S-1

As filed with the Securities and Exchange Commission on May 26, 2011

Registration No. 333-____________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

ASB Bancorp, Inc.

and

Asheville Savings Bank, S.S.B.

Retirement Savings Plan

(Exact name of registrant as specified in its charter)

North Carolina	6036	To be applied for
State or other jurisdiction of incorporation or organization	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification No.)

11 Church Street

Asheville, North Carolina 28801

(828) 254-7411

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

Suzanne S. DeFerie

President and Chief Executive Officer

ASB Bancorp, Inc.

11 Church Street

Asheville, North Carolina 28801

(828) 254-7411

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

Copies to:

Gary R. Bronstein, Esq.	Kent M. Krudys, Esq.
Lori M. Beresford, Esq.	Robert Lipsher, Esq.
Kilpatrick Townsend & Stockton LLP	Luse Gorman Pomerenk & Schick, P.C.
607 14th Street, NW, Suite 900	5335 Wisconsin Avenue, NW, Suite 780
Washington, DC 20005	Washington, DC 20015
(202) 508-5800	(202) 274-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    x

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

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

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

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

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

Calculation of Registration Fee

Title of each class of securities to be registered	Proposed maximum Aggregate offering price (1)	Amount of registration fee
Common Stock $0.01 par value	$83,317,500	$9,674
Participation Interests (2)	—	—

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Regulation 457(o) under the Securities Act.

(2) The securities of ASB Bancorp, Inc. to be purchased by the Asheville Savings Bank, S.S.B. Retirement Savings Plan are included in the common stock being registered. Pursuant to Rule 457(h)(2) of the Securities Act of 1933, as amended, no separate fee is required for the participation interests.

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

PARTICIPATION INTERESTS IN

ASHEVILLE SAVINGS BANK RETIREMENT SAVINGS PLAN

AND

OFFERING OF 481,900 SHARES OF

ASB BANCORP, INC.

COMMON STOCK ($.01 PAR VALUE)

This prospectus supplement relates to the offer and sale to participants in the Asheville Savings Bank Retirement Savings Plan (the “401(k) Plan”), of shares of common stock of ASB Bancorp, Inc. (“ASB Bancorp”) in connection with the initial public offering of ASB Bancorp, Inc.

401(k) Plan participants may direct the 401(k) Plan trustee to use all or a portion of their account balances to subscribe for and purchase shares of ASB Bancorp common stock through the ASB Bancorp Stock Fund. Based upon the value of the 401(k) Plan assets as of May 1, 2011 the ASB Bancorp Stock Fund trustee may purchase up to 481,900 shares of ASB Bancorp common stock at a purchase price of $10.00 per share. This prospectus supplement relates to the election of 401(k) Plan participants to direct the 401(k) Plan trustee to invest all or a portion of their 401(k) Plan account balances in ASB Bancorp common stock.

The ASB Bancorp, Inc. prospectus dated                     , which is attached to this prospectus supplement, includes detailed information regarding the offering of shares of ASB Bancorp common stock and the financial condition, results of operations and business of Asheville Savings Bank, S.S.B. (“Asheville Savings Bank”). This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

Please refer to “Risk Factors” beginning on page      of the prospectus.

Neither the Securities and Exchange Commission, the North Carolina Commissioner of Banks, the Federal

Deposit Insurance Corporation, nor any other state or federal agency or any state securities commission,

has approved or disapproved these securities. Any representation to the contrary is a criminal offense.

These securities are not deposits or accounts and are not insured or guaranteed by

the Federal Deposit Insurance Corporation or any other government agency.

This prospectus supplement may be used only in connection with offers and sales by ASB Bancorp of participation interests or shares of common stock under the 401(k) Plan in the offering. No one may use this prospectus supplement to re-offer or resell interests or shares of common stock acquired through the 401(k) Plan.

You should rely only on the information contained in this prospectus supplement and the attached prospectus. Neither ASB Bancorp, Asheville Savings Bank nor the 401(k) Plan has authorized anyone to provide you with different information.

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Asheville Savings Bank or the 401(k) Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

The date of this Prospectus Supplement is                     , 2011.

TABLE OF CONTENTS

	Page
THE OFFERING		1
Securities Offered		1
Election to Purchase ASB Bancorp, Inc. Common Stock in the Stock Offering		1
Value of Participation Interests		2
Method of Directing Your Investment Election		2
Time for Directing Your Investment Election		2
Irrevocability of Your Investment Election		2
Purchase Price of ASB Bancorp, Inc. Common Stock		2
Nature of a Participant’s Interest in ASB Bancorp, Inc. Common Stock		2
Voting and Tender Rights of ASB Bancorp, Inc. Stock		3
Future Direction to Purchase Common Stock		3
DESCRIPTION OF THE 401(k) PLAN		3
Introduction		3
Eligibility and Participation		4
Contributions Under the 401(k) Plan		4
Limitations on Contributions		4
401(k) Plan Investments		6
Benefits Under the 401(k) Plan		6
Withdrawals and Distributions from the 401(k) Plan		6
ADMINISTRATION OF THE 401(k) PLAN		7
401(k) Plan Trustee
401(k) Plan Administrator
Trustees		7
Reports to 401(k) Plan Participants		7
Plan Administrator		8
Amendment and Termination		8
Merger, Consolidation or Transfer		8
Federal Income Tax Consequences		8
Restrictions on Resale		9
SEC Reporting and Short-Swing Profit Liability		10
Financial Information Regarding Plan Assets		10
LEGAL OPINION		11

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THE OFFERING

Securities Offered

The securities offered in connection with this prospectus supplement are participation interests in the 401(k) Plan. At a purchase price of $10.00 per share, the 401(k) Plan trustee may subscribe for up to 481,900 shares of ASB Bancorp common stock in the stock offering (the “Stock Offering”). The interests offered by means of this prospectus supplement are conditioned on the close of the Stock Offering. Certain subscription rights and purchase limitations also govern your investment in the ASB Bancorp Stock Fund in connection with the Stock Offering. See “The Conversion and Stock Offering – Subscription Offering and Subscription Rights” and “– Limitations on Purchases of Shares” in the prospectus attached to this prospectus supplement for further discussion of these subscription rights and purchase limitations.

This prospectus supplement contains information regarding the 401(k) Plan. The attached prospectus contains information regarding the Stock Offering and the financial condition, results of operations and business of Asheville Savings Bank and its affiliates. The address of the principal executive office of Asheville Savings Bank is 11 Church Street, Asheville, North Carolina 28801. The telephone number of Asheville Savings Bank is (828) 250-8430.

Election to Purchase ASB Bancorp, Inc. Common Stock in the Stock Offering

In connection with the Stock Offering, you may direct the 401(k) Plan trustee to liquidate up to 100% of your account balance and use the funds to subscribe for ASB Bancorp common stock offered for sale in the Stock Offering. If there is not enough ASB Bancorp common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the 401(k) Plan trustee may not be able to purchase all of the common stock you requested. If the Stock Offering is oversubscribed and your order is cut back, your 401(k) Plan funds (which are not invested in ASB Bancorp Stock Fund) will be reinvested in accordance with the investment elections that you have in place for your elective deferrals.

All plan participants are eligible to direct the 401(k) Plan trustee to use their 401(k) Plan assets to invest in the Stock Offering. However, participant investment directions are subject to subscription rights and purchase priorities. See “Summary – Persons Who May Order Stock in the Offering” in the attached prospectus. Subscription requests for common stock will be filled in the following order of priority: (1) persons with $50 or more on deposit at Asheville Savings Bank as of the close of business on             ; (2) persons with $50 or more on deposit at Asheville Savings Bank as of the close of business on             ; and (3) depositors of Asheville Savings Bank as of the close of business on             , who are not eligible under categories 1 and 2 above and borrowers of Asheville Savings Bank as of             , whose borrowings still exist as of the close of business on             . If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of ASB Bancorp common stock in the Stock Offering and you may use your account balance in the 401(k) Plan to subscribe for shares of ASB Bancorp common stock. To the extent shares of common stock remain available after filling offers in the subscription offering, shares will be available in a community offering.

The limitations on the total amount of ASB Bancorp common stock that you may purchase in the Stock Offering, as described in the prospectus (see “The Conversion and Stock Offering – Limitations on Purchases of Shares”), will be calculated based on the aggregate amount that you subscribed for: (a) through your 401(k) Plan account and (b) through your sources of funds outside of the 401(k) Plan. Whether you place an order through the 401(k) Plan, outside the 401(k) Plan, or both, the number of

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shares of ASB Bancorp common stock, if any, that you receive will be determined based on the total number of subscriptions, your purchase priority and the allocation priorities described in the prospectus. If, as a result of the calculation, you are allocated insufficient shares to fill all of your orders, available shares will be allocated between orders on a pro rata basis.

