differ from the estimates provided.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Non-Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs:
Interest cost	$	14	$	14	$	42	$	41
Amortization of net loss		12		14		35		43
Net periodic pension cost	$	26	$	28	$	77	$	84

32

ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. BENEFIT PLANS (Continued)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs:
Interest cost	$	236		$	247		$	708		$	742
Expected return on plan assets		(201	)		(236	)		(602	)		(708	)
Amortization of net loss		162			180			486			540
Net periodic pension cost	$	197		$	191		$	592		$	574

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 trust 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 active 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:

	September 30, 2016
Allocated ESOP shares, December 31, 2015		118,694
ESOP shares committed to be released during the period		23,497
ESOP shares withdrawn during the period		(6,417	)
Unallocated ESOP shares		290,369
Total ESOP shares		426,143
Fair value of unallocated ESOP shares (dollars in thousands)	$	7,622

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.

33

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. BENEFIT PLANS (Continued)

Total expense recognized in connection with the ESOP follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
ESOP expense	$	197	$	177	$	584	$	500

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 223,382 shares of its common stock 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 nine months ended September 30, 2016 were $273,000 and $802,000, respectively, and were $273,000 and $801,000, respectively, for the same periods of 2015.

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, 2015		121,610		$	15.75
Vested and released to participants		(40,297	)		15.74
Unvested restricted shares at September 30, 2016		81,313		$	15.76

There were no restricted stock awards granted or forfeited during the nine-month period ended September 30, 2016.

At September 30, 2016, unrecognized compensation expense, adjusted for expected forfeitures, was $815,000 related to restricted stock.  The weighted-average period over which compensation cost related to unvested awards is expected to be recognized was 1.39 years at September 30, 2016.

34

 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, 2015		60,355		450,500		$	16.03		7.24	$	4,473
Exercised		-		(5,000	)		15.71
Outstanding at September 30, 2016		60,355		445,500		$	16.03		6.49	$	4,552
Options exercisable at September 30, 2016				252,600		$	15.91		6.44	$	2,612

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model.  There were 5,000 stock options exercised during the nine-month period ended September 30, 2016, and there were no stock options granted or forfeited during the period.  There were 41,000 stock options exercised during the nine-month period ended September 30, 2015, and there were no stock options granted or forfeited during the period.

At September 30, 2016, the Company had $635,000 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 1.66 years at September 30, 2016. There were 252,600 options vested and exercisable at September 30, 2016.

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.

35

ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6. COMMITMENTS AND CONTINGENCIES (Continued)

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)	September 30, 2016		December 31, 2015
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit	$	202,378	$	171,339
Commitments under standby letters of credit		602		120
Total	$	202,980	$	171,459

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, commercial 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.

36

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6. COMMITMENTS AND CONTINGENCIES (Continued)

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, $200,000 in 2015 and $300,000 in 2016.  This investment is recognized using the cost method and is included in “other assets” on the balance sheet.

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 September 30, 2016 and December 31, 2015. 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.

37

 ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

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 Federal Home Loan Bank (“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. GSEs, asset-backed securities issued by the SBA, residential mortgage-backed securities issued by U.S. GSEs, 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.

38

ASB BANCORP, INC. AND SUBSIDIARY

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE MEASUREMENTS (Continued)

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.

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
September 30, 2016
Financial assets:
Cash and cash equivalents	$	44,752	$	-	$	-	$	44,752	$	44,752
Securities available for sale		783		105,548		-		106,331		106,331
Securities held to maturity		-		3,968		-		3,968		3,704
Investments in FHLB stock		-		-		2,829		2,829		2,829
Loans held for sale		-		7,272		-		7,272		7,091
Loans receivable, net		-		-		591,094		591,094		591,471
Accrued interest receivable		-		-		2,130		2,130		2,130
Deferred compensation assets		1,380		-		-		1,380		1,380
Financial liabilities:
Demand deposits		-		-		510,842		510,842		510,842
Time deposits		-		-		131,313		131,313		131,761
Repurchase agreements		-		-		201		201		201
Federal Home Loan Bank Advances		-		-		51,155		51,155		50,000
Deferred compensation liabilities		1,385		-		-		1,385		1,385
Accrued interest payable		-		-		123		123		123
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, 2015
Financial assets:
Cash and cash equivalents	$	33,401	$	-	$	-	$	33,401	$	33,401
Securities available for sale		758		136,797		-		137,555		137,555
Securities held to maturity		-		4,086		-		4,086		3,809
Investments in FHLB stock		-		-		2,807		2,807		2,807
Loans held for sale		-		7,169		-		7,169		7,018
Loans receivable, net		-		-		572,286		572,286		569,798
Accrued interest receivable		-		-		2,456		2,456		2,456
Deferred compensation assets		1,359		-		-		1,359		1,359
Financial liabilities:
Demand deposits		-		-		495,628		495,628		495,628
Time deposits		-		-		135,212		135,212		135,276
Repurchase agreements		-		-		324		324		327
Federal Home Loan Bank Advances		-		-		52,116		52,116		50,000
Deferred compensation liabilities		1,365		-		-		1,365		1,365
Accrued interest payable		-		-		121		121		121
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 nine months ended September 30, 2016 and September 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
September 30, 2016
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,117	$	-	$	2,117	$	2,117
Asset-backed SBA securities		-		4,685		-		4,685		4,685
Residential mortgage-backed securities issued by GSEs		-		42,649		-		42,649		42,649
State and local government securities		-		56,097		-		56,097		56,097
Mutual funds		783		-		-		783		783
Total	$	783	$	105,548	$	-	$	106,331	$	106,331
Defined benefit plan assets:
Cash and cash equivalents	$	5,141	$	-	$	-
Money market mutual funds		2,273		-		-
Debt security mutual funds		14,431		-		-
Total	$	21,845	$	-	$	-
December 31, 2015
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,114	$	-	$	2,114	$	2,114
Asset-backed SBA securities		-		17,144		-		17,144		17,144
Residential mortgage-backed securities issued by GSEs		-		50,948		-		50,948		50,948
State and local government securities		-		66,591		-		66,591		66,591
Mutual funds		758		-		-		758		758
Total	$	758	$	136,797	$	-	$	137,555	$	137,555
Defined benefit plan assets:
Cash and cash equivalents	$	652	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		12,089		-		-
Equity security mutual funds		3,231		-		-
Defined benefit plan liabilities:
Administrative Fees		8		-		-
Total	$	16,109	$	-	$	-

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
Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets (1)		Assets/ Liabilities Measured At Fair Value (1)
September 30, 2016
Impaired loans	$	-	$	-	$	600	$	600	$	600
Foreclosed properties		-		-		1,500		1,500		1,500
December 31, 2015
Impaired loans	$	-	$	-	$	1,876	$	1,876	$	1,876
Foreclosed properties		-		-		1,682		1,682		1,682

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

There were no transfers between valuation levels for any asset during the nine-month periods ended September 30, 2016 and September 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)
September 30, 2016
Impaired loans	$	600	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (23	%)
Foreclosed properties		1,500	Discounted appraisals (2)	Collateral discounts (3)		0%-22% (6	%)
December 31, 2015
Impaired loans	$	1,876	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (21	%)
Foreclosed properties		1,682	Discounted appraisals (2)	Collateral discounts (3)		0%-22% (5	%)

(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, growth and performance targets, 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 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 cyber security 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, 2015.

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.

Critical Accounting Policies

During the three- and nine-month periods ended September 30, 2016, 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, 2015 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:

44

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.

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 post retirement 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.  In April 2016, the Bank decided to settle its qualified pension plan liability effective July 1, 2016.  See note 5 included in the consolidated financial statements regarding the plan termination.

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.

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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 September 30, 2016 and our operating performance for the three- and nine-month periods ended September 30, 2016. 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 September 30, 2016 and December 31, 2015

The following table provides the changes in our significant asset and liability categories at September 30, 2016 compared to December 31, 2015.

(Dollars in thousands)	September 30, 2016			December 31, 2015			$ Change			% Change
Interest-earning assets:
Interest-earning deposits with banks and overnight and short-term investments	$	35,161		$	23,838		$	11,323			47.5	%
Investment securities		110,035			141,364			(31,329	)		-22.2	%
Investments held at cost		2,829			2,807			22			0.8	%
Loans held for sale		7,091			7,018			73			1.0	%
Loans receivable, net of deferred fees		597,935			576,087			21,848			3.8	%
Total interest-earning assets		753,051			751,114			1,937			0.3	%
Noninterest-earning assets:
Cash and due from banks		9,591			9,563			28			0.3	%
Allowance for loan losses		(6,464	)		(6,289	)		(175	)		-2.8	%
Premises and equipment, net of accumulated depreciation		11,305			11,616			(311	)		-2.7	%
Foreclosed real estate		4,764			5,646			(882	)		-15.6	%
Deferred income tax assets, net of deferred income tax liabilities		4,616			4,716			(100	)		-2.1	%
Securities sold but not settled		4,115			-			4,115			n/a
Bank owned life insurance		10,096			-			10,096			n/a
Other assets		6,166			6,487			(321	)		-4.9	%
Total noninterest-earning assets		44,189			31,739			12,450			39.2	%
Total assets	$	797,240		$	782,853		$	14,387			1.8	%
Interest-bearing liabilities:
Interest-bearing deposits	$	513,300		$	517,159		$	(3,859	)		-0.7	%
Overnight and short-term borrowings		201			327			(126	)		-38.5	%
Federal Home Loan Bank advances		50,000			50,000			-			0.0	%
Total interest-bearing liabilities		563,501			567,486			(3,985	)		-0.7	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		129,303			113,745			15,558			13.7	%
Securities purchased but not settled		4,484			-			4,484			n/a
Accounts payable and other liabilities		8,609			11,940			(3,331	)		-27.9	%
Total noninterest-bearing liabilities		142,396			125,685			16,711			13.3	%
Total liabilities		705,897			693,171			12,726			1.8	%
Total equity		91,343			89,682			1,661			1.9	%
Total liabilities and equity	$	797,240		$	782,853		$	14,387			1.8	%
Cash and cash equivalents	$	44,752		$	33,401		$	11,351			34.0	%
Total core deposits (excludes certificate accounts)		510,842			495,628			15,214			3.1	%
Total certificates of deposit		131,761			135,276			(3,515	)		-2.6	%
Total deposits		642,603			630,904			11,699			1.9	%
Total funding liabilities		692,804			681,231			11,573			1.7	%

47

Assets. Total assets increased $14.3 million, or 1.8%, to $797.2 million at September 30, 2016 from $782.9 million at December 31, 2015. Cash and cash equivalents increased $11.4 million, or 34.0%, to $44.8 million at September 30, 2016 from $33.4 million at December 31, 2015, primarily attributable to the sale of investment securities. Investment securities decreased $31.3 million, or 22.2%, to $110.0 million at September 30, 2016 from $141.3 million at December 31, 2015, primarily due to the sale of investment securities to fund loan growth. Loans receivable, net of deferred fees, increased $21.8 million, or 3.8%, to $597.9 million at September 30, 2016 from $576.1 million at December 31, 2015 as new loan originations, primarily residential mortgage and commercial real estate loan originations, exceeded loan repayments, prepayments and foreclosures. The increase in other assets was primarily attributable to a $10.0 million investment in general account bank owned life insurance during the second quarter of 2016 and $4.1 million in securities sold but not settled at September 30, 2016.

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Loans originated:
Commercial:
Commercial mortgage	$	12,295	$	20,333	$	56,772	$	62,412
Construction and land development		13,279		3,833		26,662		18,361
Commercial and industrial		3,458		9,889		17,463		15,019
Non-commercial:
Residential mortgage		26,161		22,892		60,875		71,250
Construction and land development		10,618		9,397		31,265		26,721
Revolving mortgage		7,624		10,008		19,041		27,307
Consumer		81		351		271		15,112
Total loans originated	$	73,516	$	76,703	$	212,349	$	236,182
Loan principal payments, prepayments and payoffs	$	63,211	$	40,662	$	146,056	$	127,693
Residential mortgage loans sold	$	20,060	$	22,919	$	48,660	$	60,503

Nonperforming Assets. Nonperforming assets totaled $6.0 million, or 0.75% of total assets, at September 30, 2016 compared to $8.2 million, or 1.05% of total assets, at December 31, 2015. Nonperforming assets included $1.2 million in nonperforming loans and $4.8 million in foreclosed real estate at September 30, 2016 compared to $2.5 million and $5.6 million, respectively, at December 31, 2015.

Nonperforming loans decreased $1.3 million and were $1.2 million, or 0.21% of total loans, at September 30, 2016 compared to $2.5 million, or 0.44% of total loans, at December 31, 2015.  Commercial mortgage nonperforming loans decreased $818,000, and residential and revolving nonperforming mortgage loans decreased $543,000 for the first nine months of 2016.  Performing troubled debt restructurings (“TDRs”) decreased $119,000, or 2.6%, when comparing the same periods. Total performing TDRs and nonperforming assets decreased $2.3 million, or 18.1%, to $10.4 million, or 1.31% of total assets, at September 30, 2016 from $12.7 million, or 1.63% of total assets, at December 31, 2015.

At September 30, 2016, nonperforming loans included four residential mortgage loans that totaled $731,000, three revolving home equity loans that totaled $229,000, four commercial and industrial loans that totaled $200,000, one consumer loan in the amount of $42,000, and two construction and land development loans that totaled $35,000.  As of September 30, 2016, the nonperforming loans had specific reserves totaling $92,000. TDRs were $4.6 million at September 30, 2016 and $5.5 million at December 31, 2015.  There were no additions to TDRs during the nine months ended September 30, 2016.  At September 30, 2016, $4.4 million of the $4.6 million TDRs were performing.

48

Foreclosed real estate at September 30, 2016 included seven properties with a total recorded amount of $4.8 million compared to six properties with a total recorded amount of $5.6 million at December 31, 2015. During the nine months ended September 30, 2016, two new properties totaling $663,000 were added to foreclosed real estate, while one property in the amount of $685,000 was sold with an additional loss of $2,000.  In addition, during the nine months ended September 30, 2016, the Bank sold four of its residential lots in a mixed-use lot subdivision for net proceeds of $139,000 and one unit in a mixed-use condominium for net proceeds of $701,000.  The Bank recorded $18,000 in additional loss provisions on foreclosed real estate during the first nine months of 2016, and there were no capital additions during the period.

Liabilities. Total deposits increased $11.7 million, or 1.9%, to $642.6 million at September 30, 2016 from $630.9 million at December 31, 2015.  During the nine months ended September 30, 2016, we continued our focus on core deposit growth, from which we exclude certificates of deposit.  Core deposits increased $15.2 million, or 3.1%, to $510.8 million at September 30, 2016 from $495.6 million at December 31, 2015.

Commercial checking and money market accounts increased $16.3 million, or 11.1%, to $163.3 million at September 30, 2016 from $147.0 million at December 31, 2015, reflecting expanded sources of lower cost funding.  Our efforts to obtain new commercial deposit relationships in conjunction with making new commercial loans significantly contributed to this increase and reflects our commitment to establishing diversified relationships with business clients.

Certificates of deposit decreased to $131.8 million at September 30, 2016 from $135.3 million at December 31, 2015 as we continued our focus on core deposit growth in addition to increasing longer term brokered deposits by $6.4 million since December 31, 2015.  Accounts payable and other liabilities decreased $3.3 million, or 27.9%, to $8.6 million at September 30, 2016 from $11.9 million at December 31, 2015.  The decrease in accounts payable and other liabilities at September 30, 2016 was primarily attributable to a $4.8 million contribution to the Bank’s employee pension plan during the third quarter.  At September 30, 2016, $4.5 million in investment securities were purchased but not settled.

Results of Operations for the Three Months Ended September 30, 2016 and 2015

Overview.  Net income was $1.7 million, or $0.48 per diluted share, for the quarter ended September 30, 2016 compared to net income of $1.1 million, or $0.28 per diluted share, for the quarter ended September 30, 2015. Net interest income increased $529,000, which was the result of a $523,000 increase in total interest and dividend income and a $6,000 decrease in interest expense.  The recovery of loan losses was $92,000 for the third quarter of 2016 compared to a provision for loan losses of $191,000 for the same period of 2015, primarily due to continued improvement in asset quality and a decline in loan volume during the quarter. Noninterest income increased $206,000 and noninterest expenses increased $24,000 during the third quarter of 2016 compared to the third quarter of 2015. Noninterest income increased for the third quarter of 2016 primarily due to the increase in income from loan prepayment fees and from investment in bank owned life insurance.  Noninterest expenses increased slightly, primarily in data processing fees and advertising expenses. The income tax provision increased $411,000 for the quarter ended September 30, 2016 compared to the same quarter of 2015.

49

	Three Months Ended September 30,
(Dollars in thousands)	2016			2015		$ Change			% Change
Interest and dividend income	$	6,982		$	6,459	$	523			8.1	%
Interest expense		871			877		(6	)		-0.7	%
Net interest income		6,111			5,582		529			9.5	%
Provision for (recovery of) loan losses		(92	)		191		(283	)		-148.2	%
Net interest income after provision for (recovery of) loan losses		6,203			5,391		812			15.1	%
Noninterest income		2,290			2,084		206			9.9	%
Noninterest expenses		5,861			5,837		24			0.4	%
Income before income tax provision		2,632			1,638		994			60.7	%
Income tax provision		907			496		411			82.9	%
Net income		1,725			1,142		583			51.1	%

Net Interest Income.  Net interest income increased by $529,000, or 9.5%, to $6.1 million for the three months ended September 30, 2016 compared to $5.6 million for the three months ended September 30, 2015. Total interest and dividend income increased $523,000, or 8.1%, to $7.0 million for the three months ended September 30, 2016 from $6.5 million for the three months ended September 30, 2015, primarily as a result of an increase of $35.6 million in average loan balances and a 15 basis point increase in the average yield on loans.  Interest on investment securities decreased $76,000, attributable to a $27.4 million decrease in the average balance of investment securities primarily to fund loan growth, which was partially offset by a 24 basis point increase in the average yield earned on the investment portfolio. Interest expense decreased $6,000, or 0.7%, to $871,000 for the three months ended September 30, 2016 from $877,000 for the three months ended September 30, 2015, primarily due to a $15.5 million decrease in the average balances of certificates of deposit and a decrease in rates paid on NOW and money market accounts, which were partially offset by increases in the average balances of other deposits and an increase of 8 basis points in the average rate paid on certificates of deposits.  When comparing these same three-month periods, average noninterest-bearing deposits grew $11.7 million, or 10.0%, which contributed to minimizing deposit interest expense while deposit funding grew.

Interest income on loans increased $579,000, or 10.0%, to $6.3 million during the three months ended September 30, 2016, primarily due to an increase in average outstanding loans of $35.6 million, or 6.3%. Loan originations decreased $3.2 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, primarily due to lower originations of commercial loans, and residential mortgage loan sales decreased by $2.9 million. Loan principal repayments increased $22.5 million to $63.2 million for the three months ended September 30, 2016 from $40.7 million for the three months ended September 30, 2015. The average balance of the investment portfolio decreased $27.3 million, or 19.7%, to $111.6 million for the three months ended September 30, 2016 as securities were sold to fund loan originations, repurchases of the Company’s common stock and contributions to the Bank’s employee pension plan that occurred during the third quarter of 2016.