Value of Participation Interests

As of May 1, 2011, the market value of the 401(k) Plan assets equaled approximately $4,819,000 million. The plan administrator has distributed quarterly statements to each participant reflecting the value of his or her beneficial interest in the 401(k) Plan as of             . The value of the 401(k) Plan assets represents past contributions made to the 401(k) Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals.

Method of Directing Your Investment Election

Included with this prospectus supplement is a blue investment form (“Investment Election Form”). If you wish to direct the 401(k) Plan trustee to liquidate all or a portion of your current investments and use the funds to subscribe for shares in the Stock Offering you must complete, sign and submit this form to Jonna Bradham, Human Resources Manager of Asheville Savings Bank. If you do not wish to invest in the ASB Bancorp Stock Fund at this time, you do not need to take any action. The minimum investment in the ASB Bancorp Stock Fund during the Stock Offering is $             and the maximum individual investment is $            . The minimum investment through the 401(k) Plan during the Stock Offering is              shares.

Time for Directing Your Investment Election

If you wish to participate in the Stock Offering using your 401(k) Plan funds, you must submit your Investment Election Form to Jonna Bradham by              on             , 2011. If you have any questions regarding the ASB Bancorp Stock Fund, you can call Jonna Bradham at (828) 250-8568.

Irrevocability of Your Investment Election

Once you have submitted your Investment Election Form, you cannot change your election to subscribe for shares of common stock through the 401(k) Plan in the Stock Offering.

Purchase Price of ASB Bancorp, Inc. Common Stock

The 401(k) Plan trustee will use the funds transferred to the ASB Bancorp Stock Fund to purchase shares of ASB Bancorp common stock in the Stock Offering. The 401(k) Plan trustee will pay the same price for shares of ASB Bancorp common stock as all other persons who purchase shares of ASB Bancorp common stock in the Stock Offering. If there is not enough common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the trustee may not be able to purchase all of the common stock you requested. If the Stock Offering is oversubscribed and your order is cut back, your 401(k) Plan funds (which are not invested in ASB Bancorp common stock) will be reinvested in accordance with the investment elections you have in place for your elective deferrals.

Nature of a Participant’s Interest in ASB Bancorp, Inc. Common Stock

The 401(k) Plan trustee will hold ASB Bancorp common stock in the name of the 401(k) Plan. The 401(k) Plan trustee will credit shares of ASB Bancorp common stock acquired at your direction to your account under the 401(k) Plan. Your interest in the ASB Bancorp Stock Fund will be credited in

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units. Immediately after the close of the Stock Offering each unit will equal one share of ASB Bancorp common stock. Once the ASB Bancorp Stock Fund begins to have open market purchases each unit will consist of a portion of cash and common stock. For liquidity purposes, the ASB Bancorp Stock Fund will be 3-5% in cash.

Voting and Tender Rights of ASB Bancorp, Inc. Common Stock

The 401(k) Plan trustee will exercise voting and tender rights attributable to all ASB Bancorp common stock held in the ASB Bancorp Stock Fund, as directed by participants with interests in the ASB Bancorp Stock Fund. With respect to each matter as to which holders of ASB Bancorp common stock have a right to vote, you will have voting instruction rights that reflect your proportionate interest in the ASB Bancorp Stock Fund. The number of shares of ASB Bancorp common stock held in the ASB Bancorp Stock Fund voted for and against each matter will be proportionate to the number of voting instruction rights exercised. If there is a tender offer for ASB Bancorp common stock, the 401(k) Plan allots each participant a number of tender instruction rights reflecting each participant’s proportionate interest in the ASB Bancorp Stock Fund. The percentage of shares of ASB Bancorp common stock held in the ASB Bancorp Stock Fund that will be tendered will be the same as the percentage of the total number of tender instruction rights exercised in favor of the tender offer. The remaining shares of ASB Bancorp common stock held in the ASB Bancorp Stock Fund will not be tendered. The 401(k) Plan provides that participants will exercise their voting instruction rights and tender instruction rights on a confidential basis.

Future Direction to Purchase Common Stock

You will be able to invest in the ASB Bancorp Stock Fund after the stock offering by accessing your account via the internet and directing the trustee to invest your future contributions or your account balance in the 401(k) Plan into the ASB Bancorp Stock Fund. After the stock offering, to the extent that shares of common stock are available, MG Trust Company will acquire ASB Bancorp common stock at your election in open market transactions at the prevailing market price. Special restrictions may apply to transfers directed to and from the ASB Bancorp Stock Fund by the participants who are subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal shareholders of ASB Bancorp. In addition, if you are an officer of ASB Bancorp that is restricted by the Federal Deposit Insurance Corporation from selling shares acquired in the stock offering for one year, the shares you purchased in the stock offering will not be tradable for one year. However, any stock units that you held in the ASB Bancorp Stock Fund before the stock offering are not subject to this one-year trading restriction and therefore may be sold.

DESCRIPTION OF THE 401(k) PLAN

Introduction

Asheville Savings Bank adopted the amended and restated 401(k) Plan effective July 1, 2011. Asheville Savings Bank intends for the 401(k) Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Asheville Savings Bank may amend the 401(k) Plan from time to time in the future to ensure continued compliance with these laws. Asheville Savings Bank may also amend the 401(k) Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. Federal law provides you with various rights and protections as a participant in the 401(k) Plan, which is governed by ERISA. However, the Pension Benefit Guaranty Corporation does not guarantee your benefits under the 401(k) Plan.

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Reference to Full Text of the Plan. The following portions of this prospectus supplement summarize the material provisions of the 401(k) Plan. Asheville Savings Bank qualifies this summary in its entirety by reference to the full text of the 401(k) Plan. You may obtain copies of the 401(k) Plan document, including any amendments to the plan and a summary plan description, by contacting Jonna Bradham at (828) 250-8568. You should carefully read the 401(k) Plan documents to understand your rights and obligations under the 401(k) Plan.

Eligibility and Participation

Asheville Savings Bank employees must attain age             and complete one year of service in order to be eligible to participate in the 401(k) Plan. As of May 1, 2011, 139 of the             eligible employees of Asheville Savings Bank participated in the 401(k) Plan.

Contributions Under the 401(k) Plan

Employee Pre-Tax Contributions. You may defer a percentage of your eligible compensation into the 401(k) Plan after you satisfy the Plan’s eligibility requirements. For pre-tax contributions being made to the Plan, the percentage you defer is subject to an annual limit of the lesser of 60% of eligible compensation or $16,500 (2011 IRS limit) in a calendar year. For purposes of the Plan, “eligible compensation” is defined as taxable compensation reportable by Asheville Savings Bank on your Form W-2, excluding reimbursement or other expense allowances, fringe benefits, moving expenses, deferred compensation and welfare benefits and including salary reduction contributions made to Bank sponsored cafeteria, qualified transportation fringe, simplified employee pension, 401(k), 457(b) or 403(b) plans. In addition to pre-tax salary deferrals, you may make “catch up” contributions if you are currently age 50 or will be 50 before the end of the calendar year. You are always 100% vested in your elective deferrals.

Asheville Savings Bank Safe Harbor Matching Contributions. The 401(k) Plan currently provides that Asheville Savings Bank will make matching contributions on behalf of each eligible participant with respect to each eligible participant’s elective deferrals. If you elect to defer funds into the 401(k) Plan, Asheville Savings Bank will match 100% of the first 3% you defer into the 401(k) Plan and 50% on the next 2% you defer into the 401(k) Plan. Asheville Savings Bank makes matching contributions only to those participants who actively defer a percentage of their compensation into the 401(k) Plan.

Rollover Contributions. Asheville Savings Bank allows employees who receive a distribution from a previous employer’s tax-qualified employee benefit plan to deposit that distribution into a Rollover Contribution account under the 401(k) Plan, provided the rollover contribution satisfies IRS requirements. For additional information on Rollover Contributions see the Summary Plan Description for the 401(k) Plan.

Limitations on Contributions

Limitation on Employee Salary Deferrals. By law, your total deferrals under the 401(k) Plan, together with similar plans, may not exceed $16,500 for 2011. Eligible employees who are age 50 and over may also make additional “catch-up” contributions to the plan, up to a maximum of $5,500 for 2011. The Internal Revenue Service periodically increases these limitations. An eligible participant who exceeds these limitations must include any excess deferrals in gross income for federal income tax purposes in the year of deferral. In addition, the participant must pay federal income taxes on any excess deferrals when distributed by the 401(k) Plan to the participant, unless the plan distributes the excess deferrals and any related income no later than the first April 15th following the close of the taxable year in which the participant made the excess deferrals. Any income on excess deferrals distributed before such date is treated, for federal income tax purposes, as earned and received by the participant in the taxable year of the distribution.

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Limitation on Annual Additions and Benefits. As required by the Internal Revenue Code, the 401(k) Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year under all defined contribution plans of Asheville Savings Bank (including the 401(k) Plan and the proposed Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan) may not exceed the lesser of 100% of the participant’s annual compensation or $49,000 for 2011.

Limitation on Plan Contributions for Highly Compensated Employees. Special provisions of the Internal Revenue Code limit the amount of pre-tax and matching contributions that may be made to the 401(k) Plan in any year on behalf of highly compensated employees, in relation to the amount of pre-tax and matching contributions made by or on behalf of all other employees eligible to participate in the 401(k) Plan. If pre-tax and matching contributions exceed these limitations, the plan must adjust the contribution levels for highly compensated employees.

In general, a highly compensated employee includes any employee who (1) was a 5% owner of the sponsoring employer at any time during the year or the preceding year, or (2) had compensation for the preceding year in excess of $110,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for that year. The preceding dollar amount applies for 2011 and may be adjusted periodically by the Internal Revenue Service.

Top-Heavy Plan Requirements. If the 401(k) Plan is a “Top-Heavy Plan” for any calendar year, Asheville Savings Bank may be required to make certain minimum contributions to the 401(k) Plan on behalf of non-key employees. In general, the 401(k) Plan will be treated as a Top-Heavy Plan for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of “Key Employees” exceeds 60% of the aggregate balance of the accounts of all employees under the plan. A Key Employee is generally any employee who, at any time during the calendar year or any of the four preceding years, is:

(1) an officer of Asheville Savings Bank whose annual compensation exceeds $160,000;

(2) a 5% owner of the employer, meaning an employee who owns more than 5% of the outstanding stock of ASB Bancorp, or who owns stock that possesses more than 5% of the total combined voting power of all stock of ASB Bancorp; or

(3) a 1% owner of the employer, meaning an employee who owns more than 1% of the outstanding stock of ASB Bancorp, or who owns stock that possesses more than 1% of the total combined voting power of all stock of ASB Bancorp, and whose annual compensation exceeds $150,000.

The foregoing dollar amounts are for 2011.

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401(k) Plan Investments

Effective July 1, 2011, the 401(k) Plan offers the following investment choices:

	Annual Rates of Return as of December 31,
Fund Name	2010	2009	2008

[Fund description]

Once you have submitted your Investment Election Form, you may not change your investment directions in the Stock Offering.

Benefits Under the 401(k) Plan

Vesting. All participants are 100% vested in their contributions and any earnings thereon. This means you have a non-forfeitable right to these funds and any earnings on the funds at all times.

Withdrawals and Distributions from the 401(k) Plan

Withdrawals Before Termination of Employment. While in active service, participants may take loans from the 401(k) Plan (subject to the restrictions set forth in the 401(k) Plan and the Asheville Savings Bank loan policy). A participant may also take hardship withdrawals, provided the participant has a hardship event as defined by the Internal Revenue Service regulations and subject to approval by the Plan Administrator. If a participant reaches age 59 ¹/2, the Participant may elect to withdraw all or a portion of his or her 401(k) Plan account balance while still employed by Asheville Savings Bank.

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Distribution Upon Retirement, Death or Disability. If a participant’s accounts are $1,000 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participant’s accounts exceed $1,000 upon termination of employment, and the participant does not elect to have his/her distribution paid, payment will be in the form of a Direct Rollover to an individual retirement plan designated by the Plan Administrator.

Distribution Upon Termination for Any Other Reason. If a participant’s accounts are $1,000 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participant’s accounts exceed $1,000 upon termination of employment, and the participant does not elect to have his/her distribution paid, payment will be in the form of a Direct Rollover to an individual retirement plan designated by the Plan Administrator.

Nonalienation of Benefits. Except with respect to federal income tax withholding, and as provided for under a qualified domestic relations order, benefits payable under the 401(k) Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan will be void.

Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the 401(k) Plan before your termination of employment with Asheville Savings Bank. Federal law may also impose an excise tax on withdrawals from the 401(k) Plan before you attain 59 ¹/2 years of age, regardless of whether the withdrawal occurs during your employment with Asheville Savings Bank or after termination of employment.

ADMINISTRATION OF THE 401(k) PLAN

Trustees

The board of directors of Asheville Savings Bank has appointed Reliance Trust Company to serve as trustee for the 401(k) Plan for all assets except those assets held in the new Stock Fund.             will serve as the Stock Fund trustee. The Plan trustee receives, holds and invests the contributions to the 401(k) Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the 401(k) Plan and the directions of the Plan Administrator. The trustee is responsible for the investment of the trust assets, as directed by the Plan Administrator and the participants.

Reports to 401(k) Plan Participants

The Plan Administrator furnishes participants quarterly statements that show the balance in their accounts as of the statement date, contributions made to their accounts during that period and any additional adjustments required to reflect earnings or losses.

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Plan Administrator

Asheville Savings Bank acts as Plan Administrator for the 401(k) Plan. The Plan Administrator handles the following administrative functions: interpreting the provisions of the plan, prescribing procedures for filing applications for benefits, preparing and distributing information explaining the plan, maintaining plan records, books of account and all other data necessary for the proper administration of the plan, preparing and filing all returns and reports required by the U.S. Department of Labor and the IRS and making all required disclosures to participants, beneficiaries and others under ERISA.

Amendment and Termination

Asheville Savings Bank expects to continue the 401(k) Plan indefinitely. Nevertheless, Asheville Savings Bank may terminate the 401(k) Plan at any time. If Asheville Savings Bank terminates the 401(k) Plan in whole or in part, all affected participants become fully vested in their accounts, regardless of other provisions of the 401(k) Plan. Asheville Savings Bank reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries. Asheville Savings Bank may amend the plan, however, as necessary or desirable, in order to comply with ERISA or the Internal Revenue Code.

Merger, Consolidation or Transfer

If the 401(k) Plan merges or consolidates with another plan or transfers the trust assets to another plan, and either the 401(k) Plan or the other plan is subsequently terminated, the 401(k) Plan requires that you receive a benefit immediately after the merger, consolidation or transfer that would equal or exceed the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the 401(k) Plan had terminated at that time.

Federal Income Tax Consequences

The following briefly summarizes the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences of the 401(k) Plan. Statutory provisions change, as do their interpretation, and their application may vary in individual circumstances. Finally, applicable state and local income tax laws may have different tax consequences than the federal income tax laws. 401(k) Plan participants should consult a tax advisor with respect to any transaction involving the 401(k) Plan, including any distribution from the 401(k) Plan.

As a “tax-qualified retirement plan,” the Internal Revenue Code affords the 401(k) Plan certain tax advantages, including the following:

(1) the sponsoring employer may take an immediate tax deduction for the amount contributed to the plan each year;

(2) participants pay no current income tax on amounts contributed by the employer on their behalf; and

(3) earnings of the plan are tax-deferred, thereby permitting the tax-deferred accumulation of income and gains on investments.

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Asheville Savings Bank administers the 401(k) Plan to comply in operation with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Asheville Savings Bank should receive an adverse determination letter from the Internal Revenue Service regarding the 401(k) Plan’s tax exempt status, all participants would generally recognize income equal to their vested interests in the 401(k) Plan, the participants would not be permitted to transfer amounts distributed from the 401(k) Plan to an Individual Retirement Account or to another qualified retirement plan, and Asheville Savings Bank would be denied certain tax deductions taken in connection with the 401(k) Plan.

Lump Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant qualifies as a lump sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59 ¹/2; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Asheville Savings Bank. The portion of any lump sum distribution included in taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution, less the amount of after-tax contributions, if any, made to any other profit-sharing plans maintained by Asheville Savings Bank, if the distribution includes those amounts.

ASB Bancorp Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes ASB Bancorp common stock, the distribution generally is taxed in the manner described above. The total taxable amount is reduced, however, by the amount of any net unrealized appreciation on ASB Bancorp common stock; that is, the excess of the value of ASB Bancorp common stock at the time of the distribution over the cost or other basis of the securities to the trust. The tax basis of ASB Bancorp common stock, for purposes of computing gain or loss on a subsequent sale, equals the value of ASB Bancorp common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of ASB Bancorp common stock, to the extent of the net unrealized appreciation at the time of distribution, is long-term capital gain, regardless of how long you hold the ASB Bancorp common stock, or the “holding period.” Any gain on a subsequent sale or other taxable disposition of ASB Bancorp common stock that exceeds the amount of net unrealized appreciation upon distribution is considered long-term capital gain, regardless of the holding period. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed under IRS regulations.