Provision for Loan Losses. The recovery of loan losses was $92,000 for the three months ended September 30, 2016 compared to a provision for loan losses of $191,000 for the three months ended September 30, 2015.  The decrease in the provision for loan losses for the third quarter of 2016 was primarily due to continued improvement in asset quality and a decline in loan volume since the second quarter of 2016. The allowance for loan losses totaled $6.5 million, or 1.08% of total loans, atSeptember 30, 2016 compared to $6.3 million, or 1.09% of total loans, at December 31, 2015. We charged off $43,000 in loans during the three months ended September 30, 2016 compared to $46,000 during the three months ended September 30, 2015.

50

Noninterest Income. Noninterest income increased $206,000, or 9.9%, to $2.3 million for the three months ended September 30, 2016 from $2.1 million for the three months ended September 30, 2015. Factors that contributed to the increase in noninterest income during the 2016 quarterly period included increases of $174,000 in collected loan fees, $87,000 in income from investment in bank owned life insurance, and $38,000 in deposit and other service charge income, which were partially offset by decreases of $55,000 in gains realized from the sale of investment securities and $36,000 in income from debit card services. Increased income on deposit and other fees primarily related to ATM and overdraft fees.

Noninterest Expenses.  Noninterest expenses increased $24,000, or 0.4%, to $5.9 million for the three months ended September 30, 2016 from $5.8 million for the three months ended September 30, 2015. The increase for the third quarter of 2016 was primarily due to increases of $89,000 in data processing fees, $46,000 in advertising and $33,000 in recruiting expenses, which were partially offset by decreases of $69,000 in compensation and employee benefits, $32,000 in loan expenses and $31,000 in deposit insurance premiums. The decrease in compensation and employee benefits was primarily attributable to lower employee compensation expenses.

Income Tax Provision. Income tax provision increased $411,000 to $907,000 for the three months ended September 30, 2016 from $496,000 for the three months ended September 30, 2015, primarily due to an increase in pre-tax income. The effective tax rate was 34.46% for the three months ended September 30, 2016 compared to 30.28% for the three months ended September 30, 2015, with the increase primarily resulting from a decrease in favorable permanent tax differences relative to the size of the pre-tax income in 2016 compared to 2015.

Results of Operations for the Nine Months Ended September 30, 2016 and 2015

Overview. Net income was $4.5 million, or $1.23 per diluted common share, for the nine months ended September 30, 2016, compared to $2.6 million, or $0.65 per diluted common share, for the nine months ended September 30, 2015.  Income before income taxes increased $3.1 million in 2016, primarily due to an increase of $1.6 million in net interest income, an increase of $1.2 million in noninterest income, a decrease of $360,000 in noninterest expenses and a decrease of $39,000 in provision for loan losses.

	Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		$ Change			% Change
Interest and dividend income	$	20,414	$	18,902	$	1,512			8.0	%
Interest expense		2,569		2,618		(49	)		-1.9	%
Net interest income		17,845		16,284		1,561			9.6	%
Provision for loan losses		411		450		(39	)		-8.7	%
Net interest income after provision for loan losses		17,434		15,834		1,600			10.1	%
Noninterest income		6,815		5,662		1,153			20.4	%
Noninterest expenses		17,259		17,619		(360	)		-2.0	%
Income before income tax provision		6,990		3,877		3,113			80.3	%
Income tax provision		2,448		1,248		1,200			96.2	%
Net income		4,542		2,629		1,913			72.8	%

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Net Interest Income. Net interest income increased by $1.5 million, or 9.6%, to $17.8 million for the nine months ended September 30, 2016 compared to $16.3 million for the nine months ended September 30, 2015.  Interest income on loans increased $1.5 million, primarily resulting from a $48.0 million increase in average loan balances and a 1 basis point increase in the average yield on loans.  Interest on investment securities decreased $53,000, attributable to an $18.3 million decrease in the average balance of investment securities primarily to fund loan growth, which was partially offset by a 29 basis point increase in the average yield earned on the investment portfolio. Interest expense decreased $49,000, or 1.9%, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The lower interest expense was primarily attributable to $19.6 million in lower average balances of certificates of deposit, as well as an average rate reduction of 1 basis point on total interest-bearing deposits. The decrease in average balances of certificates of deposit was partially offset by higher average balances of NOW, money market and savings accounts. For the same comparable nine-month periods, average noninterest-bearing deposits grew $13.8 million, or 13.0%, which contributed to the reduction of deposit interest expense while deposit funding grew.

Provision for Loan Losses. The Company recorded a provision for loan losses in the amount of $411,000 for the nine months ended September 30, 2016 compared to $450,000 for the nine months ended September 30, 2015. The Company charged off $311,000 in loans for the first nine months of 2016 compared to $435,000 for the first nine months of 2015.  The decrease in the nine-month provision for loan losses was primarily due to continued improvement in asset quality and slower growth in loans.

Noninterest Income.  Noninterest income increased $1.1 million, or 20.4%, to $6.8 million for the nine months ended September 30, 2016 from $5.7 million for the nine months ended September 30, 2015. Factors that contributed to the increase in noninterest income during the 2016 period included increases of $918,000 in gains realized from the sale of investment securities, $234,000 in deposit and other service charge income, $101,000 in collected loan fees and $96,000 in income from an investment in bank owned life insurance, which were partially offset by a decrease of $141,000 in mortgage banking income. Increased income on deposit and other fees primarily related to retail checking accounts. The decrease in mortgage banking income was attributable to lower volumes of residential mortgage loans originated and sold during the 2016 period.

Noninterest Expenses. Noninterest expenses decreased $360,000, or 2.0%, to $17.3 million for the nine months ended September 30, 2016 from $17.6 million for the nine months ended September 30, 2015. The lower 2016 noninterest expenses primarily reflected decreases of $173,000 in salaries and employee benefits, $168,000 in loan expenses, $84,000 in mortgage software expenses, $77,000 in deposit insurance premiums, $43,000 in indirect auto loan dealer expenses and $39,000 in foreclosed property expenses, which were partially offset by increases of $204,000 in data processing fees and $69,000 in professional and outside services primarily due to revenue enhancement consulting fees.

Income Tax Provision. Income tax expense increased by $1.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily due to an increase in pre-tax income. The effective tax rate was 35.02% for the nine months ended September 30, 2016 compared to 32.19% for the nine months ended September 30, 2015, with the increase primarily resulting from a decrease in favorable permanent tax differences relative to the size of the pre-tax income in 2016 compared to 2015.

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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%.

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	For The Three Months Ended September 30,
	2016								2015
(Dollars in thousands)	Average Balance			Interest And Dividends		Yield/ Cost			Average Balance (1)			Interest And Dividends		Yield/ Cost
Assets
Interest-earning deposits with banks	$	42,815		$	54		0.50	%	$	50,036		$	32		0.25	%
Loans receivable		600,192			6,341		4.20	%		564,562			5,762		4.05	%
Investment securities		59,355			385		3.41	%		66,741			421		3.31	%
Mortgage-backed and similar securities		52,195			171		1.30	%		72,182			211		1.16	%
Other interest-earning assets		2,829			31		4.36	%		2,807			33		4.66	%
Total interest-earning assets		757,386			6,982		3.73	%		756,328			6,459		3.46	%
Allowance for loan losses		(6,569	)							(6,164	)
Noninterest-earning assets		46,016								41,820
Total assets	$	796,833							$	791,984
Liabilities and equity
NOW accounts	$	157,551			49		0.12	%	$	152,710			55		0.14	%
Money market accounts		168,626			74		0.17	%		165,809			76		0.18	%
Savings accounts		54,046			13		0.10	%		46,877			11		0.09	%
Certificates of deposit		132,607			241		0.72	%		148,123			240		0.64	%
Total interest-bearing deposits		512,830			377		0.29	%		513,519			382		0.30	%
Overnight and short-term borrowings		300			-		0.00	%		159			-		0.00	%
Federal Home Loan Bank advances		50,000			494		3.93	%		50,000			495		3.93	%
Total interest-bearing liabilities		563,130			871		0.62	%		563,678			877		0.62	%
Noninterest-bearing deposits		128,930								117,214
Other noninterest-bearing liabilities		13,081								13,279
Total liabilities		705,141								694,171
Total equity		91,692								97,813
Total liabilities and equity	$	796,833							$	791,984
Net interest income				$	6,111							$	5,582
Interest rate spread							3.11	%							2.84	%
Net interest margin							3.28	%							3.00	%
Average interest-earning assets to average interest-bearing liabilities		134.50	%							134.18	%

(1) Certain amounts for prior periods were reclassified to conform to the September 30, 2016 presentation. The reclassifications had no effect on net income or equity as previously reported.

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	For The Nine Months Ended September 30,
	2016								2015
(Dollars in thousands)	Average Balance			Interest And Dividends		Yield/ Cost			Average Balance (1)			Interest And Dividends		Yield/ Cost
Assets
Interest-earning deposits with banks	$	32,990		$	124		0.50	%	$	52,166		$	104		0.27	%
Loans receivable		599,227			18,484		4.12	%		551,179			16,947		4.11	%
Investment securities		57,823			1,141		3.48	%		57,622			1,038		3.18	%
Mortgage-backed and similar securities		60,434			563		1.24	%		78,915			719		1.22	%
Other interest-earning assets		2,868			102		4.75	%		2,834			94		4.43	%
Total interest-earning assets		753,342			20,414		3.68	%		742,716			18,902		3.46	%
Allowance for loan losses		(6,546	)							(6,109	)
Noninterest-earning assets		40,432								41,820
Total assets	$	787,228							$	778,427
Liabilities and equity
NOW accounts	$	157,352			153		0.13	%	$	152,548			162		0.14	%
Money market accounts		168,975			221		0.17	%		161,322			216		0.18	%
Savings accounts		52,210			37		0.09	%		45,091			32		0.09	%
Certificates of deposit		132,111			682		0.69	%		151,684			739		0.65	%
Total interest-bearing deposits		510,648			1,093		0.29	%		510,645			1,149		0.30	%
Overnight and short-term borrowings		881			2		0.30	%		585			-		0.00	%
Federal Home Loan Bank advances		50,000			1,474		3.94	%		50,000			1,469		3.93	%
Total interest-bearing liabilities		561,529			2,569		0.61	%		561,230			2,618		0.62	%
Noninterest-bearing deposits		120,676								106,834
Other noninterest-bearing liabilities		12,774								13,513
Total liabilities		694,979								681,577
Total equity		92,249								96,850
Total liabilities and equity	$	787,228							$	778,427
Net interest income				$	17,845							$	16,284
Interest rate spread							3.07	%							2.84	%
Net interest margin							3.23	%							2.99	%
Average interest-earning assets to average interest-bearing liabilities		134.16	%							132.34	%

(1) Certain amounts for prior periods were reclassified to conform to the September 30, 2016 presentation. The reclassifications had no effect on net income or equity as previously reported.

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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 September 30, 2016 Compared To The Three Months Ended September 30, 2015									Nine Months Ended September 30, 2016 Compared To The Nine Months Ended September 30, 2015
	Increase (Decrease) Due To:									Increase (Decrease) Due To:
(Dollars in thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income:
Interest-earning deposits with banks	$	(5	)	$	27		$	22		$	(48	)	$	68		$	20
Loans receivable		372			207			579			1,482			55			1,537
Investment securities		(48	)		12			(36	)		4			99			103
Mortgage-backed and similar securities		(63	)		23			(40	)		(172	)		16			(156	)
Other interest-earning assets		-			(2	)		(2	)		1			7			8
Total interest-earning assets		256			267			523			1,267			245			1,512
Interest expense:
NOW accounts		2			(8	)		(6	)		5			(14	)		(9	)
Money market accounts		1			(3	)		(2	)		10			(5	)		5
Savings accounts		2			-			2			5			-			5
Certificates of deposit		(27	)		28			1			(99	)		42			(57	)
Total interest-bearing deposits		(22	)		17			(5	)		(79	)		23			(56	)
Overnight and short-term borrowings		-			-			-			-			2			2
Federal Home Loan Bank advances		-			(1	)		(1	)		-			5			5
Total interest-bearing liabilities		(22	)		16			(6	)		(79	)		30			(49	)
Net increase in interest income	$	278		$	251		$	529		$	1,346		$	215		$	1,561

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 2016 compared to 2015.

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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)	September 30, 2016			December 31, 2015			$ Change			% Change
Nonperforming loans:
Nonaccruing loans (1)
Commercial:
Commercial construction and land development	$	35		$	-		$	35			n/a
Commercial mortgage		-			818		$	(818	)		-100.0	%
Commercial and industrial		200			227			(27	)		-11.9	%
Total commercial		235			1,045			(810	)		-77.5	%
Non-commercial:
Residential mortgage		731			1,309			(578	)		-44.2	%
Revolving mortgage		229			194			35			18.0	%
Consumer		42			-			42			n/a
Total non-commercial		1,002			1,503			(501	)		-33.3	%
Total nonaccruing loans (1)		1,237			2,548			(1,311	)		-51.5	%
Total loans past due 90 or more days and still accruing		-			-			-			0.0	%
Total nonperforming loans		1,237			2,548			(1,311	)		-51.5	%
Foreclosed real estate		4,764			5,646			(882	)		-15.6	%
Total nonperforming assets		6,001			8,194			(2,193	)		-26.8	%
Performing troubled debt restructurings (2)		4,433			4,552			(119	)		-2.6	%
Performing troubled debt restructurings and total nonperforming assets	$	10,434		$	12,746			(2,312	)		-18.1	%
Allowance for loan losses	$	6,464		$	6,289
Total loans	$	597,935		$	576,087
Allowance as a percentage of total loans		1.08	%		1.09	%
Allowance as a percentage of nonperforming loans		522.55	%		246.82	%
Total nonperforming loans to total loans		0.21	%		0.44	%
Total nonperforming loans to total assets		0.16	%		0.33	%
Total nonperforming assets to total assets		0.75	%		1.05	%
Performing troubled debt restructurings and total nonperforming assets to total assets		1.31	%		1.63	%

(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 allowing interest-only payments on more than a temporary basis, reducing interest rates, forgiving principal, or a combination of these to help borrowers remain current and avoid foreclosure. These modified loans, also referred to as TDRs, totaled $4.6 million at September 30, 2016 and $5.5 million at December 31, 2015. During the nine months ended September 30, 2016, no loans were restructured during the period. At September 30, 2016, $146,000 of the total $4.6 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 $36,000 and $125,000 for the three- and nine-month periods ended September 30, 2016, respectively, compared to $48,000 and $135,000, respectively, for the comparable periods of 2015.  Interest income of $212,000 and $304,000 related to impaired loans was recognized for the three- and nine-month periods ended September 30, 2016, respectively, compared to $53,000 and $162,000, respectively, for the same periods of 2015.

At September 30, 2016, our nonaccruing loans of $1.2 million, including nonperforming TDRs, were primarily comprised of the following:

● Commercial Construction and Land Development Loans

○ Two loans to unrelated borrowers for the purchase of land with an aggregate balance of $35,000. As of September 30, 2016, the loans were considered impaired with no specific reserves.

● Residential Mortgage Loans

○ Seven loans to multiple unrelated borrowers on one-to-four family residential properties with an aggregate balance of $960,000 as of September 30, 2016.

At September 30, 2016, our performing TDRs of $4.4 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 September 30, 2016, the loan was a performing TDR with a balance of $2.9 million that matures in May of 2017. As of September 30, 2016, the loan was considered impaired and had a specific reserve of $13,000.

● Residential Mortgage Loans

○ Eleven loans to multiple unrelated borrowers on one-to-four family residential properties with an aggregate balance of $1.5 million as of September 30, 2016.

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Foreclosed properties consisted of the following at the dates indicated.

	September 30, 2016				December 31, 2015
(Dollars in thousands)	Number		Amount		Number		Amount
By foreclosed loan type:
Commercial construction and land development		6	$	4,106		5	$	4,941
Residential mortgage		1		658		1		705
Total		7	$	4,764		6	$	5,646

An analysis of foreclosed real estate follows:

(Dollars in thousands)	Nine Months Ended September 30, 2016
Beginning balance	$	5,646
Transfers from loans		663
Loss provisions		(18	)
Loss on sale of foreclosed properties		(2	)
Net proceeds from sales of foreclosed properties		(1,525	)
Ending balance	$	4,764

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 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 2015, the Bank sold one retail unit and two office units.  During the nine months ended September 30, 2016, the Bank sold one retail unit.  As of September 30, 2016, the adjusted recorded amount was $3.3 million for the remaining six retail units and five office units.

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.

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

(Dollars in thousands)	September 30, 2016		December 31, 2015		$ Change			% Change
Adversely classified loans:
Substandard	$	2,540	$	3,976	$	(1,436	)		-36.1	%
Doubtful		-		-		-			0.0	%
Total adversely classified loans		2,540		3,976		(1,436	)		-36.1	%
Special mention loans		22,093		23,400		(1,307	)		-5.6	%
Total classified and special mention loans		24,633		27,376		(2,743	)		-10.0	%
Total other classified and special mention assets		-		-		-			0.0	%
Total classified and special mention assets	$	24,633	$	27,376	$	(2,743	)		-10.0	%

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 September 30, 2016, substandard loans totaling $2.5 million included $1.0 million in nonaccruing loans that were previously discussed as nonperforming loans. The remaining $1.5 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 September 30, 2016, the loans were performing with a total balance of $603,000.

● Residential Mortgage Loans

○ Nine loans to multiple unrelated borrowers for one-to-four family residential properties with an aggregate balance of $856,000 as of September 30, 2016.

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 September 30, 2016, special mention loans included the Bank’s largest performing TDR commercial mortgage as previously discussed.

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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 September 30, 2016, cash and cash equivalents totaled $44.8 million, including $35.2 million in interest-bearing deposits in other banks, of which $30.7 million was on deposit with the Federal Reserve Bank.  Investment securities totaling $106.3 million at September 30, 2016 classified as available-for-sale provided an additional source of liquidity. In addition, at September 30, 2016, we had the ability to borrow a total of approximately $94.1 million from the Federal Home Loan Bank of Atlanta and approximately $8.4 million from the Federal Reserve Bank’s discount window. At September 30, 2016, we had $50.0 million in Federal Home Loan Bank advances outstanding and $6.0 million in letters of credit to secure public funds deposits.

A significant use of our liquidity is the funding of loan originations. At September 30, 2016, we had $202.4 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 September 30, 2016 totaled $63.5 million, or 48.2%, 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 new 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 September 30, 2016
Long-term debt obligations	$	50,000	$	40,000	$	10,000	$	-	$	-
Operating lease obligations		802		237		121		121		323
Total	$	50,802	$	40,237	$	10,121	$	121	$	323
At December 31, 2015
Long-term debt obligations	$	50,000	$	-	$	50,000	$	-	$	-
Operating lease obligations		1,074		362		222		121		369
Total	$	51,074	$	362	$	50,222	$	121	$	369

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 September 30, 2016, 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 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.

Regulatory capital rules released by the federal bank regulatory agencies in July 2013 to implement capital standards, referred to as Basel III and developed by an international body known as the Basel Committee on Banking Supervision, impose higher minimum capital requirements for certain bank holding companies and banks. The rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies with $500 million or more in total consolidated assets. More stringent requirements are imposed on “advanced approaches” banking organizations ‒ which are organizations with $250 billion or more in total consolidated assets, with $10 billion or more in total foreign exposures, or that have opted in to the Basel II capital regime.  The new regulatory capital rules 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 rules will be fully phased in by January 1, 2019. However, in May 2015, amendments to the Federal Reserve's Small Bank Holding Company Policy Statement (the “SBHC Policy”) became effective which increased the asset size limitation for qualifying bank holding companies under the SBHC Policy from $500 million to $1 billion of total consolidated assets. Bank holding companies which are subject to the SBHC Policy are not subject to compliance with the regulatory capital requirements until they exceed $1 billion in total consolidated assets. As a result, as of September 30, 2016, the Company was not required to comply with the requirements set forth below until such time that its consolidated assets exceed $1 billion or the Federal Reserve determines that the Company is no longer deemed to be a small bank holding company. However, if the Company had been subject to the requirements, it is management's belief that it would have been in compliance with such requirements.

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The final rule includes certain new and higher risk-based capital and leverage requirements than those previously in place. Specifically, the following minimum capital requirements apply to the Bank:

• 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 former 4% requirement);

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

• a leverage ratio of 4% (also unchanged from the former requirement).

Under the rules, 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 noncumulative perpetual preferred stock. The rules permit 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 rules have disqualified from Tier 1 capital treatment.  Cumulative perpetual preferred stock, formerly includable in Tier 1 capital, is now included only in Tier 2 capital.  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 rules 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. We elected to opt out from the inclusion of AOCI in Common Equity Tier 1 capital.

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.  As of January 1, 2016, we are required to hold a capital conservation buffer of 0.625%, increasing by that amount each successive year until 2019.

In general, the rules have had the effect of increasing capital requirements by increasing the risk weights on certain assets, including high volatility commercial real estate, certain loans past due 90 days or more or in nonaccrual status, 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.

It is management’s belief that, as of September 30, 2016, the Bank would have met all capital adequacy requirements under the new capital rules on a fully phased-in basis if such requirements were effective at that time.

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

						Regulatory Requirements Applicable To Banks
	Actual					Minimum For Capital Adequacy Purposes					Minimum To Be Well Capitalized
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
ASB Bancorp, Inc.
September 30, 2016
Common equity tier I capital	$	95,847		15.92	%	$	27,097		4.50	%	$	39,140		6.50	%
Tier I leverage capital		95,847		11.97	%		32,032		4.00	%		40,040		5.00	%
Tier I risk-based capital		95,847		15.92	%		36,129		6.00	%		48,172		8.00	%
Total risk-based capital		102,311		16.99	%		48,172		8.00	%		60,216		10.00	%
December 31, 2015
Common equity tier I capital	$	94,743		16.66	%	$	25,587		4.50	%	$	36,960		6.50	%
Tier I leverage capital		94,743		11.87	%		31,935		4.00	%		39,919		5.00	%
Tier I risk-based capital		94,743		16.66	%		34,117		6.00	%		45,489		8.00	%
Total risk-based capital		101,032		17.77	%		45,489		8.00	%		56,861		10.00	%
Asheville Savings Bank, S.S.B.
September 30, 2016
Common equity tier I capital	$	90,740		15.07	%	$	27,089		4.50	%	$	39,128		6.50	%
Tier I leverage capital		90,740		11.35	%		31,985		4.00	%		39,981		5.00	%
Tier I risk-based capital		90,740		15.07	%		36,118		6.00	%		48,158		8.00	%
Total risk-based capital		97,204		16.15	%		48,158		8.00	%		60,197		10.00	%
NC Savings Bank capital		97,204		12.21	%		39,811		5.00	%		n/a		n/a
December 31, 2015
Common equity tier I capital	$	89,183		15.70	%	$	25,563		4.50	%	$	36,925		6.50	%
Tier I leverage capital		89,183		11.20	%		31,848		4.00	%		39,810		5.00	%
Tier I risk-based capital		89,183		15.70	%		34,084		6.00	%		45,446		8.00	%
Total risk-based capital		95,472		16.81	%		45,446		8.00	%		56,807		10.00	%
NC Savings Bank capital		95,472		12.21	%		39,087		5.00	%		n/a		n/a

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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 nine months ended September 30, 2016 and the year ended December 31, 2015, 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 non-maturity 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.

66

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 September 30, 2016								Over The Next Twelve Months Ending September 30, 2017
	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	$	90,894	$	(26,382	)		-22.50	%	$	23,240	$	(1,207	)		-4.94	%
200		101,610		(15,666	)		-13.36	%		23,883		(564	)		-2.31	%
100		110,349		(6,927	)		-5.91	%		24,205		(242	)		-0.99	%
0		117,276		-			0.00	%		24,447		-			0.00	%
(100)		115,958		(1,318	)		-1.12	%		22,496		(1,951	)		-7.98	%

67

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 September 30, 2016.  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 September 30, 2016 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, 2015, filed with the SEC on March 14, 2016.  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, 2015.

68

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

The Company’s purchases of its common stock made during the quarter consisted of stock repurchases under the Company’s approved plan and are set forth in the following table.

Period	Total Number Of Shares Purchased (a)		Average Price Paid Per Common Share (b)		Total Number Of Shares Purchased As Part Of Publicly Announced Programs (c)		Maximum Number Of Shares That May Yet Be Purchased Under The Plan Or Programs (d)
July 1 - July 31, 2016		200,000	$	24.62		200,000		-
August 1 -August 31, 2016		-		-		-		-
September 1 - September 30, 2016		-		-		-		-
Total		200,000	$	24.62		200,000		-

On July 14, 2016, the Company issued a news release announcing that the Company completed its repurchase of 200,000 shares of its outstanding common stock under the repurchase program previously announced on July 1, 2016.  The Company's Board of Directors approved a stock repurchase program whereby the Company could repurchase up to 200,000 shares of its outstanding common stock.  Under a Rule 10b5-1 repurchase plan, the share repurchases totaling 200,000 shares were completed on July 11, 2016 at an average purchase price of $24.62 per share. Following the completion of the repurchase, the Company had 3,787,322 shares outstanding.

The Company's 2012 Equity Incentive Plan permits the exchange of shares issued upon the exercise of stock options for the surrender of shares currently held by the grant recipient.  During the first nine months of 2016, the Company received 3,153 shares in exchange for the issuance of 5,000 option shares using this exercise method.

The following table sets forth information as of September 30, 2016 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		445,500	$	16.03		60,355
Equity compensation plans not approved by security holders		–		n/a		–
Total		445,500	$	16.03		60,355

69

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)
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 September 30, 2016, formatted in XBRL (Extensible Business Reporting Language):   (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the  Notes to Consolidated Financial Statements.

(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 Securities and Exchange Commission 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 Securities and Exchange Commission on September 19, 2014.

70

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
November 8, 2016	By:	/s/ SUZANNE S. DEFERIE
		Suzanne S. DeFerie
		President and Chief Executive Officer
		(Principal Executive Officer)
November 8, 2016	By:	/s/ KIRBY A. TYNDALL
		Kirby A. Tyndall
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

71

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.

November 8, 2016	/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 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.

November 8, 2016	/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 September 30, 2016 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.

November 8, 2016	By:	/s/ SUZANNE S. DEFERIE
		Suzanne S. DeFerie
		President and Chief Executive Officer
		(Principal Executive Officer)
November 8, 2016	By:	/s/ KIRBY A. TYNDALL
		Kirby A. Tyndall
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
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		3,787,322
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	[1]
Assets
Cash and due from banks	$ 9,591	$ 9,563
Interest-earning deposits with banks	35,161	23,838
Total cash and cash equivalents	44,752	33,401
Securities available for sale (amortized cost of $105,034 at September 30, 2016 and $137,137 at December 31, 2015)	106,331	137,555
Securities held to maturity (estimated fair value of $3,968 at September 30, 2016 and $4,086 at December 31, 2015)	3,704	3,809
Investment in Federal Home Loan Bank stock, at cost	2,829	2,807
Loans held for sale	7,091	7,018
Loans receivable (net of deferred loan fees of $371 at September 30, 2016 and $476 at December 31, 2015)	597,935	576,087
Allowance for loan losses	(6,464)	(6,289)
Loans receivable, net	591,471	569,798
Premises and equipment, net	11,305	11,616
Foreclosed real estate	4,764	5,646
Deferred income tax assets, net	4,616	4,716
Securities sold but not settled	4,115	0
Bank owned life insurance	10,096	0
Other assets	6,166	6,487
Total assets	797,240	782,853
Liabilities
Noninterest-bearing deposits	129,303	113,745
Interest-bearing deposits	513,300	517,159
Total deposits	642,603	630,904
Overnight and short-term borrowings	201	327
Federal Home Loan Bank advances	50,000	50,000
Securities purchased but not settled	4,484	0
Accounts payable and other liabilities	8,609	11,940
Total liabilities	705,897	693,171
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; 3,787,322 shares issued at September 30, 2016 and 3,985,475 shares issued at December 31, 2015	38	40
Additional paid-in capital	19,763	24,056
Retained earnings	80,630	76,088
Accumulated other comprehensive loss, net of tax	(4,504)	(5,061)
Unearned Employee Stock Ownership Plan (ESOP) shares	(2,904)	(3,138)
Unearned equity incentive plan shares	(1,311)	(1,960)
Stock-based deferral plan shares	(369)	(343)
Total shareholders' equity	91,343	89,682
Total liabilities and shareholders' equity	$ 797,240	$ 782,853

[1] Derived from audited consolidated financial statements.

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	[1]
Assets
Amortized cost of securities available for sale	$ 105,034	$ 137,137
Estimated fair value of securities held to maturity	3,968	4,086
Deferred loan fees on loans receivable	$ 371	$ 476
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)	3,787,322	3,985,475

[1] Derived from audited consolidated financial statements.

XML

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Interest and dividend income
Loans, including fees	$ 6,341	$ 5,762	$ 18,484	$ 16,947
Securities	556	632	1,704	1,757
Other earning assets	85	65	226	198
Total interest and dividend income	6,982	6,459	20,414	18,902
Interest expense
Deposits	377	382	1,093	1,149
Overnight and short-term borrowings	0	0	2	0
Federal Home Loan Bank advances	494	495	1,474	1,469
Total interest expense	871	877	2,569	2,618
Net interest income	6,111	5,582	17,845	16,284
Provision for (recovery of) loan losses	(92)	191	411	450
Net interest income after provision for (recovery of) loan losses	6,203	5,391	17,434	15,834
Noninterest income
Mortgage banking income	532	529	1,241	1,382
Deposit and other service charge income	757	719	2,154	1,920
Income from debit card services	420	456	1,327	1,338
Gain on sale of investment securities, net	147	202	1,319	401
Other noninterest income	434	178	774	621
Total noninterest income	2,290	2,084	6,815	5,662
Noninterest expenses
Salaries and employee benefits	3,314	3,383	9,898	10,071
Occupancy expense, net	446	435	1,318	1,347
Foreclosed property expenses	39	65	146	185
Data processing fees	710	621	2,025	1,821
Federal deposit insurance premiums	104	135	307	384
Advertising	171	125	404	385
Professional and outside services	260	258	803	734
Other noninterest expenses	817	815	2,358	2,692
Total noninterest expenses	5,861	5,837	17,259	17,619
Income before income tax provision	2,632	1,638	6,990	3,877
Income tax provision	907	496	2,448	1,248
Net income	$ 1,725	$ 1,142	$ 4,542	$ 2,629
Net income per common share - Basic (in dollars per share)	$ 0.51	$ 0.29	$ 1.29	$ 0.67
Net income per common share - Diluted (in dollars per share)	$ 0.48	$ 0.28	$ 1.23	$ 0.65

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Comprehensive Income
Net income	$ 1,725	$ 1,142	$ 4,542	$ 2,629
Unrealized holding gains (losses) on securities available for sale:
Reclassification of securities gains recognized in net income	(147)	(202)	(1,319)	(401)
Deferred income tax benefit	54	75	483	150
Gains (losses) arising during the period	(1,146)	1,248	2,198	442
Deferred income tax benefit (expense)	420	(464)	(805)	(165)
Unrealized holding gains (losses) adjustment, net of tax	(819)	657	557	26
Defined Benefit Pension Plans:
Net periodic pension cost	(174)	(194)	(521)	(583)
Net pension gain	174	194	521	583
Total other comprehensive income (loss)	(819)	657	557	26
Comprehensive income	$ 906	$ 1,799	$ 5,099	$ 2,655

XML

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, 2014				$ (5,802)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income								$ 2,629
Other comprehensive income								26
Ending balance at Sep. 30, 2015				(5,776)
Beginning balance at Jun. 30, 2015				(6,433)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income								1,142
Other comprehensive income								657
Ending balance at Sep. 30, 2015				(5,776)
Beginning balance at Dec. 31, 2015	$ 40	$ 24,056	$ 76,088	(5,061)	$ (3,138)	$ (1,960)	$ (343)	89,682	[1]
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Repurchase of common stock	(2)	(5,010)						(5,012)
Issuance of common stock		79						79
Net income			4,542					4,542
Other comprehensive income				557				557
ESOP shares allocated		350			234			584
Stock-based compensation expense		937						937
Vesting of restricted stock		(649)				649
Stock-based deferral plan shares purchased							(26)	(26)
Ending balance at Sep. 30, 2016	38	19,763	80,630	(4,504)	(2,904)	(1,311)	(369)	91,343
Beginning balance at Jun. 30, 2016				(3,685)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income								1,725
Other comprehensive income								(819)
Ending balance at Sep. 30, 2016	$ 38	$ 19,763	$ 80,630	$ (4,504)	$ (2,904)	$ (1,311)	$ (369)	$ 91,343

[1] Derived from audited consolidated financial statements.

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016		Sep. 30, 2015
Operating Activities
Net income	$ 4,542		$ 2,629
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses	411		450
Provision for losses on foreclosed properties	18		6
Depreciation	585		618
Gain on sale of fixed and other assets	0		(20)
Loss on sale of foreclosed real estate	2		1
Increase in cash surrender value of bank owned life insurance	(96)		0
Deferred income tax expense (benefit)	(222)		277
Net amortization of premiums on securities	1,578		1,998
Gain on sale of investment securities	(1,319)		(401)
Net amortization (accretion) of deferred fees on loans	52		(48)
Mortgage loans originated for sale	(47,492)		(59,321)
Proceeds from sale of mortgage loans	48,660		60,503
Gain on sale of mortgage loans	(1,241)		(1,382)
ESOP compensation expense	584		500
Stock-based compensation expense	802		801
Excess tax benefits from equity awards	(136)		(59)
Decrease in income tax receivable	209		634
Decrease (increase) in interest receivable	326		(31)
Decrease in other liabilities - pension plan contribution	(4,750)		0
Net change in other assets and liabilities	(2,773)		2,470
Net cash provided by (used in) operating activities	(260)		9,625
Investing Activities
Purchases of securities available for sale	(29,691)		(65,842)
Proceeds from sales of securities available for sale	57,757		61,756
Principal repayments on mortgage-backed and asset-backed securities	8,367		9,532
Redemption (purchase) of FHLB stock	(22)		95
Net increase in loans receivable	(22,799)		(48,131)
Net proceeds from sales of foreclosed real estate	1,525		748
Purchases of premises and equipment	(274)		(449)
Net proceeds from sales of fixed and other assets	0		20
Purchases of bank owned life insurance	(10,000)		0
Net cash provided by (used in) investing activities	4,863		(42,271)
Financing Activities
Net increase in deposits	11,699		31,704
Net repayments of overnight and short-term borrowings	(126)		(534)
Stock-based deferral plan shares purchased	(26)		0
Proceeds from the exercise of stock options	79		644
Excess tax benefits from equity awards	136		59
Common stock repurchased	(5,014)		(320)
Net cash provided by financing activities	6,748		31,553
Net increase (decrease) in cash and cash equivalents	11,351		(1,093)
Cash and cash equivalents at beginning of period	33,401	[1]	56,858
Cash and cash equivalents at end of period	44,752		55,765
Cash paid for:
Interest on deposits, advances and other borrowings	2,567		2,612
Income taxes	2,408		281
Non-cash investing and financing transactions:
Transfers from loans to foreclosed real estate	663		812
Net unsettled security purchases	369		0
Increase in unrealized gains and losses on securities available for sale	2,198		442
Decrease in deferred income taxes resulting from other comprehensive income	$ (322)		$ (15)

[1] Derived from audited consolidated financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

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, 2015 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2016.  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 nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other future period.

Organization – ASB Bancorp, Inc. (the “Parent”) was incorporated on May 12, 2011 by Asheville Savings Bank, S.S.B. (the “Bank”) to be the Bank’s holding company 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 in Mecklenburg County, North Carolina through loan originators. 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 accounting principles generally accepted in the United States of America.

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 and leases 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. 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 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. Further, 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 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 – The Bank made no changes to its allowance methodology in the first nine months of 2016 or 2015.

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.

Bank Owned Life Insurance – The Bank has purchased bank owned life insurance (“BOLI”) as a financing tool for employee benefits. The earnings on the BOLI are recorded as other noninterest income. Since the Bank intends to hold the BOLI until the death of the insured, the Bank benefits from the tax-free nature of income generated from the life insurance policies. The value of the life insurance to the Bank is the tax preferred treatment of increases in life insurance cash values and death benefits and the cash flow generated at the death of the insured. The largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial condition reviews are completed on all carriers.

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 OCI are included in the Consolidated Statements of Comprehensive Income (Loss). The accumulated balance of OCI is included in the equity section of the Consolidated Balance Sheets. The Company’s components of accumulated OCI 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 OCI 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 September 30, 2016
Unrealized gain on securities	$	1,641		$	(726	)	$	(93	)	$	(819	)	$	822
Benefit plan liability		(5,326	)		(110	)		110			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(3,685	)	$	(836	)	$	17		$	(819	)	$	(4,504	)
Three Months Ended September 30, 2015
Unrealized gain (loss) on securities	$	(507	)	$	784		$	(127	)	$	657		$	150
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(6,433	)	$	662		$	(5	)	$	657		$	(5,776	)
Nine Months Ended September 30, 2016
Unrealized gain on securities	$	265		$	1,393		$	(836	)	$	557		$	822
Benefit plan liability		(5,326	)		(330	)		330			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(5,061	)	$	1,063		$	(506	)	$	557		$	(4,504	)
Nine Months Ended September 30, 2015
Unrealized gain on securities	$	124		$	277		$	(251	)	$	26		$	150
Benefit plan liability		(5,926	)		(366	)		366			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(89	)	$	115		$	26		$	(5,776	)

The Company’s reclassifications out of accumulated OCI 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 September 30, 2016			Three Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(147	)	$	(202	)	Gain on sale of investment securities
Deferred income tax expense		54			75		Income tax provision
Total reclassifications for the period	$	(93	)	$	(127	)	Net of tax
Net periodic pension benefit	$	174		$	194		Salaries and employee benefits
Deferred income tax expense		(64	)		(72	)	Income tax provision
Total reclassifications for the period	$	110		$	122		Net of tax
(Dollars in thousands)	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(1,319	)	$	(401	)	Gain on sale of investment securities
Deferred income tax expense		483			150		Income tax provision
Total reclassifications for the period	$	(836	)	$	(251	)	Net of tax
Net periodic pension benefit	$	521		$	583		Salaries and employee benefits
Deferred income tax expense		(191	)		(217	)	Income tax provision
Total reclassifications for the period	$	330		$	366		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 includes interest and penalties related to income tax liabilities in noninterest expense. The Bank’s tax filings for the years 2012 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 2015 or during the first nine months of 2016.