We have provided you with a brief description of the material federal income tax aspects of the 401(k) Plan that are generally applicable under the Internal Revenue Code. We do not intend this description to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan. Accordingly, you should consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the 401(k) Plan.

Restrictions on Resale

Any “affiliate” of ASB Bancorp under Rules 144 and 405 of the Securities Act of 1933, as amended, who receives a distribution of common stock under the 401(k) Plan, may re-offer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption from these registration requirements. An “affiliate” of ASB Bancorp is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, ASB Bancorp. Generally, a director, principal officer or major shareholder of a corporation is deemed to be an “affiliate” of that corporation.

Any person who may be an “affiliate” of ASB Bancorp may wish to consult with counsel before transferring any common stock they own. In addition, participants should consult with counsel regarding the applicability to them of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of ASB Bancorp common stock acquired under the 401(k) Plan or other sales of ASB Bancorp common stock.

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Persons who are not deemed to be “affiliates” of ASB Bancorp at the time of resale may resell freely any shares of ASB Bancorp common stock distributed to them under the 401(k) Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptions available under federal law. A person deemed an “affiliate” of ASB Bancorp at the time of a proposed resale may publicly resell common stock only under a “re-offer” prospectus or in accordance with the restrictions and conditions contained in Rule 144 of the Securities Act of 1933, as amended, or some other exemption from registration, and may not use this prospectus supplement or the accompanying prospectus in connection with any such resale. In general, Rule 144 restricts the amount of common stock which an affiliate may publicly resell in any three-month period to the greater of one percent of ASB Bancorp common stock then outstanding or the average weekly trading volume reported on the Nasdaq Capital Market during the four calendar weeks before the sale. Affiliates may sell only through brokers without solicitation and only at a time when ASB Bancorp is current in filing all required reports under the Securities Exchange Act of 1934, as amended.

SEC Reporting and Short-Swing Profit Liability

Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons who beneficially own more than 10% of public companies such as ASB Bancorp. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), such person must file a Form 3 reporting initial beneficial ownership with the Securities and Exchange Commission (“SEC”). Such persons must also report periodically certain changes in beneficial ownership involving the allocation or reallocation of assets held in their 401(k) Plan accounts, either on a Form 4 within two business days after a transaction, or annually on a Form 5 within 45 days after the close of a company’s fiscal year.

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by ASB Bancorp of profits realized from the purchase and sale or sale and purchase of its common stock within any six-month period by any officer, director or person who beneficially owns more than 10% of the common stock.

The SEC has adopted rules that exempt many transactions involving the 401(k) Plan from the “short-swing” profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or person who beneficially owns more than 10% of the common stock of a company.

Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are subject to Section 16(b) may be required, under limited circumstances involving the purchase of common stock within six months of the distribution, to hold the shares of common stock distributed from the 401(k) Plan for six months after the distribution date.

Financial Information Regarding Plan Assets

Financial information representing the net assets available for 401(k) Plan benefits at December 31, 2010, is available upon written request to Jonna Bradham in the Human Resources Department at Asheville Savings Bank.

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LEGAL OPINION

The validity of the issuance of the common stock of ASB Bancorp will be passed upon by Kilpatrick Townsend & Stockton LLP, Washington, DC. Kilpatrick Townsend & Stockton LLP is acting as special counsel for ASB Bancorp in connection with the Stock Offering.

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ASHEVILLE SAVINGS BANK RETIREMENT SAVINGS PLAN

INVESTMENT FORM

Name of Plan Participant:                                                                                                           

Social Security Number:                                                                                                               

1. Instructions. In connection with the stock offering, you may direct up to 100% of your current 401(k) Plan account balance into the ASB Bancorp Fund (the “Employer Stock Fund”). The percentage of your 401(k) Plan account (up to 100%) transferred into the Employer Stock Fund will be used to purchase shares of ASB Bancorp stock in the stock offering.

To direct a transfer of the funds credited to your 401(k) Plan account to the Employer Stock Fund, you must complete, sign and submit this form to Jonna Bradham in the Human Resources Department by                     . Current Asheville Savings Bank employees should return their forms through inter-office mail. Former Asheville Savings Bank employees should return their forms using the business reply envelope that has been provided. A representative for the Plan Administrator will retain a copy of this form and return a copy to you. If you need any assistance in completing this form, please contact Jonna Bradham at (828) 250-8568. If you do not complete and return this form to Jonna Bradham by                     , the funds credited to your account under the 401(k) Plan will continue to be invested in accordance with your prior investment directions, or in accordance with the terms of the Plan if no investment directions have been provided.

2. Investment Directions. I hereby authorize the Plan Administrator to direct the Trustee to invest the following percentages (in multiples of not less than 1%) of my 401(k) Plan account balance in the Employer Stock Fund:

Fund Name

I understand that my election to transfer funds to the Employer Stock Fund to purchase shares of ASB Bancorp stock in the stock offering is irrevocable. I understand that the funds transferred to the Employer Stock Fund will be divisible by $10.00, the per share price for the common stock.

3. Purchaser Information. The ability of a 401(k) Plan participant to purchase ASB Bancorp stock in the stock offering is based upon the participant’s subscription rights in the stock offering. Please indicate your status (check one):

¨ Check here if you had $50.00 or more on deposit with Asheville Savings Bank as of                     .

¨ Check here if you had $50.00 or more on deposit with Asheville Savings Bank as of close of business on                     .

¨ Check here if you are not eligible for either category noted above, but you were a Asheville Savings Bank depositor or borrower as of the close of business on                     .

4. Acknowledgment of Participant. I understand that this Investment Form shall be subject to all of the terms and conditions of the 401(k) Plan. I acknowledge that I have received a copy of the Prospectus and the Prospectus Supplement. I acknowledge further that my investment election on this form is irrevocable.

Signature of Participant Date

Acknowledgment of Receipt by Administrator. This Investment Form was received by the Plan Administrator and will become effective on the date noted below.

By:
	Date

THE PARTICIPATION INTERESTS REPRESENTED BY THE COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY ASB BANCORP OR ASHEVILLE SAVINGS BANK. THE COMMON STOCK IS SUBJECT TO AN INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL INVESTED.

PLEASE COMPLETE AND RETURN TO JONNA BRADHAM

IN THE HUMAN RESOURCES DEPARTMENT AT

ASHEVILLE SAVINGS BANK BY              P.M. ON             .

PROSPECTUS

ASB Bancorp, Inc.

(Proposed Holding Company for Asheville Savings Bank, S.S.B.)

Up to 7,245,000 Shares of Common Stock

ASB Bancorp, Inc. is offering shares of its common stock for sale in connection with the conversion of Asheville Savings Bank, S.S.B. from the mutual to the stock form of ownership. After the offering, ASB Bancorp, Inc. will be the holding company for Asheville Savings Bank through its ownership of 100% of Asheville Savings Bank’s outstanding common stock. We have received conditional approval to list our common stock on the Nasdaq Global Market under the symbol “ASBB.”

If you are or were a depositor or borrower of Asheville Savings Bank:

• You may have priority rights to purchase shares of common stock.

If you are a participant in the Asheville Savings Bank Retirement Savings Plan:

• You may direct that all or part of your current account balance in this plan be invested in shares of common stock.

• You will receive a separate supplement to this prospectus that describes your rights under this plan.

If you fit neither of the categories above, but are interested in purchasing shares of our common stock:

• You may have an opportunity to purchase shares of common stock after priority orders are filled.

We are offering up to 7,245,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 5,355,000 shares to complete the offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, the independent appraiser determines that our pro forma market value has increased, we may sell up to 8,331,750 shares without giving you further notice or the opportunity to change or cancel your order. If our pro forma market value at the end of the stock offering period is either below $53.6 million or above $83.3 million, then, after consulting with the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, we may: (i) terminate the stock offering and promptly return all funds, with interest; (ii) set a new offering range and give all subscribers the opportunity to confirm, modify or rescind their stock purchase orders; or (iii) take such other actions as may be permitted by the Federal Deposit Insurance Corporation, the North Carolina Commissioner of Banks and the Securities and Exchange Commission.

The offering is expected to close at 12:00 noon, Eastern time, on                     , 2011. We may extend this closing date without notice to you until                     , 2011, unless the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks approve a later date, which will not be beyond                     , 2012.

Keefe, Bruyette & Woods, Inc. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares offered for sale are offered at a price of $10.00 per share.

The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond                     , 2011. If the offering is extended beyond                     , 2011, subscribers will have the right to modify or rescind their purchase orders. Funds received before the completion of the offering will be maintained in a segregated account at Asheville Savings Bank. All funds received will bear interest at Asheville Savings Bank’s statement savings rate, which is currently 0.31% per annum. If we terminate the offering for any reason, or if we extend the offering beyond                     , 2011, we will notify you and will promptly return your funds with interest if you do not respond to the notice.

We expect our directors and executive officers, together with their associates, to subscribe for 160,500 shares, which equals 3.0% of the shares offered for sale at the minimum of the offering range.

The North Carolina Commissioner of Banks conditionally approved our plan of conversion on                     , 2011. However, such approval does not constitute a recommendation or endorsement of this offering.

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page     .

OFFERING SUMMARY

Price Per Share: $10.00

	Minimum		Maximum		Maximum As Adjusted
Number of shares		5,355,000		7,245,000		8,331,750
Gross offering proceeds	$	53,550,000	$	72,450,000	$	83,317,500
Estimated offering expenses, excluding selling agent fees and expenses	$	1,360,000	$	1,360,000	$	1,360,000
Estimated selling agent fees and expenses(1)	$	477,000	$	650,000	$	750,500
Estimated net proceeds	$	51,713,000	$	70,440,000	$	81,207,000
Estimated net proceeds per share	$	9.66	$	9.72	$	9.75

(1) Excludes fees payable if a syndicated community offering is held. For a discussion of the compensation of Keefe, Bruyette & Woods, Inc., see “The Conversion and Stock Offering — Marketing Arrangements.”

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Neither the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the North Carolina Commissioner of Banks, nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

For assistance, please contact the stock information center toll-free at (            )             -            .

The date of this prospectus is                     , 2011

[Map of North Carolina showing office locations of Asheville Savings Bank]

TABLE OF CONTENTS

	PAGE
Summary		1
Risk Factors		13
A Warning About Forward-Looking Statements		21
Selected Consolidated Financial and Other Data		22
Use of Proceeds		24
Our Dividend Policy		26
Market for the Common Stock		27
Capitalization		28
Regulatory Capital Compliance		30
Pro Forma Data		31
Our Business		36
Management’s Discussion and Analysis of Financial Condition and Results of Operations		45
Our Management		76
Subscriptions by Executive Officers and Directors		98
Regulation and Supervision		99
Federal and State Taxation		108
The Conversion and Stock Offering		110
Restrictions on the Acquisition of ASB Bancorp, Inc. and Asheville Savings Bank		127
Description of ASB Bancorp, Inc. Capital Stock		134
Transfer Agent and Registrar		135
Registration Requirements		135
Legal and Tax Opinions		135
Experts		135
Where You Can Find More Information		135
Index to Consolidated Financial Statements of Asheville Savings Bank		137

SUMMARY

This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully.

The Companies

ASB Bancorp, Inc.

Asheville Savings Bank

11 Church Street

Asheville, North Carolina 28801

(828) 254-7411

ASB Bancorp, Inc. This offering is made by ASB Bancorp, Inc., a North Carolina corporation incorporated in May 2011 by Asheville Savings Bank to be its holding company. Currently, ASB Bancorp, Inc. has no assets. Following the conversion, ASB Bancorp, Inc. will own all of Asheville Savings Bank’s capital stock and will direct, plan and coordinate Asheville Savings Bank’s business activities. In the future, ASB Bancorp, Inc. might also acquire or organize other operating subsidiaries, including other financial institutions or financial services companies, although it currently has no specific plans or agreements to do so.

Asheville Savings Bank. Asheville Savings Bank operates as a community-oriented financial institution, with 13 full-service offices in its primary market area, which encompasses Buncombe, Madison, McDowell, Henderson and Transylvania Counties in North Carolina and the surrounding areas. We offer a variety of deposit products and provide residential and commercial real estate loans, and to a lesser extent, revolving mortgage loans, which consist of home equity loans and lines of credit, consumer loans, construction and land development loans and commercial and industrial loans to borrowers generally located within our primary market area. At March 31, 2011, we had total assets of $750.7 million, total deposits of $616.6 million and total equity of $63.3 million.

Our Operating Strategy (page     )

Our mission is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:

• continuing to provide products and services to individuals and businesses in communities served by our branch offices;

• continuing to originate residential and commercial mortgage loans;

• expanding our commercial and industrial lending activities and emphasizing the origination of small business loans;

• emphasizing lower cost core deposits to maintain low funding costs;

• expanding our market share within our primary market area; and

• seeking to enhance fee income through providing investment advisory services.

The Conversion

Description of the Conversion

Currently, we are a North Carolina chartered mutual savings bank with no shareholders. Our depositors and eligible borrowers currently have the right to vote on certain matters such as the election of directors and this

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conversion transaction. The conversion transaction that we are undertaking involves a change from our mutual form to a stock savings bank that will result in all of Asheville Savings Bank’s capital stock being owned by ASB Bancorp, Inc. Voting rights in ASB Bancorp, Inc. will belong to its shareholders, including our employee stock ownership plan. For more information on the employee stock ownership plan, see “Summary—Benefits of the Offering to Management—Employee Stock Ownership Plan.” We are conducting the conversion under the terms of our plan of conversion. The North Carolina Commissioner of Banks has conditionally approved the plan of conversion and the Federal Deposit Insurance Corporation has provided its non-objection to our mutual to stock conversion, subject to a condition that it be approved by our members. In addition, the Federal Reserve Board has approved ASB Bancorp, Inc.’s application to become a bank holding company and to acquire all of the outstanding shares of Asheville Savings Bank’s common stock upon consummation of the conversion. We have called a special meeting of members for                     , 2011 to vote on the plan of conversion.

The following diagram depicts our corporate structure after the conversion and offering, including the number of shares of common stock that will be owned by public shareholders at the minimum, maximum, and maximum, as adjusted, of the offering range upon completion of the conversion and the offering:

Regulation and Supervision (page     )

We are and will be upon completion of the conversion, subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. ASB Bancorp, Inc. will be subject to regulation by the Federal Reserve Board.

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The Offering

Purchase Price

The purchase price is $10.00 per share. You will not pay a commission to buy any shares in the offering.

Number of Shares to be Sold

We are offering for sale between 5,355,000 and 7,245,000 shares of ASB Bancorp, Inc. common stock in this offering. With regulatory approval, we may increase the number of shares to be sold to 8,331,750 shares without giving you further notice or the opportunity to change or cancel your order. In considering whether to increase the offering size, the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks will consider the level of subscriptions, the views of our independent appraiser, our financial condition and results of operations and changes in market conditions.

How We Determined the Offering Range (page     )

We are offering between 5,355,000 and 7,245,000 shares, which is our offering range, based on an independent appraisal of our pro forma market value prepared by Feldman Financial Advisors, Inc., an independent appraisal firm experienced in appraisals of financial institutions. Feldman Financial estimates that as of                     , our pro forma market value was between $53.6 million and $72.5 million, with a midpoint of $63.0 million.

In preparing its appraisal, Feldman Financial considered the information in this prospectus, including our consolidated financial statements. Feldman Financial also considered the following factors, among others:

• our historical, present and projected operating results and financial condition and the economic and demographic characteristics of our primary market area;

• a comparative evaluation of the operating and financial statistics of Asheville Savings Bank with those of other similarly situated, publicly traded companies;

• the effect of the capital raised in this offering on our net worth and earnings potential; and

• the trading market for securities of comparable institutions and general conditions in the market for such securities.

Two measures that some investors use to analyze whether a stock might be a good investment are the ratio of the offering price to the issuer’s “book value” and the ratio of the offering price per share to the issuer’s core income per share for the past twelve months. Feldman Financial considered these ratios, among other factors, in preparing its appraisal. Book value is the same as total equity and represents the difference between the issuer’s assets and liabilities. For purposes of the appraisal, core earnings is defined as net earnings after taxes, plus non-recurring expenses and minus non-recurring income, adjusted for income taxes in each case. Feldman Financial’s appraisal also incorporates an analysis of a peer group of publicly traded companies that Feldman Financial considered to be comparable to us.

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The following table presents a summary of selected pricing ratios for the peer group companies and for us utilized by Feldman Financial in its appraisal. These ratios are based on our earnings for the twelve months ended March 31, 2011 and book value as of March 31, 2011 and the latest date for which complete financial data was publicly available for the peer group.