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 September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Numerator:
Net income	$	1,725		$	1,142		$	4,542		$	2,629
Denominator:
Weighted average common shares outstanding		3,798,424			4,394,787			3,922,817			4,383,930
Less: Weighted average unvested restricted shares		(81,313	)		(121,610	)		(86,571	)		(126,884	)
Less: Weighted average unallocated ESOP shares		(294,313	)		(325,732	)		(302,117	)		(333,515	)
Weighted average common shares used to compute net income per common share – Basic		3,422,798			3,947,445			3,534,129			3,923,531
Add: Effect of dilutive securities		151,139			131,584			144,456			101,900
Weighted average common shares used to compute net income per common share – Diluted		3,573,937			4,079,029			3,678,585			4,025,431
Net income per common share – Basic	$	0.51		$	0.29		$	1.29		$	0.67
Net income per common share – Diluted	$	0.48		$	0.28		$	1.23		$	0.65

For the three and nine months ended September 30, 2016, no restricted shares and no stock options were excluded from the computation of net income per share because their effect would be anti-dilutive.  For the three and nine months ended September 30, 2015, no restricted shares were excluded from the computation of net income per share because their effect would be anti-dilutive.  For the three and nine months ended September 30, 2015, options to purchase 1,178 and 3,916 shares of common stock, respectively, were excluded from the computation of net income per share because their effect would be anti-dilutive.

Reclassifications – Certain reclassifications have been made to the financial statements of the prior periods presented to conform to the current period presentation. The reclassifications had no effect on net income, net income per common share, or shareholders’ equity as previously reported.

Recent Accounting Pronouncements

Accounting Standards Update ASU 2016-01 – In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance on the classification and measurement of financial instruments and also amends certain disclosure requirement associated with the fair value of those instruments.  For public entities, the amendments in ASU 2016-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-02 – In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 introduces a new lease model that refines the evaluation for lease accounting and addresses other concerns related to the current leases model. For public entities, the new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-09 – In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, ASU 2016-09 is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2016.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-13 – In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which improves financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  ASU 2016-13 requires the measurement of all expected credit losses for financial assets not recorded at fair value based on historical experience, current conditions, and reasonable and supportable forecasts.  For public entities that are SEC filers, ASU 2016-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. This standard will be required to be implemented through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the amendments are effective. The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2016-15 – In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments, which was issued to address diversity in practice of how certain cash receipts and cash payments are currently presented and classified in the statement of cash flows.  The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years.  Early adoption is permitted.  The amendments should be applied using a retrospective transition method to each period presented. The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

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INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2016

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
September 30, 2016
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,106	$	11	$	-		$	2,117
Asset-backed securities issued by the Small Business Administration (SBA)		4,662		31		(8	)		4,685
Residential mortgage-backed securities issued by GSEs (1)		42,725		253		(329	)		42,649
State and local government securities due -
After 10 years		54,768		1,682		(353	)		56,097
Mutual funds		773		10		-			783
Total	$	105,034	$	1,987	$	(690	)	$	106,331
December 31, 2015
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,135	$	-	$	(21	)	$	2,114
Asset-backed securities issued by the Small Business Administration (SBA)		16,974		187		(17	)		17,144
Residential mortgage-backed securities issued by GSEs (1)		51,726		29		(807	)		50,948
State and local government securities due -
After 1 year but within 5 years		682		4		-			686
After 5 years but within 10 years		8,714		222		-			8,936
After 10 years		56,146		835		(12	)		56,969
Mutual funds		760		-		(2	)		758
Total	$	137,137	$	1,277	$	(859	)	$	137,555

(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 September 30, 2016 and December 31, 2015 or during the nine- 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
September 30, 2016
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,013	$	28	$	-	$	1,041
Residential mortgage-backed securities issued by GSEs (1)		253		21		-		274
State and local government securities due -
After 5 years but within 10 years		2,438		215		-		2,653
Total	$	3,704	$	264	$	-	$	3,968
December 31, 2015
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,024	$	46	$	-	$	1,070
Residential mortgage-backed securities issued by GSEs (1)		351		25		-		376
State and local government securities due -
After 5 years but within 10 years		965		89		-		1,054
After 10 years		1,469		117		-		1,586
Total	$	3,809	$	277	$	-	$	4,086

(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 September 30, 2016 and December 31, 2015 or during the nine- 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 September 30, 2016 and December 31, 2015. The total number of securities with unrealized losses at September 30, 2016 and December 31, 2015 were 31 and 34, 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.

	September 30, 2016
	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
Asset-backed SBA	$	517	$	(1	)	$	693	$	(7	)	$	1,210	$	(8	)
Residential mortgage- backed GSE (1)		9,846		(139	)		19,516		(190	)		29,362		(329	)
State and local government		19,330		(353	)		-		-			19,330		(353	)
Total temporarily impaired securities	$	29,693	$	(493	)	$	20,209	$	(197	)	$	49,902	$	(690	)

(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 September 30, 2016 or during the nine-month period then ended.

	December 31, 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	$	1,018	$	(6	)	$	1,096	$	(15	)	$	2,114	$	(21	)
Asset-backed SBA		623		(1	)		1,821		(16	)		2,444		(17	)
Residential mortgage- backed GSE (1)		36,960		(672	)		9,591		(135	)		46,551		(807	)
State and local government		3,721		(5	)		557		(7	)		4,278		(12	)
Mutual funds		760		(2	)		-		-			760		(2	)
Total temporarily impaired securities	$	43,082	$	(686	)	$	13,065	$	(173	)	$	56,147	$	(859	)

(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, 2015 or during the twelve-month period then ended.

Investment securities pledged as collateral follows:

(Dollars in thousands)	September 30, 2016		December 31, 2015
Pledged to Federal Reserve Discount Window	$	8,791	$	14,533
Pledged to repurchase agreements for commercial customers		919		1,131

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Interest income from taxable securities	$	191	$	231	$	624	$	780
Interest income from tax-exempt securities		365		401		1,080		977
Total interest income from securities	$	556	$	632	$	1,704	$	1,757

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016			2015
Proceeds from sales of securities	$	7,607	$	11,132	$	57,757		$	61,756
Gross realized gains from sales of securities		147		202		1,363			667
Gross realized losses from sales of securities		-		-		(44	)		(266	)

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LOANS RECEIVABLE

9 Months Ended

Sep. 30, 2016

LOANS RECEIVABLE [Abstract]

LOANS RECEIVABLE

3. LOANS RECEIVABLE

Loans receivable by segment and class follow:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Commercial:
Commercial construction and land development	$	28,420		$	38,313
Commercial mortgage		234,464			209,397
Commercial and industrial		23,358			22,878
Total commercial		286,242			270,588
Non-commercial:
Non-commercial construction and land development		17,268			16,587
Residential mortgage		202,553			186,839
Revolving mortgage		66,728			66,258
Consumer		25,515			36,291
Total non-commercial		312,064			305,975
Total loans receivable		598,306			576,563
Less: Deferred loan fees		(371	)		(476	)
Total loans receivable net of deferred loan fees		597,935			576,087
Less: Allowance for loan losses		(6,464	)		(6,289	)
Loans receivable, net	$	591,471		$	569,798

Loans receivable by segment, class, and grade follow:

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans
September 30, 2016
Commercial:
Commercial construction and land development	$	28,247	$	138	$	35	$	-	$	-	$	28,420
Commercial mortgage		222,746		11,115		603		-		-		234,464
Commercial and industrial		22,353		805		200		-		-		23,358
Total commercial		273,346		12,058		838		-		-		286,242
Non-commercial:
Non-commercial construction and land development		17,268		-		-		-		-		17,268
Residential mortgage		194,826		6,675		1,052		-		-		202,553
Revolving mortgage		63,207		2,968		553		-		-		66,728
Consumer		25,026		392		97		-		-		25,515
Total non-commercial		300,327		10,035		1,702		-		-		312,064
Total loans receivable	$	573,673	$	22,093	$	2,540	$	-	$	-	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	38,168	$	145	$	-	$	-	$	-	$	38,313
Commercial mortgage		195,551		12,412		1,434		-		-		209,397
Commercial and industrial		21,709		942		227		-		-		22,878
Total commercial		255,428		13,499		1,661		-		-		270,588
Non-commercial:
Non-commercial construction and land development		16,587		-		-		-		-		16,587
Residential mortgage		178,403		6,674		1,762		-		-		186,839
Revolving mortgage		62,922		2,812		524		-		-		66,258
Consumer		35,847		415		29		-		-		36,291
Total non-commercial		293,759		9,901		2,315		-		-		305,975
Total loans receivable	$	549,187	$	23,400	$	3,976	$	-	$	-	$	576,563

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
September 30, 2016
Commercial:
Commercial construction and land development	$	-	$	35	$	35	$	28,385	$	28,420
Commercial mortgage		-		-		-		234,464		234,464
Commercial and industrial		-		68		68		23,290		23,358
Total commercial		-		103		103		286,139		286,242
Non-commercial:
Non-commercial construction and land development		-		-		-		17,268		17,268
Residential mortgage		603		520		1,123		201,430		202,553
Revolving mortgage		201		145		346		66,382		66,728
Consumer		166		-		166		25,349		25,515
Total non-commercial		970		665		1,635		310,429		312,064
Total loans receivable	$	970	$	768	$	1,738	$	596,568	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	38,313	$	38,313
Commercial mortgage		-		496		496		208,901		209,397
Commercial and industrial		-		87		87		22,791		22,878
Total commercial		-		583		583		270,005		270,588
Non-commercial:
Non-commercial construction and land development		-		-		-		16,587		16,587
Residential mortgage		685		1,193		1,878		184,961		186,839
Revolving mortgage		104		98		202		66,056		66,258
Consumer		151		-		151		36,140		36,291
Total non-commercial		940		1,291		2,231		303,744		305,975
Total loans receivable	$	940	$	1,874	$	2,814	$	573,749	$	576,563

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:

	September 30, 2016				December 31, 2015
(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 construction and land development	$	35	$	-	$	-	$	-
Commercial mortgage		-		-		818		-
Commercial and industrial		200		-		227		-
Total commercial		235		-		1,045		-
Non-commercial:
Residential mortgage		731		-		1,309		-
Revolving mortgage		229		-		194		-
Consumer		42		-		-		-
Total non-commercial		1,002		-		1,503		-
Total loans receivable	$	1,237	$	-	$	2,548	$	-

The Bank services loans for Habitat for Humanity of Western North Carolina as an in-kind donation.  The balances of these loans were $16.5 million at September 30, 2016 and $15.8 million at December 31, 2015.

Loans made to directors and executive officers in the ordinary course of business with terms consistent with those offered to the Bank’s other customers follow:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Director and executive officer loans, beginning of period	$	3,530		$	4,022
New loans		181			718
Repayments of loans		(309	)		(1,210	)
Director and executive officer loans, end of period	$	3,402		$	3,530

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ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2016

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 September 30, 2016									Nine Months Ended September 30, 2016
				Non-									Non-
(Dollars in thousands)	Commercial			Commercial			Total			Commercial			Commercial			Total
Balance at beginning of period	$	3,986		$	2,597		$	6,583		$	3,710		$	2,579		$	6,289
Provision for (recovery of) loan losses		(109	)		17			(92	)		381			30			411
Charge-offs		(3	)		(40	)		(43	)		(227	)		(84	)		(311	)
Recoveries		5			11			16			15			60			75
Balance at end of period	$	3,879		$	2,585		$	6,464		$	3,879		$	2,585		$	6,464
	Three Months Ended September 30, 2015									Nine Months Ended September 30, 2015
				Non-									Non-
(Dollars in thousands)	Commercial			Commercial			Total			Commercial			Commercial			Total
Balance at beginning of period	$	3,528		$	2,596		$	6,124		$	3,409		$	2,540		$	5,949
Provision for (recovery of) loan losses		204			(13	)		191			296			154			450
Charge-offs		-			(46	)		(46	)		(79	)		(356	)		(435	)
Recoveries		4			24			28			110			223			333
Balance at end of period	$	3,736		$	2,561		$	6,297		$	3,736		$	2,561		$	6,297

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
September 30, 2016
Commercial:
Commercial construction and land development	$	-	$	277	$	277	$	35	$	28,385	$	28,420
Commercial mortgage		13		3,293		3,306		2,919		231,545		234,464
Commercial and industrial		8		288		296		205		23,153		23,358
Total commercial		21		3,858		3,879		3,159		283,083		286,242
Non-commercial:
Non-commercial construction and land development		-		134		134		-		17,268		17,268
Residential mortgage		29		1,301		1,330		2,363		200,190		202,553
Revolving mortgage		84		766		850		135		66,593		66,728
Consumer		-		271		271		-		25,515		25,515
Total non-commercial		113		2,472		2,585		2,498		309,566		312,064
Total loans receivable	$	134	$	6,330	$	6,464	$	5,657	$	592,649	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	-	$	385	$	385	$	-	$	38,313	$	38,313
Commercial mortgage		39		2,982		3,021		3,811		205,586		209,397
Commercial and industrial		13		291		304		252		22,626		22,878
Total commercial		52		3,658		3,710		4,063		266,525		270,588
Non-commercial:
Non-commercial construction and land development		-		139		139		-		16,587		16,587
Residential mortgage		42		1,140		1,182		2,895		183,944		186,839
Revolving mortgage		86		788		874		97		66,161		66,258
Consumer		-		384		384		-		36,291		36,291
Total non-commercial		128		2,451		2,579		2,992		302,983		305,975
Total loans receivable	$	180	$	6,109	$	6,289	$	7,055	$	569,508	$	576,563

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
September 30, 2016
Commercial:
Commercial construction and land development	$	35	$	-	$	35	$	35	$	-
Commercial mortgage		2,919		2,919		-		2,919		13
Commercial and industrial		703		133		72		205		8
Total commercial		3,657		3,052		107		3,159		21
Non-commercial:
Residential mortgage		2,366		1,142		1,220		2,362		29
Revolving mortgage		145		84		52		136		84
Total non-commercial		2,511		1,226		1,272		2,498		113
Total impaired loans	$	6,168	$	4,278	$	1,379	$	5,657	$	134
December 31, 2015
Commercial:
Commercial mortgage	$	3,934	$	3,315	$	496	$	3,811	$	39
Commercial and industrial		722		140		112		252		13
Total commercial		4,656		3,455		608		4,063		52
Non-commercial:
Residential mortgage		2,965		2,125		770		2,895		42
Revolving mortgage		107		86		11		97		86
Total non-commercial		3,072		2,211		781		2,992		128
Total impaired loans	$	7,728	$	5,666	$	1,389	$	7,055	$	180

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

	Three Months Ended September 30, 2016				Three Months Ended September 30, 2015
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest
							Income
							Recognized
Commercial:
Commercial construction and land development	$	16	$	-	$	-	$	-
Commercial mortgage		3,182		198		3,847		33
Commercial and industrial		210		-		274		-
Total commercial		3,408		198		4,121		33
Non-commercial:
Residential mortgage		2,965		14		3,304		19
Revolving mortgage		101		-		155		1
Total non-commercial		3,066		14		3,459		20
Total loans receivable	$	6,474	$	212	$	7,580	$	53

	Nine Months Ended September 30, 2016				Nine Months Ended September 30, 2015
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial construction and land development	$	89	$	-	$	-	$	-
Commercial mortgage		3,392		262		3,898		99
Commercial and industrial		227		-		306		1
Total commercial		3,708		262		4,204		100
Non-commercial:
Residential mortgage		2,949		42		3,195		61
Revolving mortgage		93		-		271		1
Total non-commercial		3,042		42		3,466		62
Total loans receivable	$	6,750	$	304	$	7,670	$	162

The following table summarizes the Bank’s recorded investment in TDRs before and after their modifications during the periods indicated.  No loans were restructured during the three months or nine months ended September 30, 2016.  The Bank reduced the interest rate below market levels on one loan during the three months ended September 30, 2015. The Bank reduced the interest rate below market levels on two loans and extended payment terms on one loan during the nine months ended September 30, 2015.

	Three Months Ended September 30, 2016						Three Months Ended September 30, 2015
(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
Non-commercial:
Residential mortgage		-	$	-	$	-		1	$	45	$	45
Total non-commercial		-		-		-		1		45		45
Total loans modified with below market interest rate		-		-		-		1		45		45
Total loans modified		-	$	-	$	-		1	$	45	$	45

	Nine Months Ended September 30, 2016						Nine Months Ended September 30, 2015
(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 and industrial		-	$	-	$	-		1	$	153	$	153
Total commercial		-		-		-		1		153		153
Non-commercial:
Residential mortgage		-		-		-		1		45		45
Total non-commercial		-		-		-		1		45		45
Total loans modified with below market interest rate		-		-		-		2		198		198
Extended payment terms
Non-commercial:
Residential mortgage		-		-		-		1		29		42
Total non-commercial		-		-		-		1		29		42
Total loans modified with extended payment terms		-		-		-		1		29		42
Total loans modified		-	$	-	$	-		3	$	227	$	240

There were no loans modified as TDRs within the preceding 12 months that stopped performing during the three months or nine months ended September 30, 2016 and September 30, 2015.

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)	September 30, 2016		December 31, 2015
Nonperforming restructured loans	$	146	$	979
Performing restructured loans		4,433		4,552
Total	$	4,579	$	5,531

As of September 30, 2016 and December 31, 2015, the Bank had $344,000 and $1.3 million, respectively, of residential real estate loans in the process of foreclosure and $658,000 and $705,000, respectively, of foreclosed residential real estate property included in foreclosed real estate.

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BENEFIT PLANS

9 Months Ended

Sep. 30, 2016

BENEFIT PLANS [Abstract]

BENEFIT PLANS

5. BENEFIT PLANS

Defined Benefit Plans – The Bank has a Qualified defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation during employment. The Bank’s funding policy is based on actuarially determined amounts. Prior service costs are amortized using the straight line method. Contributions are intended to provide for not only benefits attributed to service to date but also for those expected to be earned in the future. In addition, the Bank also has a Non-Qualified plan covering certain officers whose benefit under the Qualified plan would be reduced as a result of Internal Revenue Code limitations. The Non-Qualified plan is an unfunded plan and any benefits payable shall be paid from the general assets of the Bank.

In January 2013, the Board of Directors amended the Bank’s Qualified and Non-Qualified pension plans (the “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 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 total of immediate aggregate lump sum payments to all inactive participants making the lump sum selection was approximately $544,000 for 2014.

In June 2015, the Board of Directors further amended the Bank’s Plans, effective September 1, 2015, to offer immediate lump sum payments to inactive vested participants, determined as of October 31, 2015, as available.  The total of immediate aggregate lump sum payments to all inactive participants making the lump sum selection was approximately $846,000 for 2015.