	Price to Core Earnings Multiple		Price to Book Value Ratio
ASB Bancorp, Inc. (pro forma):
Minimum		N.M.		49.3%
Midpoint		N.M.		59.9
Maximum		N.M.		57.9
Maximum, as adjusted		N.M.		62.0
Peer group companies as of May 9, 2011:
Average		22.5x		66.6%
Median		19.0		67.2

N.M. means not meaningful.

Compared to the average price to book value ratio of the peer group at the maximum of the offering range, our stock would be priced at a discount of 13.1% to the peer group on a price-to-book value basis.

The independent appraisal does not indicate market value. You should not assume or expect that the valuation described above means that our common stock will trade at or above the $10.00 purchase price after the offering.

Possible Change in Offering Range (page     )

Feldman Financial will update its appraisal before we complete the stock offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, Feldman Financial determines that our pro forma market value has increased, we may sell up to 8,331,750 shares without further notice to you. If our pro forma market value at the end of the stock offering period is either below $53.6 million or above $83.3 million, then, after consulting with the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, we may: (i) terminate the stock offering and promptly return all funds, with interest; (ii) set a new offering range and give all subscribers the opportunity to confirm, modify or rescind their purchase orders for shares of ASB Bancorp, Inc.’s common stock; or (iii) take such other actions as may be permitted by the Federal Deposit Insurance Corporation, the North Carolina Commissioner of Banks and the Securities and Exchange Commission.

Possible Termination of the Offering

We must sell a minimum of 5,355,000 shares to complete the offering. If we do not sell the minimum number of shares, or if we terminate the offering for any other reason, we will promptly return all funds, with interest, at our current statement savings rate.

After-Market Performance of Mutual-to-Stock Conversions

The appraisal prepared by Feldman Financial includes examples of after-market stock price performance for standard mutual-to-stock conversion offerings (i.e., excluding “second step” conversions by mutual holding companies) completed since January 1, 2010. The following table presents stock price appreciation information for all standard mutual-to-stock conversions completed between January 1, 2010 and May 9, 2011. These companies did not constitute the group of ten comparable public companies utilized in Feldman Financial’s valuation analysis.

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					Percentage Change From Initial Offering Price
Issuer (Market/Symbol)	Date of IPO		Offering Size		After 1 Day			After 1 Week			After 1 Month			Through May 9, 2011
			(In millions)		%			%			%			%
Franklin Financial Corp. (NASDAQ/FRNK)		04/28/11	$	138.9		19.7			18.5	%		NA			18.8
Sunshine Financial Inc. (OTC/SSNF)		04/06/11		12.3		12.5			13.5			15.0			12.5
Fraternity Community Bancorp, Inc. (OTC/FRTR)		04/01/11		15.9		12.6			11.7			10.0			5.5
Anchor Bancorp (NASDAG/ANCB)		01/26/11		25.5		0.0			0.0			4.5			0.0
Wolverine Bancorp, Inc. (NASDAQ/WBKC)		01/20/11		25.1		24.5			20.0			35.0			45.0
SP Bancorp, Inc. (NASDAQ/SPBC)		11/01/10		17.3		(6.0	)		(6.2	)		(9.9	)		19.9
Madison Bancorp, Inc. (OTC/MDSN)		10/07/10		6.1		0.0			0.0			0.0			0.0
Standard Financial Corp. (NASDAQ/STND)		10/07/10		34.8		19.0			18.5			29.5			53.4
Century Next Financial Corp. (OTC/CTUY)		10/01/10		10.6		0.0			15.0			10.0			60.0
United-American Savings Bank (OTC/UASB)		08/06/10		3.0		0.0			(5.0	)		5.0			30.5
Peoples Federal Bancshares, Inc. (NASDAQ/PEOP)		07/07/10		66.1		4.0			7.5			4.2			39.9
Fairmount Bancorp, Inc. (OTC/FMTB)		06/03/10		4.4		0.0			5.0			10.0			60.0
Harvard Illinois Bancorp, Inc. (OTC/HARI)		04/09/10		7.8		0.0			0.0			(1.0	)		(1.0	)
OBA Financial Services, Inc. (NASDAQ/OBAF)		01/22/10		46.3		3.9			1.5			3.0			47.5
OmniAmerican Bancorp, Inc. (NASDAQ/OABC)		01/21/10		119.0		18.5			14.0			9.9			45.8
Versailles Financial Corp. (OTC/VERF)		01/11/10		4.3		0.0			0.0			0.0			40.0
Athens Bancshares Corp. (NASDAQ/AFCB)		01/07/10		26.8		16.0			15.0			10.6			35.3
All Transactions:
Average				33.2		7.3			7.6			8.5			30.2
Median				17.3		3.9			7.5			7.5			35.3
NASDAQ Transactions:
Average				55.5		11.1			9.9			10.9			34.0
Median				34.8		16.0			14.0			7.2			39.9

This table is not intended to indicate how our stock may perform. Furthermore, this table presents only short-term price performance with respect to a limited number of companies that have only recently completed their initial public offerings and may not be indicative of the longer-term stock price performance of these companies.

Stock price appreciation or depreciation is affected by many factors, including, but not limited to: general market and economic conditions; the interest rate environment; the amount of proceeds a company raises in its offering and its ability to successfully deploy those proceeds through originating loans and making other investments; and numerous factors relating to the specific company, including the experience and ability of management, historical and anticipated operating results, the nature and quality of the company’s assets, and the company’s primary market area. The companies listed in the table above may not be similar to ASB Bancorp, Inc., the pricing ratios for their stock offerings were in some cases different from the pricing ratios for ASB Bancorp, Inc.’s common stock and the market conditions in which these offerings were completed were, in some cases, different from current market conditions. Any or all of these differences may cause our stock to perform differently from these other offerings. Before you make an investment decision, we urge you to read carefully this prospectus, including, but not limited to, the section entitled “Risk Factors.”

You also should be aware that, recently, stock prices of some thrift initial public offerings have decreased once the stock has begun trading. We cannot assure you that our stock will not trade below the $10.00 purchase price or that our stock will perform similarly to other recent mutual to stock conversions.

Conditions to Completing the Conversion and Offering

We are conducting the conversion and offering under the terms of our plan of conversion. We cannot complete the conversion and offering unless:

• we sell at least the minimum number of shares offered;

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• we receive the final approval of the North Carolina Commissioner of Banks and the non-objection of the Federal Deposit Insurance Corporation to complete the offering;

• we receive the final approval of the Federal Reserve Board for ASB Bancorp, Inc. to become a bank holding company and to acquire all of the outstanding shares of common stock of Asheville Savings Bank; and

• our members approve the plan of conversion.

Reasons for the Conversion and Offering (page     )

Our primary reasons for the conversion and offering are to:

• enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through traditional funding and lending activities;

• support future branching activities and/or the acquisition of other financial institutions or financial services companies;

• enhance Asheville Savings Bank’s ability to compete in its primary market area by offering new products and services;

• increase our capital to meet anticipated industry-wide increases in regulatory capital requirements; and

• implement equity compensation plans to retain and attract qualified directors, officers and staff to enhance the current incentive-based compensation programs.

Benefits of the Offering to Management (page     )

We intend to adopt the following benefit plans and employment agreements:

Employee Stock Ownership Plan. We have adopted an employee stock ownership plan that will purchase in the conversion offering a number of shares of common stock equal to 8% of the shares sold in the offering by means of a 15-year loan from ASB Bancorp, Inc. As the loan is repaid and shares are released from collateral, the plan will allocate shares to the accounts of participating employees. Participants will receive allocations based on their individual compensation as a percentage of total plan compensation. Non-employee directors are not eligible to participate in the employee stock ownership plan. The purchase of common stock by the employee stock ownership plan in the offering will comply with all applicable regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks except to the extent waived by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan.

Future Equity Incentive Plan. We intend to implement an equity incentive plan no earlier than six months after completion of the conversion. If we implement the plan within one year after the conversion, the plan must be approved by a majority of the total votes eligible to be cast by our shareholders. If we implement the plan more than one year after the conversion, it must be approved only by a majority of the total votes cast. Under this plan, we may award stock options and shares of restricted stock to key employees and directors. We will award shares of restricted stock at no cost to the recipient. We will grant stock options at an exercise price at least equal to 100% of the fair market value of our common stock on the option grant date. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. Under this plan, we may grant stock options in an amount up to 10% of the number of shares sold in the offering, and we may grant awards of restricted stock in an amount up to 4% of the number of shares sold in the offering. The equity incentive plan will comply with all applicable regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks except to the extent waived by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks.

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The following table represents the total value of all shares to be available for restricted stock awards under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. The value of the grants will depend on the actual trading price of our common stock at the time of grant.

		Value of
Share Price		214,200 Shares Awarded  at Minimum of Range		252,000 Shares Awarded  at Midpoint of Range		289,800 Shares Awarded at Maximum of Range		333,270 Shares Awarded at Maximum, as Adjusted, of Range
		(In thousands, except per share amounts)
$	8.00	$	1,714	$	2,016	$	2,318	$	2,666
	10.00		2,142		2,520		2,898		3,333
	12.00		2,570		3,024		3,478		3,999
	14.00		2,999		3,528		4,057		4,666

The following table presents the total value of all stock options available for grant under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. For purposes of this table, the value of the stock options was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.” Financial gains can be realized on a stock option only if the market price of the common stock increases above the exercise price at which the option is granted.

				Value of
Exercise Price		Option Value		535,500 Options Granted at Minimum of Range		630,000 Options Granted at Midpoint of Range		724,500 Options Granted at Maximum of Range		833,175 Options Granted at Maximum, as Adjusted, of Range
				(In thousands, except per share amounts)
$	8.00	$	3.28	$	1,756	$	2,066	$	2,376	$	2,733
	10.00		4.11		2,201		2,589		2,978		3,424
	12.00		4.93		2,640		3,106		3,572		4,108
	14.00		5.75		3,079		3,623		4,166		4,791

The following table summarizes at the maximum of the offering range the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire and the total value of all restricted stock awards and stock options that are expected to be available under the equity incentive plan. At the maximum of the offering range, we would sell 7,245,000 shares and have 7,245,000 shares outstanding. The number of shares reflected for the benefit plans in the table below assumes that Asheville Savings Bank’s tangible capital will be 10% or more following the completion of the offering and the application of the net proceeds as described under “Use of Proceeds.”

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	Number of Shares to be Granted or Purchased
	At  Maximum of Offering Range		As a % of Common Stock Sold at Maximum of Offering Range			As a % of Common Stock Outstanding			Total Estimated Value of Grants (In thousands)
Employee stock ownership plan (1)		579,600		8.00	%		8.00	%	$	5,796
Restricted stock awards (1)		289,800		4.00			4.00			2,898
Stock options (2)		724,500		10.00			10.00			2,978
Total		1,593,900		22.00	%		22.00	%	$	11,672

(1) Assumes the value of ASB Bancorp, Inc. common stock is $10.00 per share for purposes of determining the total estimated value of the grants.

(2) Assumes the value of a stock option is $4.11, which was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.”

Employment Agreements. ASB Bancorp, Inc. and Asheville Savings Bank intend to enter into (i) a three-year employment agreement with Suzanne S. DeFerie, our President and Chief Executive Officer, and (ii) two-year employment agreements (each with a three-year change in control provision) with Kirby A. Tyndall, our Executive Vice President and Chief Financial Officer, David A. Kozak, our Executive Vice President and Chief Lending Officer, and Fred A. Martin, our Executive Vice President and Chief Information Officer. Based solely on initial cash compensation payable under the employment agreements and excluding any benefits that would be payable under any employee benefit plan, if a change in control of ASB Bancorp, Inc. occurred and we terminated Ms. DeFerie and Messrs. Tyndall, Kozak and Martin the total payments due under the employment agreements would be approximately $2.2 million.

The Offering Is Not Expected to Be Taxable to Persons Receiving or Exercising Subscription Rights (page     )

As a general matter, the offering is not expected to be a taxable transaction for purposes of federal income taxes to persons who receive or exercise subscription rights. We have received an opinion from our special counsel, Kilpatrick Townsend & Stockton LLP, that, for federal income tax purposes:

• it is more likely than not that the members of Asheville Savings Bank will not realize any income upon the issuance or exercise of subscription rights;

• it is more likely than not that the tax basis to the purchasers in the offering will be the amount paid for our common stock, and that the holding period for shares of common stock will begin on the date of completion of the subscription offering; and

• the holding period for shares of common stock purchased in the community offering or syndicated community offering will begin on the day after the date of completion of the purchase.

Persons Who May Order Stock in the Offering (page     )

Note: Subscription rights are not transferable, and persons with subscription rights may not subscribe for shares for the benefit of any other person. If you violate this prohibition, you may lose your rights to purchase shares and may face criminal prosecution and/or other sanctions.

We have granted rights to subscribe for shares of ASB Bancorp, Inc. common stock in a “subscription offering” to the following persons in the following order of priority:

1. Persons with $50 or more on deposit at Asheville Savings Bank as of the close of business on February 28, 2010.

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2. Our employee stock ownership plan, which will provide retirement benefits to our employees.

3. Persons (other than our directors and officers) with $50 or more on deposit at Asheville Savings Bank as of the close of business on                     , 2011.

4. Asheville Savings Bank’s depositors as of the close of business on                     , 2011 who were not able to subscribe for shares under categories 1 or 3 and borrowers of Asheville Savings Bank as of                     ,                      whose borrowings still exist as of the close of business on                     , 2011.

Unlike our employee stock ownership plan, the Asheville Savings Bank 401(k) Plan has not been granted priority subscription rights. Accordingly, a 401(k) plan participant who elects to purchase shares in the offering through self-directed purchases within the 401(k) plan will receive the same subscription priority, and be subject to the same purchase limitations, as if the participant had elected to purchase shares using funds outside the 401(k) plan. See “Executive Compensation—Benefit Plans—401(k) Plan.”

If we receive subscriptions for more shares than are to be sold in this offering, we may be unable to fill or may only partially fill your order. Shares will be allocated in order of the priorities described above under a formula outlined in the plan of conversion. Generally, shares first will be allocated so as to permit each eligible subscriber, if possible, to purchase a number of shares sufficient to make the subscriber’s total allocation equal to 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining eligible subscribers whose subscriptions remain unfilled in proportion to the amounts that their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible subscribers whose subscriptions remain unfilled. If we increase the number of shares to be sold above 7,245,000, the employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See “The Conversion and Stock Offering — Subscription Offering and Subscription Rights” for a description of the allocation procedure.

We may offer shares not sold in the subscription offering, if any, to the general public in a community offering. People and trusts for the benefit of people who are residents of Buncombe, Madison, McDowell, Henderson and Transylvania Counties in North Carolina will be given a first preference to purchase shares in the community offering. We may, in our sole discretion, reject orders received in the community offering either in whole or in part. For example, we would reject an order submitted by a person whom we believe is making false representations or whom we believe is attempting to violate, evade or circumvent the terms and conditions of the plan of conversion. If your order is rejected in part, you cannot cancel the remainder of your order. The community offering may commence concurrently with the subscription offering or at any time thereafter and may terminate at any time without notice until                     , 2011, unless the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks approve a later date, which will not be beyond                     , 2012.

Shares not sold in the subscription offering or the community offering may be offered for sale in a syndicated community offering, which would be an offering to the general public on a best efforts basis managed by Keefe, Bruyette & Woods, Inc. Any syndicated community offering may terminate at any time without notice but not later than                     , 2011, unless the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks approve a later date, which will not be beyond                     , 2012. As in the case of the community offering, we may, in our sole discretion, reject orders received in the syndicated community offering either in whole or in part.

Deadline for Ordering Stock (page     )

The subscription offering will end at 12:00 noon, Eastern time, on                     , 2011. We expect that the community offering will terminate at the same time, although it may continue for up to 45 days after the end of the subscription offering, or longer if the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks approve a later date. No single extension may be for more than 90 days. If we extend the offering beyond                     , 2012, or if we intend to sell fewer than 5,355,000 shares or more than 8,331,750 shares, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will return your funds promptly with interest at our statement savings rate.

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Purchase Limitations (page     )

Our plan of conversion establishes limitations on the purchase of stock in the offering. These limitations include the following:

• The minimum purchase is 25 shares.

• No individual (or individuals on a single deposit account) may purchase more than $300,000 of common stock (which equals 30,000 shares) in the subscription offering.

• No individual may purchase more than $300,000 of common stock (which equals 30,000 shares) in the community offering.

• No individual together with any associates, and no group of persons acting in concert, may purchase more than $500,000 of common stock (which equals 50,000 shares) in all offering categories.

Subject to the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks’ approval, we may increase or decrease the purchase limitations at any time.

How to Purchase Common Stock (page     )

You can subscribe for shares of common stock in the offering by delivering a completed, original stock order and certification form (we are not required to accept copies or facsimiles), together with full payment or authorization to withdraw from one or more of your Asheville Savings Bank savings or certificate of deposit accounts, so that it is received (not postmarked) before 12:00 noon, Eastern time, on                     , which is the expiration of the subscription offering period.