In April 2016, the Bank decided to settle its qualified pension plan liability for all remaining participants effective July 1, 2016.  The settlement is expected to be recognized in the fourth quarter of 2016 when participants receive annuities or lump sum payments of their accrued benefit balances.  Based on the most recently available information, the estimate of the one-time settlement charge is in the range of $7.6 million to $7.7 million before income taxes, or $4.8 million to $4.9 million after income taxes, of which $8.0 million before income taxes, or $5.1 million after income taxes, was recognized as a reduction of tangible common shareholders’ equity in the form of accumulated other comprehensive loss as of December 31, 2015.  The most recently available estimate of the range of earnings per share dilution is $1.34 to $1.36 per share, while little or no common equity book value dilution is expected.  For periods following the settlement in the fourth quarter of 2016, the Bank estimates annual periodic expense savings of approximately $810,000 before income taxes, or $513,000 after income taxes, or $0.14 per share.  The Bank contributed $4.8 million to the qualified pension plan during the third quarter of 2016.  Actual settlement expenses may differ from the estimates provided.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Non-Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs:
Interest cost	$	14	$	14	$	42	$	41
Amortization of net loss		12		14		35		43
Net periodic pension cost	$	26	$	28	$	77	$	84

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs:
Interest cost	$	236		$	247		$	708		$	742
Expected return on plan assets		(201	)		(236	)		(602	)		(708	)
Amortization of net loss		162			180			486			540
Net periodic pension cost	$	197		$	191		$	592		$	574

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 trust 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 active 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:

	September 30, 2016
Allocated ESOP shares, December 31, 2015		118,694
ESOP shares committed to be released during the period		23,497
ESOP shares withdrawn during the period		(6,417	)
Unallocated ESOP shares		290,369
Total ESOP shares		426,143
Fair value of unallocated ESOP shares (dollars in thousands)	$	7,622

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
ESOP expense	$	197	$	177	$	584	$	500

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 223,382 shares of its common stock 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 nine months ended September 30, 2016 were $273,000 and $802,000, respectively, and were $273,000 and $801,000, respectively, for the same periods of 2015.

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, 2015		121,610		$	15.75
Vested and released to participants		(40,297	)		15.74
Unvested restricted shares at September 30, 2016		81,313		$	15.76

There were no restricted stock awards granted or forfeited during the nine-month period ended September 30, 2016.

At September 30, 2016, unrecognized compensation expense, adjusted for expected forfeitures, was $815,000 related to restricted stock.  The weighted-average period over which compensation cost related to unvested awards is expected to be recognized was 1.39 years at September 30, 2016.

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, 2015		60,355		450,500		$	16.03		7.24	$	4,473
Exercised		-		(5,000	)		15.71
Outstanding at September 30, 2016		60,355		445,500		$	16.03		6.49	$	4,552
Options exercisable at September 30, 2016				252,600		$	15.91		6.44	$	2,612

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model.  There were 5,000 stock options exercised during the nine-month period ended September 30, 2016, and there were no stock options granted or forfeited during the period.  There were 41,000 stock options exercised during the nine-month period ended September 30, 2015, and there were no stock options granted or forfeited during the period.

At September 30, 2016, the Company had $635,000 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 1.66 years at September 30, 2016. There were 252,600 options vested and exercisable at September 30, 2016.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

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.

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

(Dollars in thousands)	September 30, 2016		December 31, 2015
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit	$	202,378	$	171,339
Commitments under standby letters of credit		602		120
Total	$	202,980	$	171,459

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, commercial 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, $200,000 in 2015 and $300,000 in 2016.  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

9 Months Ended

Sep. 30, 2016

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 September 30, 2016 and December 31, 2015. 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 Federal Home Loan Bank (“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. GSEs, asset-backed securities issued by the SBA, residential mortgage-backed securities issued by U.S. GSEs, 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
September 30, 2016
Financial assets:
Cash and cash equivalents	$	44,752	$	-	$	-	$	44,752	$	44,752
Securities available for sale		783		105,548		-		106,331		106,331
Securities held to maturity		-		3,968		-		3,968		3,704
Investments in FHLB stock		-		-		2,829		2,829		2,829
Loans held for sale		-		7,272		-		7,272		7,091
Loans receivable, net		-		-		591,094		591,094		591,471
Accrued interest receivable		-		-		2,130		2,130		2,130
Deferred compensation assets		1,380		-		-		1,380		1,380
Financial liabilities:
Demand deposits		-		-		510,842		510,842		510,842
Time deposits		-		-		131,313		131,313		131,761
Repurchase agreements		-		-		201		201		201
Federal Home Loan Bank Advances		-		-		51,155		51,155		50,000
Deferred compensation liabilities		1,385		-		-		1,385		1,385
Accrued interest payable		-		-		123		123		123
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, 2015
Financial assets:
Cash and cash equivalents	$	33,401	$	-	$	-	$	33,401	$	33,401
Securities available for sale		758		136,797		-		137,555		137,555
Securities held to maturity		-		4,086		-		4,086		3,809
Investments in FHLB stock		-		-		2,807		2,807		2,807
Loans held for sale		-		7,169		-		7,169		7,018
Loans receivable, net		-		-		572,286		572,286		569,798
Accrued interest receivable		-		-		2,456		2,456		2,456
Deferred compensation assets		1,359		-		-		1,359		1,359
Financial liabilities:
Demand deposits		-		-		495,628		495,628		495,628
Time deposits		-		-		135,212		135,212		135,276
Repurchase agreements		-		-		324		324		327
Federal Home Loan Bank Advances		-		-		52,116		52,116		50,000
Deferred compensation liabilities		1,365		-		-		1,365		1,365
Accrued interest payable		-		-		121		121		121
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 nine months ended September 30, 2016 and September 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
September 30, 2016
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,117	$	-	$	2,117	$	2,117
Asset-backed SBA securities		-		4,685		-		4,685		4,685
Residential mortgage-backed securities issued by GSEs		-		42,649		-		42,649		42,649
State and local government securities		-		56,097		-		56,097		56,097
Mutual funds		783		-		-		783		783
Total	$	783	$	105,548	$	-	$	106,331	$	106,331
Defined benefit plan assets:
Cash and cash equivalents	$	5,141	$	-	$	-
Money market mutual funds		2,273		-		-
Debt security mutual funds		14,431		-		-
Total	$	21,845	$	-	$	-
December 31, 2015
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,114	$	-	$	2,114	$	2,114
Asset-backed SBA securities		-		17,144		-		17,144		17,144
Residential mortgage-backed securities issued by GSEs		-		50,948		-		50,948		50,948
State and local government securities		-		66,591		-		66,591		66,591
Mutual funds		758		-		-		758		758
Total	$	758	$	136,797	$	-	$	137,555	$	137,555
Defined benefit plan assets:
Cash and cash equivalents	$	652	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		12,089		-		-
Equity security mutual funds		3,231		-		-
Defined benefit plan liabilities:
Administrative Fees		8		-		-
Total	$	16,109	$	-	$	-

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
Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets (1)		Assets/ Liabilities Measured At Fair Value (1)
September 30, 2016
Impaired loans	$	-	$	-	$	600	$	600	$	600
Foreclosed properties		-		-		1,500		1,500		1,500
December 31, 2015
Impaired loans	$	-	$	-	$	1,876	$	1,876	$	1,876
Foreclosed properties		-		-		1,682		1,682		1,682

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

There were no transfers between valuation levels for any asset during the nine-month periods ended September 30, 2016 and September 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)
September 30, 2016
Impaired loans	$	600	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (23	%)
Foreclosed properties		1,500	Discounted appraisals (2)	Collateral discounts (3)		0%-22% (6	%)
December 31, 2015
Impaired loans	$	1,876	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (21	%)
Foreclosed properties		1,682	Discounted appraisals (2)	Collateral discounts (3)		0%-22% (5	%)

(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 (Policies)

9 Months Ended

Sep. 30, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Organization

Organization – ASB Bancorp, Inc. (the “Parent”) was incorporated on May 12, 2011 by Asheville Savings Bank, S.S.B. (the “Bank”) to be the Bank’s holding company 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 in Mecklenburg County, North Carolina through loan originators. 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 accounting principles generally accepted in the United States of America.

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 and leases 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. 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 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. Further, 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 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 – The Bank made no changes to its allowance methodology in the first nine months of 2016 or 2015.

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.

Bank Owned Life Insurance

Bank Owned Life Insurance – The Bank has purchased bank owned life insurance (“BOLI”) as a financing tool for employee benefits. The earnings on the BOLI are recorded as other noninterest income. Since the Bank intends to hold the BOLI until the death of the insured, the Bank benefits from the tax-free nature of income generated from the life insurance policies. The value of the life insurance to the Bank is the tax preferred treatment of increases in life insurance cash values and death benefits and the cash flow generated at the death of the insured. The largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial condition reviews are completed on all carriers.

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 OCI are included in the Consolidated Statements of Comprehensive Income (Loss). The accumulated balance of OCI is included in the equity section of the Consolidated Balance Sheets. The Company’s components of accumulated OCI 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 OCI 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 September 30, 2016
Unrealized gain on securities	$	1,641		$	(726	)	$	(93	)	$	(819	)	$	822
Benefit plan liability		(5,326	)		(110	)		110			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(3,685	)	$	(836	)	$	17		$	(819	)	$	(4,504	)
Three Months Ended September 30, 2015
Unrealized gain (loss) on securities	$	(507	)	$	784		$	(127	)	$	657		$	150
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(6,433	)	$	662		$	(5	)	$	657		$	(5,776	)
Nine Months Ended September 30, 2016
Unrealized gain on securities	$	265		$	1,393		$	(836	)	$	557		$	822
Benefit plan liability		(5,326	)		(330	)		330			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(5,061	)	$	1,063		$	(506	)	$	557		$	(4,504	)
Nine Months Ended September 30, 2015
Unrealized gain on securities	$	124		$	277		$	(251	)	$	26		$	150
Benefit plan liability		(5,926	)		(366	)		366			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(89	)	$	115		$	26		$	(5,776	)

The Company’s reclassifications out of accumulated OCI 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 September 30, 2016			Three Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(147	)	$	(202	)	Gain on sale of investment securities
Deferred income tax expense		54			75		Income tax provision
Total reclassifications for the period	$	(93	)	$	(127	)	Net of tax
Net periodic pension benefit	$	174		$	194		Salaries and employee benefits
Deferred income tax expense		(64	)		(72	)	Income tax provision
Total reclassifications for the period	$	110		$	122		Net of tax
(Dollars in thousands)	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(1,319	)	$	(401	)	Gain on sale of investment securities
Deferred income tax expense		483			150		Income tax provision
Total reclassifications for the period	$	(836	)	$	(251	)	Net of tax
Net periodic pension benefit	$	521		$	583		Salaries and employee benefits
Deferred income tax expense		(191	)		(217	)	Income tax provision
Total reclassifications for the period	$	330		$	366		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 includes interest and penalties related to income tax liabilities in noninterest expense. The Bank’s tax filings for the years 2012 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 2015 or during the first nine months of 2016.

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 September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Numerator:
Net income	$	1,725		$	1,142		$	4,542		$	2,629
Denominator:
Weighted average common shares outstanding		3,798,424			4,394,787			3,922,817			4,383,930
Less: Weighted average unvested restricted shares		(81,313	)		(121,610	)		(86,571	)		(126,884	)
Less: Weighted average unallocated ESOP shares		(294,313	)		(325,732	)		(302,117	)		(333,515	)
Weighted average common shares used to compute net income per common share – Basic		3,422,798			3,947,445			3,534,129			3,923,531
Add: Effect of dilutive securities		151,139			131,584			144,456			101,900
Weighted average common shares used to compute net income per common share – Diluted		3,573,937			4,079,029			3,678,585			4,025,431
Net income per common share – Basic	$	0.51		$	0.29		$	1.29		$	0.67
Net income per common share – Diluted	$	0.48		$	0.28		$	1.23		$	0.65

For the three and nine months ended September 30, 2016, no restricted shares and no stock options were excluded from the computation of net income per share because their effect would be anti-dilutive.  For the three and nine months ended September 30, 2015, no restricted shares were excluded from the computation of net income per share because their effect would be anti-dilutive.  For the three and nine months ended September 30, 2015, options to purchase 1,178 and 3,916 shares of common stock, respectively, were excluded from the computation of net income per share because their effect would be anti-dilutive.

Reclassifications

Reclassifications – Certain reclassifications have been made to the financial statements of the prior periods presented to conform to the current period presentation. The reclassifications had no effect on net income, net income per common share, or shareholders’ equity as previously reported.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Accounting Standards Update ASU 2016-01 – In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance on the classification and measurement of financial instruments and also amends certain disclosure requirement associated with the fair value of those instruments.  For public entities, the amendments in ASU 2016-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-02 – In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 introduces a new lease model that refines the evaluation for lease accounting and addresses other concerns related to the current leases model. For public entities, the new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-09 – In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, ASU 2016-09 is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2016.  The Company is currently evaluating this guidance to determine the impact on the Company's consolidated financial statements.

Accounting Standards Update ASU 2016-13 – In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which improves financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  ASU 2016-13 requires the measurement of all expected credit losses for financial assets not recorded at fair value based on historical experience, current conditions, and reasonable and supportable forecasts.  For public entities that are SEC filers, ASU 2016-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. This standard will be required to be implemented through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the amendments are effective. The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2016-15 – In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments, which was issued to address diversity in practice of how certain cash receipts and cash payments are currently presented and classified in the statement of cash flows.  The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years.  Early adoption is permitted.  The amendments should be applied using a retrospective transition method to each period presented. The Company is currently evaluating this guidance to determine the impact on the Company’s consolidated financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2016

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 September 30, 2016
Unrealized gain on securities	$	1,641		$	(726	)	$	(93	)	$	(819	)	$	822
Benefit plan liability		(5,326	)		(110	)		110			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(3,685	)	$	(836	)	$	17		$	(819	)	$	(4,504	)
Three Months Ended September 30, 2015
Unrealized gain (loss) on securities	$	(507	)	$	784		$	(127	)	$	657		$	150
Benefit plan liability		(5,926	)		(122	)		122			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(6,433	)	$	662		$	(5	)	$	657		$	(5,776	)
Nine Months Ended September 30, 2016
Unrealized gain on securities	$	265		$	1,393		$	(836	)	$	557		$	822
Benefit plan liability		(5,326	)		(330	)		330			-			(5,326	)
Accumulated other comprehensive income (loss), net of tax	$	(5,061	)	$	1,063		$	(506	)	$	557		$	(4,504	)
Nine Months Ended September 30, 2015
Unrealized gain on securities	$	124		$	277		$	(251	)	$	26		$	150
Benefit plan liability		(5,926	)		(366	)		366			-			(5,926	)
Accumulated other comprehensive income (loss), net of tax	$	(5,802	)	$	(89	)	$	115		$	26		$	(5,776	)

Reclassification of Accumulated Other Comprehensive Income

The Company’s reclassifications out of accumulated OCI 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 September 30, 2016			Three Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(147	)	$	(202	)	Gain on sale of investment securities
Deferred income tax expense		54			75		Income tax provision
Total reclassifications for the period	$	(93	)	$	(127	)	Net of tax
Net periodic pension benefit	$	174		$	194		Salaries and employee benefits
Deferred income tax expense		(64	)		(72	)	Income tax provision
Total reclassifications for the period	$	110		$	122		Net of tax
(Dollars in thousands)	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
Reclassification of securities gains recognized in net income	$	(1,319	)	$	(401	)	Gain on sale of investment securities
Deferred income tax expense		483			150		Income tax provision
Total reclassifications for the period	$	(836	)	$	(251	)	Net of tax
Net periodic pension benefit	$	521		$	583		Salaries and employee benefits
Deferred income tax expense		(191	)		(217	)	Income tax provision
Total reclassifications for the period	$	330		$	366		Net of tax

Net Income per Common Share

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Numerator:
Net income	$	1,725		$	1,142		$	4,542		$	2,629
Denominator:
Weighted average common shares outstanding		3,798,424			4,394,787			3,922,817			4,383,930
Less: Weighted average unvested restricted shares		(81,313	)		(121,610	)		(86,571	)		(126,884	)
Less: Weighted average unallocated ESOP shares		(294,313	)		(325,732	)		(302,117	)		(333,515	)
Weighted average common shares used to compute net income per common share – Basic		3,422,798			3,947,445			3,534,129			3,923,531
Add: Effect of dilutive securities		151,139			131,584			144,456			101,900
Weighted average common shares used to compute net income per common share – Diluted		3,573,937			4,079,029			3,678,585			4,025,431
Net income per common share – Basic	$	0.51		$	0.29		$	1.29		$	0.67
Net income per common share – Diluted	$	0.48		$	0.28		$	1.23		$	0.65

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INVESTMENT SECURITIES (Tables)

9 Months Ended

Sep. 30, 2016

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
September 30, 2016
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,106	$	11	$	-		$	2,117
Asset-backed securities issued by the Small Business Administration (SBA)		4,662		31		(8	)		4,685
Residential mortgage-backed securities issued by GSEs (1)		42,725		253		(329	)		42,649
State and local government securities due -
After 10 years		54,768		1,682		(353	)		56,097
Mutual funds		773		10		-			783
Total	$	105,034	$	1,987	$	(690	)	$	106,331
December 31, 2015
U.S. Government Sponsored Enterprise (GSE) and agency securities due -
After 1 year but within 5 years	$	2,135	$	-	$	(21	)	$	2,114
Asset-backed securities issued by the Small Business Administration (SBA)		16,974		187		(17	)		17,144
Residential mortgage-backed securities issued by GSEs (1)		51,726		29		(807	)		50,948
State and local government securities due -
After 1 year but within 5 years		682		4		-			686
After 5 years but within 10 years		8,714		222		-			8,936
After 10 years		56,146		835		(12	)		56,969
Mutual funds		760		-		(2	)		758
Total	$	137,137	$	1,277	$	(859	)	$	137,555

(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 September 30, 2016 and December 31, 2015 or during the nine- 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
September 30, 2016
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,013	$	28	$	-	$	1,041
Residential mortgage-backed securities issued by GSEs (1)		253		21		-		274
State and local government securities due -
After 5 years but within 10 years		2,438		215		-		2,653
Total	$	3,704	$	264	$	-	$	3,968
December 31, 2015
U.S. GSE  and agency securities due -
After 1 year but within 5 years	$	1,024	$	46	$	-	$	1,070
Residential mortgage-backed securities issued by GSEs (1)		351		25		-		376
State and local government securities due -
After 5 years but within 10 years		965		89		-		1,054
After 10 years		1,469		117		-		1,586
Total	$	3,809	$	277	$	-	$	4,086

(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 September 30, 2016 and December 31, 2015 or during the nine- 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 September 30, 2016 and December 31, 2015. The total number of securities with unrealized losses at September 30, 2016 and December 31, 2015 were 31 and 34, 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.

	September 30, 2016
	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
Asset-backed SBA	$	517	$	(1	)	$	693	$	(7	)	$	1,210	$	(8	)
Residential mortgage- backed GSE (1)		9,846		(139	)		19,516		(190	)		29,362		(329	)
State and local government		19,330		(353	)		-		-			19,330		(353	)
Total temporarily impaired securities	$	29,693	$	(493	)	$	20,209	$	(197	)	$	49,902	$	(690	)

(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 September 30, 2016 or during the nine-month period then ended.

	December 31, 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	$	1,018	$	(6	)	$	1,096	$	(15	)	$	2,114	$	(21	)
Asset-backed SBA		623		(1	)		1,821		(16	)		2,444		(17	)
Residential mortgage- backed GSE (1)		36,960		(672	)		9,591		(135	)		46,551		(807	)
State and local government		3,721		(5	)		557		(7	)		4,278		(12	)
Mutual funds		760		(2	)		-		-			760		(2	)
Total temporarily impaired securities	$	43,082	$	(686	)	$	13,065	$	(173	)	$	56,147	$	(859	)

(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, 2015 or during the twelve-month period then ended.

Investment Securities Pledged as Collateral

Investment securities pledged as collateral follows:

(Dollars in thousands)	September 30, 2016		December 31, 2015
Pledged to Federal Reserve Discount Window	$	8,791	$	14,533
Pledged to repurchase agreements for commercial customers		919		1,131

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Interest income from taxable securities	$	191	$	231	$	624	$	780
Interest income from tax-exempt securities		365		401		1,080		977
Total interest income from securities	$	556	$	632	$	1,704	$	1,757

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016			2015
Proceeds from sales of securities	$	7,607	$	11,132	$	57,757		$	61,756
Gross realized gains from sales of securities		147		202		1,363			667
Gross realized losses from sales of securities		-		-		(44	)		(266	)

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LOANS RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2016

LOANS RECEIVABLE [Abstract]

Loans Receivable by Segment and Class

Loans receivable by segment and class follow:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Commercial:
Commercial construction and land development	$	28,420		$	38,313
Commercial mortgage		234,464			209,397
Commercial and industrial		23,358			22,878
Total commercial		286,242			270,588
Non-commercial:
Non-commercial construction and land development		17,268			16,587
Residential mortgage		202,553			186,839
Revolving mortgage		66,728			66,258
Consumer		25,515			36,291
Total non-commercial		312,064			305,975
Total loans receivable		598,306			576,563
Less: Deferred loan fees		(371	)		(476	)
Total loans receivable net of deferred loan fees		597,935			576,087
Less: Allowance for loan losses		(6,464	)		(6,289	)
Loans receivable, net	$	591,471		$	569,798

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
September 30, 2016
Commercial:
Commercial construction and land development	$	28,247	$	138	$	35	$	-	$	-	$	28,420
Commercial mortgage		222,746		11,115		603		-		-		234,464
Commercial and industrial		22,353		805		200		-		-		23,358
Total commercial		273,346		12,058		838		-		-		286,242
Non-commercial:
Non-commercial construction and land development		17,268		-		-		-		-		17,268
Residential mortgage		194,826		6,675		1,052		-		-		202,553
Revolving mortgage		63,207		2,968		553		-		-		66,728
Consumer		25,026		392		97		-		-		25,515
Total non-commercial		300,327		10,035		1,702		-		-		312,064
Total loans receivable	$	573,673	$	22,093	$	2,540	$	-	$	-	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	38,168	$	145	$	-	$	-	$	-	$	38,313
Commercial mortgage		195,551		12,412		1,434		-		-		209,397
Commercial and industrial		21,709		942		227		-		-		22,878
Total commercial		255,428		13,499		1,661		-		-		270,588
Non-commercial:
Non-commercial construction and land development		16,587		-		-		-		-		16,587
Residential mortgage		178,403		6,674		1,762		-		-		186,839
Revolving mortgage		62,922		2,812		524		-		-		66,258
Consumer		35,847		415		29		-		-		36,291
Total non-commercial		293,759		9,901		2,315		-		-		305,975
Total loans receivable	$	549,187	$	23,400	$	3,976	$	-	$	-	$	576,563

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
September 30, 2016
Commercial:
Commercial construction and land development	$	-	$	35	$	35	$	28,385	$	28,420
Commercial mortgage		-		-		-		234,464		234,464
Commercial and industrial		-		68		68		23,290		23,358
Total commercial		-		103		103		286,139		286,242
Non-commercial:
Non-commercial construction and land development		-		-		-		17,268		17,268
Residential mortgage		603		520		1,123		201,430		202,553
Revolving mortgage		201		145		346		66,382		66,728
Consumer		166		-		166		25,349		25,515
Total non-commercial		970		665		1,635		310,429		312,064
Total loans receivable	$	970	$	768	$	1,738	$	596,568	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	-	$	-	$	-	$	38,313	$	38,313
Commercial mortgage		-		496		496		208,901		209,397
Commercial and industrial		-		87		87		22,791		22,878
Total commercial		-		583		583		270,005		270,588
Non-commercial:
Non-commercial construction and land development		-		-		-		16,587		16,587
Residential mortgage		685		1,193		1,878		184,961		186,839
Revolving mortgage		104		98		202		66,056		66,258
Consumer		151		-		151		36,140		36,291
Total non-commercial		940		1,291		2,231		303,744		305,975
Total loans receivable	$	940	$	1,874	$	2,814	$	573,749	$	576,563

Recorded Investment in Loans by Segment and Class Not Accruing Interest or 90 Days or More Past Due and Still 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:

	September 30, 2016				December 31, 2015
(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 construction and land development	$	35	$	-	$	-	$	-
Commercial mortgage		-		-		818		-
Commercial and industrial		200		-		227		-
Total commercial		235		-		1,045		-
Non-commercial:
Residential mortgage		731		-		1,309		-
Revolving mortgage		229		-		194		-
Consumer		42		-		-		-
Total non-commercial		1,002		-		1,503		-
Total loans receivable	$	1,237	$	-	$	2,548	$	-

Loans Made to Directors and Executive Officers

Loans made to directors and executive officers in the ordinary course of business with terms consistent with those offered to the Bank’s other customers follow:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Director and executive officer loans, beginning of period	$	3,530		$	4,022
New loans		181			718
Repayments of loans		(309	)		(1,210	)
Director and executive officer loans, end of period	$	3,402		$	3,530

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ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2016

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 September 30, 2016									Nine Months Ended September 30, 2016
				Non-									Non-
(Dollars in thousands)	Commercial			Commercial			Total			Commercial			Commercial			Total
Balance at beginning of period	$	3,986		$	2,597		$	6,583		$	3,710		$	2,579		$	6,289
Provision for (recovery of) loan losses		(109	)		17			(92	)		381			30			411
Charge-offs		(3	)		(40	)		(43	)		(227	)		(84	)		(311	)
Recoveries		5			11			16			15			60			75
Balance at end of period	$	3,879		$	2,585		$	6,464		$	3,879		$	2,585		$	6,464
	Three Months Ended September 30, 2015									Nine Months Ended September 30, 2015
				Non-									Non-
(Dollars in thousands)	Commercial			Commercial			Total			Commercial			Commercial			Total
Balance at beginning of period	$	3,528		$	2,596		$	6,124		$	3,409		$	2,540		$	5,949
Provision for (recovery of) loan losses		204			(13	)		191			296			154			450
Charge-offs		-			(46	)		(46	)		(79	)		(356	)		(435	)
Recoveries		4			24			28			110			223			333
Balance at end of period	$	3,736		$	2,561		$	6,297		$	3,736		$	2,561		$	6,297

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
September 30, 2016
Commercial:
Commercial construction and land development	$	-	$	277	$	277	$	35	$	28,385	$	28,420
Commercial mortgage		13		3,293		3,306		2,919		231,545		234,464
Commercial and industrial		8		288		296		205		23,153		23,358
Total commercial		21		3,858		3,879		3,159		283,083		286,242
Non-commercial:
Non-commercial construction and land development		-		134		134		-		17,268		17,268
Residential mortgage		29		1,301		1,330		2,363		200,190		202,553
Revolving mortgage		84		766		850		135		66,593		66,728
Consumer		-		271		271		-		25,515		25,515
Total non-commercial		113		2,472		2,585		2,498		309,566		312,064
Total loans receivable	$	134	$	6,330	$	6,464	$	5,657	$	592,649	$	598,306
December 31, 2015
Commercial:
Commercial construction and land development	$	-	$	385	$	385	$	-	$	38,313	$	38,313
Commercial mortgage		39		2,982		3,021		3,811		205,586		209,397
Commercial and industrial		13		291		304		252		22,626		22,878
Total commercial		52		3,658		3,710		4,063		266,525		270,588
Non-commercial:
Non-commercial construction and land development		-		139		139		-		16,587		16,587
Residential mortgage		42		1,140		1,182		2,895		183,944		186,839
Revolving mortgage		86		788		874		97		66,161		66,258
Consumer		-		384		384		-		36,291		36,291
Total non-commercial		128		2,451		2,579		2,992		302,983		305,975
Total loans receivable	$	180	$	6,109	$	6,289	$	7,055	$	569,508	$	576,563

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
September 30, 2016
Commercial:
Commercial construction and land development	$	35	$	-	$	35	$	35	$	-
Commercial mortgage		2,919		2,919		-		2,919		13
Commercial and industrial		703		133		72		205		8
Total commercial		3,657		3,052		107		3,159		21
Non-commercial:
Residential mortgage		2,366		1,142		1,220		2,362		29
Revolving mortgage		145		84		52		136		84
Total non-commercial		2,511		1,226		1,272		2,498		113
Total impaired loans	$	6,168	$	4,278	$	1,379	$	5,657	$	134
December 31, 2015
Commercial:
Commercial mortgage	$	3,934	$	3,315	$	496	$	3,811	$	39
Commercial and industrial		722		140		112		252		13
Total commercial		4,656		3,455		608		4,063		52
Non-commercial:
Residential mortgage		2,965		2,125		770		2,895		42
Revolving mortgage		107		86		11		97		86
Total non-commercial		3,072		2,211		781		2,992		128
Total impaired loans	$	7,728	$	5,666	$	1,389	$	7,055	$	180

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 September 30, 2016				Three Months Ended September 30, 2015
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest
							Income
							Recognized
Commercial:
Commercial construction and land development	$	16	$	-	$	-	$	-
Commercial mortgage		3,182		198		3,847		33
Commercial and industrial		210		-		274		-
Total commercial		3,408		198		4,121		33
Non-commercial:
Residential mortgage		2,965		14		3,304		19
Revolving mortgage		101		-		155		1
Total non-commercial		3,066		14		3,459		20
Total loans receivable	$	6,474	$	212	$	7,580	$	53

	Nine Months Ended September 30, 2016				Nine Months Ended September 30, 2015
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial construction and land development	$	89	$	-	$	-	$	-
Commercial mortgage		3,392		262		3,898		99
Commercial and industrial		227		-		306		1
Total commercial		3,708		262		4,204		100
Non-commercial:
Residential mortgage		2,949		42		3,195		61
Revolving mortgage		93		-		271		1
Total non-commercial		3,042		42		3,466		62
Total loans receivable	$	6,750	$	304	$	7,670	$	162

Summary of Recorded Investment in TDRs

The following table summarizes the Bank’s recorded investment in TDRs before and after their modifications during the periods indicated.  No loans were restructured during the three months or nine months ended September 30, 2016.  The Bank reduced the interest rate below market levels on one loan during the three months ended September 30, 2015. The Bank reduced the interest rate below market levels on two loans and extended payment terms on one loan during the nine months ended September 30, 2015.

	Three Months Ended September 30, 2016						Three Months Ended September 30, 2015
(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
Non-commercial:
Residential mortgage		-	$	-	$	-		1	$	45	$	45
Total non-commercial		-		-		-		1		45		45
Total loans modified with below market interest rate		-		-		-		1		45		45
Total loans modified		-	$	-	$	-		1	$	45	$	45

	Nine Months Ended September 30, 2016						Nine Months Ended September 30, 2015
(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 and industrial		-	$	-	$	-		1	$	153	$	153
Total commercial		-		-		-		1		153		153
Non-commercial:
Residential mortgage		-		-		-		1		45		45
Total non-commercial		-		-		-		1		45		45
Total loans modified with below market interest rate		-		-		-		2		198		198
Extended payment terms
Non-commercial:
Residential mortgage		-		-		-		1		29		42
Total non-commercial		-		-		-		1		29		42
Total loans modified with extended payment terms		-		-		-		1		29		42
Total loans modified		-	$	-	$	-		3	$	227	$	240

Loans That Were Considered to Be TDRs

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

(Dollars in thousands)	September 30, 2016		December 31, 2015
Nonperforming restructured loans	$	146	$	979
Performing restructured loans		4,433		4,552
Total	$	4,579	$	5,531

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BENEFIT PLANS (Tables)

9 Months Ended

Sep. 30, 2016

BENEFIT PLANS [Abstract]

Net Periodic Benefit Cost Related to Defined Benefit Plans

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Non-Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs:
Interest cost	$	14	$	14	$	42	$	41
Amortization of net loss		12		14		35		43
Net periodic pension cost	$	26	$	28	$	77	$	84

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Qualified Defined Benefit Plan
Components of Net Periodic Benefit Costs:
Interest cost	$	236		$	247		$	708		$	742
Expected return on plan assets		(201	)		(236	)		(602	)		(708	)
Amortization of net loss		162			180			486			540
Net periodic pension cost	$	197		$	191		$	592		$	574

Employee Stock Ownership Plan

Shares held by the ESOP include the following:

	September 30, 2016
Allocated ESOP shares, December 31, 2015		118,694
ESOP shares committed to be released during the period		23,497
ESOP shares withdrawn during the period		(6,417	)
Unallocated ESOP shares		290,369
Total ESOP shares		426,143
Fair value of unallocated ESOP shares (dollars in thousands)	$	7,622

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
ESOP expense	$	197	$	177	$	584	$	500

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, 2015		121,610		$	15.75
Vested and released to participants		(40,297	)		15.74
Unvested restricted shares at September 30, 2016		81,313		$	15.76

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, 2015		60,355		450,500		$	16.03		7.24	$	4,473
Exercised		-		(5,000	)		15.71
Outstanding at September 30, 2016		60,355		445,500		$	16.03		6.49	$	4,552
Options exercisable at September 30, 2016				252,600		$	15.91		6.44	$	2,612

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2016

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)	September 30, 2016		December 31, 2015
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit	$	202,378	$	171,339
Commitments under standby letters of credit		602		120
Total	$	202,980	$	171,459

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2016

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
September 30, 2016
Financial assets:
Cash and cash equivalents	$	44,752	$	-	$	-	$	44,752	$	44,752
Securities available for sale		783		105,548		-		106,331		106,331
Securities held to maturity		-		3,968		-		3,968		3,704
Investments in FHLB stock		-		-		2,829		2,829		2,829
Loans held for sale		-		7,272		-		7,272		7,091
Loans receivable, net		-		-		591,094		591,094		591,471
Accrued interest receivable		-		-		2,130		2,130		2,130
Deferred compensation assets		1,380		-		-		1,380		1,380
Financial liabilities:
Demand deposits		-		-		510,842		510,842		510,842
Time deposits		-		-		131,313		131,313		131,761
Repurchase agreements		-		-		201		201		201
Federal Home Loan Bank Advances		-		-		51,155		51,155		50,000
Deferred compensation liabilities		1,385		-		-		1,385		1,385
Accrued interest payable		-		-		123		123		123
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, 2015
Financial assets:
Cash and cash equivalents	$	33,401	$	-	$	-	$	33,401	$	33,401
Securities available for sale		758		136,797		-		137,555		137,555
Securities held to maturity		-		4,086		-		4,086		3,809
Investments in FHLB stock		-		-		2,807		2,807		2,807
Loans held for sale		-		7,169		-		7,169		7,018
Loans receivable, net		-		-		572,286		572,286		569,798
Accrued interest receivable		-		-		2,456		2,456		2,456
Deferred compensation assets		1,359		-		-		1,359		1,359
Financial liabilities:
Demand deposits		-		-		495,628		495,628		495,628
Time deposits		-		-		135,212		135,212		135,276
Repurchase agreements		-		-		324		324		327
Federal Home Loan Bank Advances		-		-		52,116		52,116		50,000
Deferred compensation liabilities		1,365		-		-		1,365		1,365
Accrued interest payable		-		-		121		121		121
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 nine months ended September 30, 2016 and September 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
September 30, 2016
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,117	$	-	$	2,117	$	2,117
Asset-backed SBA securities		-		4,685		-		4,685		4,685
Residential mortgage-backed securities issued by GSEs		-		42,649		-		42,649		42,649
State and local government securities		-		56,097		-		56,097		56,097
Mutual funds		783		-		-		783		783
Total	$	783	$	105,548	$	-	$	106,331	$	106,331
Defined benefit plan assets:
Cash and cash equivalents	$	5,141	$	-	$	-
Money market mutual funds		2,273		-		-
Debt security mutual funds		14,431		-		-
Total	$	21,845	$	-	$	-
December 31, 2015
Securities available for sale:
U.S. GSE and agency securities	$	-	$	2,114	$	-	$	2,114	$	2,114
Asset-backed SBA securities		-		17,144		-		17,144		17,144
Residential mortgage-backed securities issued by GSEs		-		50,948		-		50,948		50,948
State and local government securities		-		66,591		-		66,591		66,591
Mutual funds		758		-		-		758		758
Total	$	758	$	136,797	$	-	$	137,555	$	137,555
Defined benefit plan assets:
Cash and cash equivalents	$	652	$	-	$	-
Money market mutual funds		145		-		-
Debt security mutual funds		12,089		-		-
Equity security mutual funds		3,231		-		-
Defined benefit plan liabilities:
Administrative Fees		8		-		-
Total	$	16,109	$	-	$	-

Assets Recorded at Fair Value on 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
Description	Level 1		Level 2		Level 3		Carrying Amount In Balance Sheets (1)		Assets/ Liabilities Measured At Fair Value (1)
September 30, 2016
Impaired loans	$	-	$	-	$	600	$	600	$	600
Foreclosed properties		-		-		1,500		1,500		1,500
December 31, 2015
Impaired loans	$	-	$	-	$	1,876	$	1,876	$	1,876
Foreclosed properties		-		-		1,682		1,682		1,682

(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)
September 30, 2016
Impaired loans	$	600	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (23	%)
Foreclosed properties		1,500	Discounted appraisals (2)	Collateral discounts (3)		0%-22% (6	%)
December 31, 2015
Impaired loans	$	1,876	Discounted appraisals (2)	Collateral discounts (3)		0%-36% (21	%)
Foreclosed properties		1,682	Discounted appraisals (2)	Collateral discounts (3)		0%-22% (5	%)

(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 (Details)	Sep. 30, 2016 Subsidiary
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Number of wholly owned subsidiaries	2

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Allowance for Loan Losses (Details)	9 Months Ended
	Sep. 30, 2016 Methodology
Allowance for Loan Losses [Abstract]
Number of allowance methodologies used to determine whether or not a loan is considered to be impaired	2
Period of average historical losses used in determining estimated loss percentage of loans	3 years
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
Consumer Loans [Member] | Closed-End Consumer Loans [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 Loans [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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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		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	[1]			$ 89,682
OCI before reclassification		$ (836)	$ 662	1,063	$ (89)
Amount reclassified		17	(5)	(506)	115
Net OCI		(819)	657	557	26
Ending balance		91,343		91,343
Accumulated Other Comprehensive Income (Loss), Net of Tax [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance		(3,685)	(6,433)	(5,061)	(5,802)
Net OCI				557
Ending balance		(4,504)	(5,776)	(4,504)	(5,776)
Unrealized Gain (Loss) on Securities [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance		1,641	(507)	265	124
OCI before reclassification		(726)	784	1,393	277
Amount reclassified		(93)	(127)	(836)	(251)
Net OCI		(819)	657	557	26
Ending balance		822	150	822	150
Benefit Plan Liability [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance		(5,326)	(5,926)	(5,326)	(5,926)
OCI before reclassification		(110)	(122)	(330)	(366)
Amount reclassified		110	122	330	366
Net OCI		0	0	0	0
Ending balance		$ (5,326)	$ (5,926)	$ (5,326)	$ (5,926)

[1] Derived from audited consolidated financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Reclassifications of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale of investment securities	$ (147)	$ (202)	$ (1,319)	$ (401)
Salaries and employee benefits	3,314	3,383	9,898	10,071
Income tax provision	907	496	2,448	1,248
Net of tax	(1,725)	(1,142)	(4,542)	(2,629)
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	(147)	(202)	(1,319)	(401)
Income tax provision	54	75	483	150
Net of tax	(93)	(127)	(836)	(251)
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	174	194	521	583
Income tax provision	(64)	(72)	(191)	(217)
Net of tax	$ 110	$ 122	$ 330	$ 366

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Pension Plan (Details)	9 Months Ended
	Sep. 30, 2016 Plan
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Number of noncontributory pension plans	2

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Employee Stock Ownership Plan ("ESOP") and Equity Incentive Plan (Details) - shares	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
2012 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares granted (in shares)	0	0
Employee Stock Ownership Plan [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
ESOP minimum annual service hours required	1000 hours
Period used in determination of service hours of full-time employees for participation in ESOP	12 months
ESOP minimum age required to participate	21 years
Annual vesting rate	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, Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerator [Abstract]
Net income	$ 1,725	$ 1,142	$ 4,542	$ 2,629
Denominator [Abstract]
Weighted average common shares outstanding (in shares)	3,798,424	4,394,787	3,922,817	4,383,930
Less: Weighted average unvested restricted shares (in shares)	(81,313)	(121,610)	(86,571)	(126,884)
Less: Weighted average unallocated ESOP shares (in shares)	(294,313)	(325,732)	(302,117)	(333,515)
Weighted average common shares used to compute net income per common share - Basic (in shares)	3,422,798	3,947,445	3,534,129	3,923,531
Add: Effect of dilutive securities (in shares)	151,139	131,584	144,456	101,900
Weighted average common shares used to compute net income per common share - Diluted (in shares)	3,573,937	4,079,029	3,678,585	4,025,431
Net income per common share - Basic (in dollars per share)	$ 0.51	$ 0.29	$ 1.29	$ 0.67
Net income per common share - Diluted (in dollars per share)	$ 0.48	$ 0.28	$ 1.23	$ 0.65
Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the computation of diluted net income per share (in shares)	0	1,178	0	3,916
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the computation of diluted net income per share (in shares)	0	0	0	0

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INVESTMENT SECURITIES, Securities Available For Sale (Details) - USD ($) $ in Thousands		Sep. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		$ 105,034	$ 137,137	[1]
Unrealized gains		1,987	1,277
Unrealized losses		(690)	(859)
Fair value		106,331	137,555	[1]
U.S. Government Sponsored Enterprise (GSE) and Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
After 1 year but within 5 years, amortized cost		2,106	2,135
After 1 year but within 5 years, unrealized gains		11	0
After 1 year but within 5 years, unrealized losses		0	(21)
After 1 year but within 5 years, fair value		2,117	2,114
Asset-backed Securities Issued by the Small Business Administration (SBA) [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		4,662	16,974
Unrealized gains		31	187
Unrealized losses		(8)	(17)
Fair value		4,685	17,144
Residential Mortgage-backed Securities Issued by GSEs [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	[2]	42,725	51,726
Unrealized gains	[2]	253	29
Unrealized losses	[2]	(329)	(807)
Fair value	[2]	42,649	50,948
State and Local Government Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
After 1 year but within 5 years, amortized cost			682
After 1 year but within 5 years, unrealized gains			4
After 1 year but within 5 years, unrealized losses			0
After 1 year but within 5 years, fair value			686
After 5 years but within 10 years, amortized cost			8,714
After 5 years but within 10 years, unrealized gains			222
After 5 years but within 10 years, unrealized losses			0
After 5 years but within 10 years, fair value			8,936
After 10 years, amortized cost		54,768	56,146
After 10 years, unrealized gains		1,682	835
After 10 years, unrealized losses		(353)	(12)
After 10 years, fair value		56,097	56,969
Mutual Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		773	760
Unrealized gains		10	0
Unrealized losses		0	(2)
Fair value		$ 783	$ 758

[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 September 30, 2016 and December 31, 2015 or during the nine- and twelve-month periods, respectively, then ended.

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INVESTMENT SECURITIES, Securities Held to Maturity (Details) - USD ($) $ in Thousands		Sep. 30, 2016	Dec. 31, 2015
Schedule of Held-to-maturity Securities [Line Items]
Amortized cost		$ 3,704	$ 3,809	[1]
Unrealized gains		264	277
Unrealized losses		0	0
Fair value		3,968	4,086	[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		1,013	1,024
After 1 year but within 5 years, unrealized gains		28	46
After 1 year but within 5 years, unrealized losses		0	0
After 1 year but within 5 years, fair value		1,041	1,070
Residential Mortgage-backed Securities Issued by GSEs [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized cost	[2]	253	351
Unrealized gains	[2]	21	25
Unrealized losses	[2]	0	0
Fair value	[2]	274	376
State and Local Government Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
After 5 years but within 10 years, amortized cost		2,438	965
After 5 years but within 10 years, unrealized gains		215	89
After 5 years but within 10 years, unrealized losses		0	0
After 5 years but within 10 years, fair value		$ 2,653	1,054
After 10 years, amortized cost			1,469
After 10 years, unrealized gains			117
After 10 years, unrealized losses			0
After 10 years, fair value			$ 1,586

[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 September 30, 2016 and December 31, 2015 or during the nine- and twelve-month periods, respectively, then ended.

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INVESTMENT SECURITIES, Investment Gross Unrealized Losses and Fair Value (Details) $ in Thousands	Sep. 30, 2016 USD ($) Security		Dec. 31, 2015 USD ($) Security
Securities available for sale in continuous unrealized loss position [Abstract]
Total number of securities with unrealized losses | Security	31		34
U.S. GSE and Agency Securities [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value			$ 1,018
Less than 12 months, unrealized losses			(6)
12 months or more, fair value			1,096
12 months or more, unrealized losses			(15)
Total, fair value			2,114
Total, unrealized losses			(21)
Asset-backed SBA Securities [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	$ 517		623
Less than 12 months, unrealized losses	(1)		(1)
12 months or more, fair value	693		1,821
12 months or more, unrealized losses	(7)		(16)
Total, fair value	1,210		2,444
Total, unrealized losses	(8)		(17)
Residential Mortgage-backed GSE [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	9,846	[1]	36,960	[2]
Less than 12 months, unrealized losses	(139)	[1]	(672)	[2]
12 months or more, fair value	19,516	[1]	9,591	[2]
12 months or more, unrealized losses	(190)	[1]	(135)	[2]
Total, fair value	29,362	[1]	46,551	[2]
Total, unrealized losses	(329)	[1]	(807)	[2]
State and Local Government Securities [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	19,330		3,721
Less than 12 months, unrealized losses	(353)		(5)
12 months or more, fair value	0		557
12 months or more, unrealized losses	0		(7)
Total, fair value	19,330		4,278
Total, unrealized losses	(353)		(12)
Mutual Funds [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value			760
Less than 12 months, unrealized losses			(2)
12 months or more, fair value			0
12 months or more, unrealized losses			0
Total, fair value			760
Total, unrealized losses			(2)
Temporarily Impaired Securities Available for Sale [Member]
Securities available for sale in continuous unrealized loss position [Abstract]
Less than 12 months, fair value	29,693		43,082
Less than 12 months, unrealized losses	(493)		(686)
12 months or more, fair value	20,209		13,065
12 months or more, unrealized losses	(197)		(173)
Total, fair value	49,902		56,147
Total, unrealized losses	$ (690)		$ (859)

[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 September 30, 2016 or during the nine-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, 2015 or during the twelve-month period then ended.

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INVESTMENT SECURITIES, Investment Securities Pledged as Collateral (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair value of investment securities pledged as collateral [Abstract]
Pledged to Federal Reserve Discount Window	$ 8,791	$ 14,533
Pledged to repurchase agreements for commercial customers	$ 919	$ 1,131

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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		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Interest income from taxable and tax-exempt securities recognized in interest and dividend income [Abstract]
Interest income from taxable securities	$ 191	$ 231	$ 624	$ 780
Interest income from tax-exempt securities	365	401	1,080	977
Total interest income from securities	$ 556	$ 632	$ 1,704	$ 1,757

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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		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Proceeds and gross realized gains from sales of securities recognized in net income [Abstract]
Proceeds from sales of securities	$ 7,607	$ 11,132	$ 57,757	$ 61,756
Gross realized gains from sales of securities	147	202	1,363	667
Gross realized losses from sales of securities	$ 0	$ 0	$ (44)	$ (266)

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LOANS RECEIVABLE, by Segment and Class (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015		Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	$ 598,306		$ 576,563
Less: Deferred loan fees	(371)		(476)	[1]
Total loans receivable net of deferred loan fees	597,935		576,087	[1]
Less: Allowance for loan losses	(6,464)	$ (6,583)	(6,289)	[1]	$ (6,297)	$ (6,124)	$ (5,949)
Loans receivable, net	591,471		569,798	[1]
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	286,242		270,588
Less: Allowance for loan losses	(3,879)	(3,986)	(3,710)		(3,736)	(3,528)	(3,409)
Commercial [Member] | Commercial Construction and Land Development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	28,420		38,313
Less: Allowance for loan losses	(277)		(385)
Commercial [Member] | Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	234,464		209,397
Less: Allowance for loan losses	(3,306)		(3,021)
Commercial [Member] | Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	23,358		22,878
Less: Allowance for loan losses	(296)		(304)
Non-Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	312,064		305,975
Less: Allowance for loan losses	(2,585)	$ (2,597)	(2,579)		$ (2,561)	$ (2,596)	$ (2,540)
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	17,268		16,587
Less: Allowance for loan losses	(134)		(139)
Non-Commercial [Member] | Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	202,553		186,839
Less: Allowance for loan losses	(1,330)		(1,182)
Non-Commercial [Member] | Revolving Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	66,728		66,258
Less: Allowance for loan losses	(850)		(874)
Non-Commercial [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	25,515		36,291
Less: Allowance for loan losses	$ (271)		$ (384)

[1] Derived from audited consolidated financial statements.

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LOANS RECEIVABLE, by Segment, Class, and Grade (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	$ 598,306	$ 576,563
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	573,673	549,187
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	22,093	23,400
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	2,540	3,976
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	286,242	270,588
Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	273,346	255,428
Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	12,058	13,499
Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	838	1,661
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	28,420	38,313
Commercial [Member] | Commercial Construction and Land Development [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	28,247	38,168
Commercial [Member] | Commercial Construction and Land Development [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	138	145
Commercial [Member] | Commercial Construction and Land Development [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	35	0
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	234,464	209,397
Commercial [Member] | Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	222,746	195,551
Commercial [Member] | Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	11,115	12,412
Commercial [Member] | Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	603	1,434
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	23,358	22,878
Commercial [Member] | Commercial and Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	22,353	21,709
Commercial [Member] | Commercial and Industrial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	805	942
Commercial [Member] | Commercial and Industrial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	200	227
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	312,064	305,975
Non-Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	300,327	293,759
Non-Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	10,035	9,901
Non-Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	1,702	2,315
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	17,268	16,587
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	17,268	16,587
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	202,553	186,839
Non-Commercial [Member] | Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	194,826	178,403
Non-Commercial [Member] | Residential Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	6,675	6,674
Non-Commercial [Member] | Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	1,052	1,762
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	66,728	66,258
Non-Commercial [Member] | Revolving Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	63,207	62,922
Non-Commercial [Member] | Revolving Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	2,968	2,812
Non-Commercial [Member] | Revolving Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	553	524
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	25,515	36,291
Non-Commercial [Member] | Consumer [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	25,026	35,847
Non-Commercial [Member] | Consumer [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	392	415
Non-Commercial [Member] | Consumer [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans receivable	97	29
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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LOANS RECEIVABLE, by Segment, Class, and Delinquency (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	$ 1,738	$ 2,814
Current	596,568	573,749
Total loans receivable	598,306	576,563
Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	970	940
Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	768	1,874
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	103	583
Current	286,139	270,005
Total loans receivable	286,242	270,588
Commercial [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Commercial [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	103	583
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	35	0
Current	28,385	38,313
Total loans receivable	28,420	38,313
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	35	0
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	496
Current	234,464	208,901
Total loans receivable	234,464	209,397
Commercial [Member] | Commercial Mortgage [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Commercial [Member] | Commercial Mortgage [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	496
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	68	87
Current	23,290	22,791
Total loans receivable	23,358	22,878
Commercial [Member] | Commercial and Industrial [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Commercial [Member] | Commercial and Industrial [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	68	87
Non-Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,635	2,231
Current	310,429	303,744
Total loans receivable	312,064	305,975
Non-Commercial [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	970	940
Non-Commercial [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	665	1,291
Non-Commercial [Member] | Non-Commercial Construction and Land Development [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Current	17,268	16,587
Total loans receivable	17,268	16,587
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	1,123	1,878
Current	201,430	184,961
Total loans receivable	202,553	186,839
Non-Commercial [Member] | Residential Mortgage [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	603	685
Non-Commercial [Member] | Residential Mortgage [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	520	1,193
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	346	202
Current	66,382	66,056
Total loans receivable	66,728	66,258
Non-Commercial [Member] | Revolving Mortgage [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	201	104
Non-Commercial [Member] | Revolving Mortgage [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	145	98
Non-Commercial [Member] | Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	166	151
Current	25,349	36,140
Total loans receivable	25,515	36,291
Non-Commercial [Member] | Consumer [Member] | Past Due 31-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	166	151
Non-Commercial [Member] | Consumer [Member] | Past Due 90 Days or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	$ 0	$ 0

XML

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	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccruing	$ 1,237	$ 2,548
Past due 90 days or more and still accruing	0	0
Loans serviced for Habitat for Humanity of Western North Carolina	16,500	15,800
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccruing	235	1,045
Past due 90 days or more and still accruing	0	0
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccruing	35	0
Past due 90 days or more and still accruing	0	0
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccruing	0	818
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]
Nonaccruing	200	227
Past due 90 days or more and still accruing	0	0
Non-Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccruing	1,002	1,503
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]
Nonaccruing	731	1,309
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]
Nonaccruing	229	194
Past due 90 days or more and still accruing	0	0
Non-Commercial [Member] | Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccruing	42	0
Past due 90 days or more and still accruing	$ 0	$ 0

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LOANS RECEIVABLE, Loans Made to Related Parties (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Loans made to directors and executive officers [Roll Forward]
Director and executive officer loans, beginning of period	$ 3,530	$ 4,022
New loans	181	718
Repayments of loans	(309)	(1,210)
Director and executive officer loans, end of period	$ 3,402	$ 3,530

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ALLOWANCE FOR LOAN LOSSES, Analysis of Allowance for Loan Losses by Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016		Sep. 30, 2015
Analysis of allowance for loan losses by segment [Roll Forward]
Balance at beginning of period	$ 6,583	$ 6,124	$ 6,289	[1]	$ 5,949
Provision for (recovery of) loan losses	(92)	191	411		450
Charge-offs	(43)	(46)	(311)		(435)
Recoveries	16	28	75		333
Balance at end of period	6,464	6,297	6,464		6,297
Commercial [Member]
Analysis of allowance for loan losses by segment [Roll Forward]
Balance at beginning of period	3,986	3,528	3,710		3,409
Provision for (recovery of) loan losses	(109)	204	381		296
Charge-offs	(3)	0	(227)		(79)
Recoveries	5	4	15		110
Balance at end of period	3,879	3,736	3,879		3,736
Non-Commercial [Member]
Analysis of allowance for loan losses by segment [Roll Forward]
Balance at beginning of period	2,597	2,596	2,579		2,540
Provision for (recovery of) loan losses	17	(13)	30		154
Charge-offs	(40)	(46)	(84)		(356)
Recoveries	11	24	60		223
Balance at end of period	$ 2,585	$ 2,561	$ 2,585		$ 2,561

[1] Derived from audited consolidated financial statements.

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ALLOWANCE FOR LOAN LOSSES, Ending Balances of Loans and Related Allowance by Segment and Class (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015		Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, loans individually evaluated for impairment	$ 134		$ 180
Allowance for loan losses, loans collectively evaluated	6,330		6,109
Allowance for loan losses, total	6,464	$ 6,583	6,289	[1]	$ 6,297	$ 6,124	$ 5,949
Total loans receivable, loans individually evaluated for impairment	5,657		7,055
Total loans receivable, loans collectively evaluated	592,649		569,508
Total loans receivable	598,306		576,563
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, loans individually evaluated for impairment	21		52
Allowance for loan losses, loans collectively evaluated	3,858		3,658
Allowance for loan losses, total	3,879	3,986	3,710		3,736	3,528	3,409
Total loans receivable, loans individually evaluated for impairment	3,159		4,063
Total loans receivable, loans collectively evaluated	283,083		266,525
Total loans receivable	286,242		270,588
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	277		385
Allowance for loan losses, total	277		385
Total loans receivable, loans individually evaluated for impairment	35		0
Total loans receivable, loans collectively evaluated	28,385		38,313
Total loans receivable	28,420		38,313
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, loans individually evaluated for impairment	13		39
Allowance for loan losses, loans collectively evaluated	3,293		2,982
Allowance for loan losses, total	3,306		3,021
Total loans receivable, loans individually evaluated for impairment	2,919		3,811
Total loans receivable, loans collectively evaluated	231,545		205,586
Total loans receivable	234,464		209,397
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, loans individually evaluated for impairment	8		13
Allowance for loan losses, loans collectively evaluated	288		291
Allowance for loan losses, total	296		304
Total loans receivable, loans individually evaluated for impairment	205		252
Total loans receivable, loans collectively evaluated	23,153		22,626
Total loans receivable	23,358		22,878
Non-Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, loans individually evaluated for impairment	113		128
Allowance for loan losses, loans collectively evaluated	2,472		2,451
Allowance for loan losses, total	2,585	$ 2,597	2,579		$ 2,561	$ 2,596	$ 2,540
Total loans receivable, loans individually evaluated for impairment	2,498		2,992
Total loans receivable, loans collectively evaluated	309,566		302,983
Total loans receivable	312,064		305,975
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	134		139
Allowance for loan losses, total	134		139
Total loans receivable, loans individually evaluated for impairment	0		0
Total loans receivable, loans collectively evaluated	17,268		16,587
Total loans receivable	17,268		16,587
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, loans individually evaluated for impairment	29		42
Allowance for loan losses, loans collectively evaluated	1,301		1,140
Allowance for loan losses, total	1,330		1,182
Total loans receivable, loans individually evaluated for impairment	2,363		2,895
Total loans receivable, loans collectively evaluated	200,190		183,944
Total loans receivable	202,553		186,839
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, loans individually evaluated for impairment	84		86
Allowance for loan losses, loans collectively evaluated	766		788
Allowance for loan losses, total	850		874
Total loans receivable, loans individually evaluated for impairment	135		97
Total loans receivable, loans collectively evaluated	66,593		66,161
Total loans receivable	66,728		66,258
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	271		384
Allowance for loan losses, total	271		384
Total loans receivable, loans individually evaluated for impairment	0		0
Total loans receivable, loans collectively evaluated	25,515		36,291
Total loans receivable	$ 25,515		$ 36,291

[1] Derived from audited consolidated financial statements.

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ALLOWANCE FOR LOAN LOSSES, Impaired Loans and Related Allowance by Segment and Class (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 6,168	$ 7,728
Recorded investment, with a recorded allowance	4,278	5,666
Recorded investment, with no recorded allowance	1,379	1,389
Recorded investment, total	5,657	7,055
Related recorded allowance	134	180
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	3,657	4,656
Recorded investment, with a recorded allowance	3,052	3,455
Recorded investment, with no recorded allowance	107	608
Recorded investment, total	3,159	4,063
Related recorded allowance	21	52
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	35
Recorded investment, with a recorded allowance	0
Recorded investment, with no recorded allowance	35
Recorded investment, total	35
Related recorded allowance	0
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	2,919	3,934
Recorded investment, with a recorded allowance	2,919	3,315
Recorded investment, with no recorded allowance	0	496
Recorded investment, total	2,919	3,811
Related recorded allowance	13	39
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	703	722
Recorded investment, with a recorded allowance	133	140
Recorded investment, with no recorded allowance	72	112
Recorded investment, total	205	252
Related recorded allowance	8	13
Non-Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	2,511	3,072
Recorded investment, with a recorded allowance	1,226	2,211
Recorded investment, with no recorded allowance	1,272	781
Recorded investment, total	2,498	2,992
Related recorded allowance	113	128
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	2,366	2,965
Recorded investment, with a recorded allowance	1,142	2,125
Recorded investment, with no recorded allowance	1,220	770
Recorded investment, total	2,362	2,895
Related recorded allowance	29	42
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	145	107
Recorded investment, with a recorded allowance	84	86
Recorded investment, with no recorded allowance	52	11
Recorded investment, total	136	97
Related recorded allowance	$ 84	$ 86

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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		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Financing Receivable, Impaired [Line Items]
Average recorded investment	$ 6,474	$ 7,580	$ 6,750	$ 7,670
Interest income recognized	212	53	304	162
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment	3,408	4,121	3,708	4,204
Interest income recognized	198	33	262	100
Commercial [Member] | Commercial Construction and Land Development [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment	16	0	89	0
Interest income recognized	0	0	0	0
Commercial [Member] | Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment	3,182	3,847	3,392	3,898
Interest income recognized	198	33	262	99
Commercial [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment	210	274	227	306
Interest income recognized	0	0	0	1
Non-Commercial [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment	3,066	3,459	3,042	3,466
Interest income recognized	14	20	42	62
Non-Commercial [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment	2,965	3,304	2,949	3,195
Interest income recognized	14	19	42	61
Non-Commercial [Member] | Revolving Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment	101	155	93	271
Interest income recognized	$ 0	$ 1	$ 0	$ 1

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ALLOWANCE FOR LOAN LOSSES, Summary of Recorded Investment in TDRs (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) Loan	Sep. 30, 2015 USD ($) Loan	Sep. 30, 2016 USD ($) Loan	Sep. 30, 2015 USD ($) Loan
Financing Receivable, Modifications [Line Items]
Number of loans | Loan	0	1	0	3
Pre-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 227
Post-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 240
Loans modified as TDRs within the preceding 12 months that stopped performing during the period | Loan	0	0	0	0
Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan	0	1	0	2
Pre-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 198
Post-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 198
Extended Payment Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan			0	1
Pre-modification outstanding recorded investment			$ 0	$ 29
Post-modification outstanding recorded investment			$ 0	$ 42
Commercial [Member] | Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan			0	1
Pre-modification outstanding recorded investment			$ 0	$ 153
Post-modification outstanding recorded investment			$ 0	$ 153
Commercial [Member] | Commercial and Industrial [Member] | Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan			0	1
Pre-modification outstanding recorded investment			$ 0	$ 153
Post-modification outstanding recorded investment			$ 0	$ 153
Non-Commercial [Member] | Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan	0	1	0	1
Pre-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 45
Post-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 45
Non-Commercial [Member] | Extended Payment Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan			0	1
Pre-modification outstanding recorded investment			$ 0	$ 29
Post-modification outstanding recorded investment			$ 0	$ 42
Non-Commercial [Member] | Residential Mortgage [Member] | Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan	0	1	0	1
Pre-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 45
Post-modification outstanding recorded investment	$ 0	$ 45	$ 0	$ 45
Non-Commercial [Member] | Residential Mortgage [Member] | Extended Payment Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Loan			0	1
Pre-modification outstanding recorded investment			$ 0	$ 29
Post-modification outstanding recorded investment			$ 0	$ 42

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ALLOWANCE FOR LOAN LOSSES, Loans that were Considered to be TDRs (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Modifications [Line Items]
Restructured loans	$ 4,579,000	$ 5,531,000
Residential real estate loans in process of foreclosure	344,000	1,300,000
Foreclosed residential real estate property included in foreclosed real estate	658,000	705,000
Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Restructured loans	146,000	979,000
Performing [Member]
Financing Receivable, Modifications [Line Items]
Restructured loans	$ 4,433,000	$ 4,552,000

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BENEFIT PLANS, Net Periodic Benefit Cost Related to Defined Benefit Plans (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Nov. 01, 2014
Defined Benefit Plan Disclosure [Line Items]
One-time credit from curtailment of benefits for future services							$ 499,000
Aggregate immediate lump sum payments to inactive participants					$ 846,000	$ 544,000
Accrued pension benefit recognized in accumulated other comprehensive income, before tax					8,000,000
Accrued pension benefit recognized in accumulated other comprehensive income, net of tax					$ 5,100,000
Maximum [Member]
Defined Benefit Plan Disclosure [Line Items]
Vested accrued benefits specified for immediate lump sum payments to inactive participants								$ 60,000
Non-Qualified Defined Benefit Plan [Member]
Components of Net Periodic Benefit Costs [Abstract]
Interest cost	$ 14,000	$ 14,000	$ 42,000	$ 41,000
Amortization of net loss	12,000	14,000	35,000	43,000
Net periodic pension cost	26,000	28,000	77,000	84,000
Qualified Defined Benefit Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated annual periodic expense savings from settlement of pension benefit liability before tax			810,000
Estimated annual periodic expense savings from settlement of pension benefit liability, net of tax			$ 513,000
Estimated annual periodic expense savings per share from settlement of pension benefit liability, net of tax (in dollars per share)			$ 0.14
Contribution to the qualified pension plan	4,800,000
Components of Net Periodic Benefit Costs [Abstract]
Interest cost	236,000	247,000	$ 708,000	742,000
Expected return on plan assets	(201,000)	(236,000)	(602,000)	(708,000)
Amortization of net loss	162,000	180,000	486,000	540,000
Net periodic pension cost	$ 197,000	$ 191,000	592,000	$ 574,000
Qualified Defined Benefit Plan [Member] | Minimum [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated one-time settlement charge before income taxes			7,600,000
Estimated one time settlement charge after income taxes			$ 4,800,000
Estimated dilution on earnings per share (in dollars per share)			$ 1.34
Estimated dilution on common equity book value per share (in dollars per share)			$ 0
Qualified Defined Benefit Plan [Member] | Maximum [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated one-time settlement charge before income taxes			$ 7,700,000
Estimated one time settlement charge after income taxes			$ 4,900,000
Estimated dilution on earnings per share (in dollars per share)			$ 1.36
Estimated dilution on common equity book value per share (in dollars per share)			$ 0

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BENEFIT PLANS, Employee Stock Ownership Plan (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Shares held by ESOP [Abstract]
ESOP expense			$ 584,000	$ 500,000
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	3.25%		3.25%
Term of loan			15 years
Shares held by ESOP [Abstract]
Allocated ESOP shares (in shares)					118,694
ESOP shares committed to be released during the period (in shares)	23,497		23,497
ESOP shares withdrawn during the period (in shares)	(6,417)		(6,417)
Unallocated ESOP shares (in shares)	290,369		290,369
Total ESOP shares (in shares)	426,143		426,143
Fair value of unallocated ESOP shares	$ 7,622,000		$ 7,622,000
ESOP expense	$ 197,000	$ 177,000	$ 584,000	$ 500,000

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BENEFIT PLANS, 2012 Equity Incentive Plan (Details) - 2012 Equity Incentive Plan [Member] - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	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	$ 273,000	$ 273,000	$ 802,000	$ 801,000

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BENEFIT PLANS, Restricted Stock Award Activity (Details) - Restricted Stock [Member]	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Restricted Stock Awards, Number of Shares [Roll Forward]
Unvested restricted shares, beginning of period (in shares)	121,610
Vested and released to participants (in shares)	(40,297)
Unvested restricted shares, end of period (in shares)	81,313
Restricted Stock Awards, Weighted Average Grant Date Fair Value [Roll Forward]
Unvested restricted shares, beginning of period (in dollars per share) | $ / shares	$ 15.75
Vested and released to participants (in dollars per share) | $ / shares	15.74
Unvested restricted shares, end of period (in dollars per share) | $ / shares	$ 15.76
Granted (in shares)	0
Forfeited (in shares)	0
Unrecognized compensation expense, adjusted for expected forfeitures | $	$ 815,000
Weighted-average period over which compensation cost related to unvested awards is expected to be recognized	1 year 4 months 20 days

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BENEFIT PLANS, Stock Option Activity (Details) - Stock Option [Member] - USD ($)	9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Stock Options Available for Granting [Roll Forward]
Outstanding, beginning of period (in shares)	60,355
Exercised (in shares)	0
Outstanding, end of period (in shares)	60,355		60,355
Stock Options Outstanding [Roll Forward]
Outstanding, beginning of period (in shares)	450,500
Granted (in shares)	0	0
Exercised (in shares)	(5,000)	(41,000)
Forfeited (in shares)	0	0
Outstanding, end of period (in shares)	445,500		450,500
Options exercisable, end of period (in shares)	252,600
Stock Options Outstanding, Weighted Average Exercise Price [Abstract]
Outstanding, beginning of period (in dollars per share)	$ 16.03
Exercised (in dollars per share)	15.71
Outstanding, end of period (in dollars per share)	16.03		$ 16.03
Options exercisable, end of period (in dollars per share)	$ 15.91
Stock Options Outstanding, Remaining Contractual Life [Abstract]
Outstanding	6 years 5 months 26 days		7 years 2 months 26 days
Options exercisable	6 years 5 months 8 days
Stock Options Outstanding, Aggregate Intrinsic Value [Abstract]
Outstanding, beginning of period	$ 4,473,000
Outstanding, end of period	4,552,000		$ 4,473,000
Options exercisable, end of period	2,612,000
Compensation costs related to unvested stock options [Abstract]
Unrecognized compensation expense	$ 635,000
Weighted-average period over which compensation cost related to unvested awards is expected to be recognized	1 year 7 months 28 days

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COMMITMENTS AND CONTINGENCIES, Commitments to Extend or Originate Credit and Under Standby Letters of Credit (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	$ 202,980	$ 171,459
Commitments to Extend or Originate Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	202,378	171,339
Commitments under Standby Letters of Credit [Member]
Financial instruments whose contract amounts represent credit risk [Abstract]
Commitments	$ 602	$ 120

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COMMITMENTS AND CONTINGENCIES, Concentrations of Credit Risk and Investment Commitments (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Concentration Risk [Line Items]
Investment commitments					$ 2,000,000
Investment	$ 300,000	$ 200,000	$ 250,000	$ 350,000
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	80.00%
Percentage of loan to value of real estate with private mortgage insurance	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	85.00%

XML

FAIR VALUE MEASUREMENTS, Estimated Fair Values and Carrying Amounts of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financial assets [Abstract]
Securities available for sale	$ 106,331	$ 137,555	[1]
Securities held to maturity	3,704	3,809	[1]
Estimated Fair Value [Member]
Financial assets [Abstract]
Cash and cash equivalents	44,752	33,401
Securities available for sale	106,331	137,555
Securities held to maturity	3,968	4,086
Investments in FHLB stock	2,829	2,807
Loans held for sale	7,272	7,169
Loans receivable, net	591,094	572,286
Accrued interest receivable	2,130	2,456
Deferred compensation assets	1,380	1,359
Financial liabilities [Abstract]
Demand deposits	510,842	495,628
Time deposits	131,313	135,212
Repurchase agreements	201	324
Federal Home Loan Bank Advances	51,155	52,116
Deferred compensation liabilities	1,385	1,365
Accrued interest payable	123	121
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	44,752	33,401
Securities available for sale	783	758
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	1,380	1,359
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	1,385	1,365
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	105,548	136,797
Securities held to maturity	3,968	4,086
Investments in FHLB stock	0	0
Loans held for sale	7,272	7,169
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	2,829	2,807
Loans held for sale	0	0
Loans receivable, net	591,094	572,286
Accrued interest receivable	2,130	2,456
Deferred compensation assets	0	0
Financial liabilities [Abstract]
Demand deposits	510,842	495,628
Time deposits	131,313	135,212
Repurchase agreements	201	324
Federal Home Loan Bank Advances	51,155	52,116
Deferred compensation liabilities	0	0
Accrued interest payable	123	121
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	44,752	33,401
Securities available for sale	106,331	137,555
Securities held to maturity	3,704	3,809
Investments in FHLB stock	2,829	2,807
Loans held for sale	7,091	7,018
Loans receivable, net	591,471	569,798
Accrued interest receivable	2,130	2,456
Deferred compensation assets	1,380	1,359
Financial liabilities [Abstract]
Demand deposits	510,842	495,628
Time deposits	131,761	135,276
Repurchase agreements	201	327
Federal Home Loan Bank Advances	50,000	50,000
Deferred compensation liabilities	1,385	1,365
Accrued interest payable	123	121
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

FAIR VALUE MEASUREMENTS, Assets and Liabilities Recorded at Fair Value On a Recurring Basis (Details) - USD ($) $ in Thousands		Sep. 30, 2016	Dec. 31, 2015
Securities available for sale [Abstract]
Securities available for sale		$ 106,331	$ 137,555	[1]
Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		4,685	17,144
Residential Mortgage-backed Securities Issued by GSEs [Member]
Securities available for sale [Abstract]
Securities available for sale	[2]	42,649	50,948
Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		783	758
Assets/ Liabilities Measured at Fair Value [Member]
Securities available for sale [Abstract]
Securities available for sale		106,331	137,555
Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member]
Securities available for sale [Abstract]
Securities available for sale		783	758
Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member]
Securities available for sale [Abstract]
Securities available for sale		105,548	136,797
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 Sheets [Member]
Securities available for sale [Abstract]
Securities available for sale		106,331	137,555
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member]
Securities available for sale [Abstract]
Securities available for sale		106,331	137,555
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		2,117	2,114
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		4,685	17,144
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Residential Mortgage-backed Securities Issued by GSEs [Member]
Securities available for sale [Abstract]
Securities available for sale		42,649	50,948
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		56,097	66,591
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		783	758
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member]
Securities available for sale [Abstract]
Securities available for sale		783	758
Defined benefit plan assets [Abstract]
Defined benefit plan assets		21,845	16,109
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 1 [Member] | Administrative Fees [Member]
Defined benefit plan assets [Abstract]
Defined benefit plan liabilities			8
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]
Defined benefit plan assets		5,141	652
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]
Defined benefit plan assets		2,273	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]
Defined benefit plan assets		14,431	12,089
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]
Defined benefit plan assets			3,231
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 GSEs [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		783	758
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member]
Securities available for sale [Abstract]
Securities available for sale		105,548	136,797
Defined benefit plan assets [Abstract]
Defined benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Administrative Fees [Member]
Defined benefit plan assets [Abstract]
Defined benefit plan liabilities			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]
Defined 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]
Defined 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]
Defined 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]
Defined benefit plan assets			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		2,117	2,114
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		4,685	17,144
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 2 [Member] | Residential Mortgage-backed Securities Issued by GSEs [Member]
Securities available for sale [Abstract]
Securities available for sale		42,649	50,948
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		56,097	66,591
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]
Defined benefit plan assets		0	0
Fair Value, Measurements, Recurring [Member] | Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member] | Administrative Fees [Member]
Defined benefit plan assets [Abstract]
Defined benefit plan liabilities			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]
Defined 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]
Defined 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]
Defined 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]
Defined benefit plan assets			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 GSEs [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 Sheets [Member]
Securities available for sale [Abstract]
Securities available for sale		106,331	137,555
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheets [Member] | U.S. GSE and Agency Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		2,117	2,114
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheets [Member] | Asset-backed SBA Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		4,685	17,144
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheets [Member] | Residential Mortgage-backed Securities Issued by GSEs [Member]
Securities available for sale [Abstract]
Securities available for sale		42,649	50,948
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheets [Member] | State and Local Government Securities [Member]
Securities available for sale [Abstract]
Securities available for sale		56,097	66,591
Fair Value, Measurements, Recurring [Member] | Total Carrying Amount in Balance Sheets [Member] | Mutual Funds [Member]
Securities available for sale [Abstract]
Securities available for sale		$ 783	$ 758

[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 September 30, 2016 and December 31, 2015 or during the nine- and twelve-month periods, respectively, then ended.

XML

FAIR VALUE MEASUREMENTS, Assets and Liabilities Recorded at Fair Value on Nonrecurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands		Sep. 30, 2016	Dec. 31, 2015
Assets/ Liabilities Measured at Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	$ 600	$ 1,876
Foreclosed properties	[1]	1,500	1,682
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
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
Assets/ Liabilities Measured at Fair Value [Member] | Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans		600	1,876
Foreclosed properties		1,500	1,682
Total Carrying Amount in Balance Sheets [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	600	1,876
Foreclosed properties	[1]	$ 1,500	$ 1,682

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

XML

FAIR VALUE MEASUREMENTS, Quantitative Information about Financial and Nonfinancial Assets Measured at Fair Value on Nonrecurring (Details) - Level 3 [Member] - USD ($) $ in Thousands		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	[1]	$ 600	$ 1,876
Foreclosed Properties [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	[1]	$ 1,500	$ 1,682
Discounted Appraisals [Member] | Impaired Loans [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Collateral discounts	[2],[3]	0.00%	0.00%
Discounted Appraisals [Member] | Impaired Loans [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Collateral discounts	[2],[3]	36.00%	36.00%
Discounted Appraisals [Member] | Impaired Loans [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Collateral discounts	[2],[3]	23.00%	21.00%
Discounted Appraisals [Member] | Foreclosed Properties [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Collateral discounts	[2],[3]	0.00%	0.00%
Discounted Appraisals [Member] | Foreclosed Properties [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Collateral discounts	[2],[3]	22.00%	22.00%
Discounted Appraisals [Member] | Foreclosed Properties [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Collateral discounts	[2],[3]	6.00%	5.00%

[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.