You may submit your stock order by mail using the postage prepaid stock order reply envelope provided, or by overnight delivery to the address noted for that purpose on the top of the stock order and certification form. You may also hand deliver your stock order to our stock information center, located at Asheville Savings Bank’s operations center at 901 Smoky Park Highway, Candler, North Carolina, or to any Asheville Savings Bank full service branch location. Please do not mail order forms to Asheville Savings Bank branch locations. Stock order forms mailed to branch locations may not be accepted.

Once we receive your order, you cannot cancel or change it without our consent.

To ensure that we properly identify your subscription rights, you must list all of your deposit accounts as of the applicable eligibility date on the stock order form. If you fail to do so, your subscription may be reduced or rejected if the offering is oversubscribed. To preserve your purchase priority, only the name(s) of person(s) listed on your deposit account at the applicable date of eligibility should be listed on your order form. You may not add the names of others who were not eligible to purchase common stock in the offering on the applicable date of eligibility.

You may pay for shares in the subscription offering or the community offering in either of the following ways:

• By check or money order made payable to ASB Bancorp, Inc.; or

• By authorizing withdrawal from a savings or certificate of deposit account at Asheville Savings Bank.

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To use funds in an Individual Retirement Account at Asheville Savings Bank, you must transfer your account to an unaffiliated institution or broker and open a self-directed Individual Retirement Account. Individual Retirement Accounts at Asheville Savings Bank are not self-directed and common stock may only be purchased using a self-directed Individual Retirement Account. Please contact your broker or financial institution as quickly as possible to determine if you may transfer your Individual Retirement Account from Asheville Savings Bank because the transfer may take significant time.

We will pay interest on your subscription funds at the rate we pay on statement savings accounts, which is currently 0.31% per annum, from the date we receive your funds until the offering is completed or terminated. All funds authorized for withdrawal from deposit accounts with us will earn interest at the applicable account rate until the offering is completed or terminated. If, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will earn interest at our statement savings rate. There will be no early withdrawal penalty for withdrawals from certificates of deposit used to pay for stock.

How We Will Use the Proceeds of this Offering (page     )

The following table summarizes how we will use the proceeds of this offering, based on the sale of shares at the minimum and maximum of the offering range.

(In thousands)	Minimum  5,355,000 Shares at $10.00 Per Share			Maximum  7,245,000 Shares at $10.00 Per Share
Offering proceeds	$	53,550		$	72,450
Less estimated offering expenses		(1,837	)		(2,010	)
Net offering proceeds		51,713			70,440
Less:
Proceeds contributed to Asheville Savings Bank		(25,857	)		(35,220	)
Proceeds used for loan to employee stock ownership plan		(4,284	)		(5,796	)
Proceeds remaining for ASB Bancorp, Inc.	$	21,572		$	29,424

ASB Bancorp, Inc. may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Asheville Savings Bank may use the portion of the proceeds that it receives, among other things, to fund new loans, open new branches, invest in securities and expand its business activities. ASB Bancorp, Inc. and Asheville Savings Bank may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time. Except as described above, neither ASB Bancorp, Inc. nor Asheville Savings Bank has any specific plans for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. For a discussion of our business reasons for undertaking this offering, see “The Conversion and Stock Offering — Reasons for the Conversion.”

Purchases by Directors and Executive Officers (page     )

We expect that our directors and executive officers, together with their associates, will subscribe for 160,500 shares, which equals 3.0% of the shares that would be sold at the minimum of the offering range. Our directors and executive officers, together with their associates, will pay the same $10.00 price per share as everyone else who purchases shares in the offering. Like all of our depositors, our directors and executive officers and their associates have subscription rights based on their deposits and, if there is an oversubscription, their orders will be subject to the allocation provisions set forth in our plan of conversion, unless waived by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. Purchases by our directors and executive officers and their associates will count towards the minimum number of shares we must sell to close the offering.

Market for ASB Bancorp, Inc.’s Common Stock (page     )

We have received conditional approval to list the common stock of ASB Bancorp, Inc. for trading on the Nasdaq Global Market under the symbol “ASBB.” Keefe, Bruyette & Woods, Inc. currently intends to become a market maker in the common stock, but it is under no obligation to do so. In addition, if needed, Keefe, Bruyette &

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Woods, Inc. will assist us in obtaining additional market makers. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for our common stock will develop or, if developed, will be maintained. After shares of the common stock begin trading, you may contact a stock broker to buy or sell shares.

ASB Bancorp, Inc.’s Dividend Policy (page     )

Following the offering, our board of directors will consider adopting a policy of paying cash dividends. We cannot guarantee that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future. Our ability to pay dividends will depend on a number of factors, including capital requirements, regulatory limitations and our operating results and financial condition.

Delivery of Prospectus

To ensure that each person receives a prospectus at least 48 hours before the offering deadline, we may not mail prospectuses any later than five days before such date or hand-deliver prospectuses later than two days before that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or order form by means other than U.S. mail.

We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at 12:00 noon, Eastern time, on                     , 2011 whether or not we have been able to locate each person entitled to subscription rights.

Delivery of Stock Certificates (page     )

Certificates representing shares of common stock issued in the offering will be mailed to purchasers at the address provided by them on the order form as soon as practicable following completion of the offering. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock will have commenced.

Stock Information Center

If you have any questions regarding the offering, please call the stock information center at (        )              -              to speak to a registered representative of Keefe, Bruyette & Woods, Inc. Representatives are available by telephone Monday through Friday, 10:00 a.m. to 6:00 p.m., Eastern time. You may also meet in person with a representative by visiting our stock information center located at our operations center at 901 Smoky Park Highway, Candler, North Carolina. The stock information center will be open Monday, 12:00 noon to 5:00 p.m. Eastern time, Tuesday through Thursday, 9:00 a.m. to 5:00 p.m., Eastern time, and Friday, 9:00 a.m. to 12:00 noon, Eastern time. The stock information center will be closed on weekends and bank holidays.

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RISK FACTORS

You should consider carefully the following risk factors before purchasing ASB Bancorp, Inc. common stock.

Risks Related to Our Business

Significant loan losses could require us to increase our allowance for loan losses through a charge to earnings.

When we loan money we incur the risk that our borrowers will not repay their loans. We provide for loan losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of loan losses inherent in our loan portfolio. The process for determining the amount of the allowance is critical to our financial condition and results of operations. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans. We might underestimate the loan losses inherent in our loan portfolio and have loan losses in excess of the amount recorded in our allowance for loan losses. In addition, we might increase the allowance because of changing economic conditions. For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase. There may be a significant increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in our charging off more loans and increasing our allowance. Furthermore, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high combined loan-to-value ratios. The recent decline in the national economy and the local economies of the areas in which our loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional loan loss allowances in future periods. In addition, our determination as to the amount of our allowance for loan losses is subject to review by our primary regulators, the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, as part of their examination process, which may result in the establishment of an additional allowance based upon the judgment of the Federal Deposit Insurance Corporation and/or the North Carolina Commissioner of Banks after a review of the information available at the time of their examination. Our allowance for loan losses amounted to $12.6 million and $12.7 million, or 2.6% and 2.5% of total loans outstanding and 89.0% and 94.4% of non-performing loans, at March 31, 2011 and December 31, 2010, respectively. Our allowance for loan losses at March 31, 2011 may not be sufficient to cover future loan losses. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would decrease our earnings. In addition, at March 31, 2011, we had 73 loan relationships with outstanding balances that exceeded $1.0 million, eight of which, with loan balances totaling $21.2 million, were not performing according to their original terms. The deterioration of one or more of these loans could result in a significant increase in our non-performing loans and our provision for loan losses, which would negatively impact our results of operations.

Our commercial lending activities have exposed us to losses in recent periods and our continued emphasis on commercial lending may expose us to future lending risks.

Our emphasis on commercial mortgage, commercial construction and commercial land development loans has exposed us to losses as the recent economic recession has adversely affected businesses and developers in our market area. We are continuing to emphasize our commercial mortgage and commercial and industrial lending activities. However, due to recent economic conditions, we have stopped financing the construction of any properties built on a speculative basis and are emphasizing the origination of commercial mortgage loans secured by owner-occupied properties.

At March 31, 2011, our loan portfolio included $162.7 million, or 33.5% of total loans, of commercial mortgage loans, $27.8 million, or 5.74% of total loans, of commercial construction and land development loans, and $15.8 million, or 3.2% of total loans, of commercial and industrial loans. Commercial mortgage loans, commercial construction and land development loans and commercial and industrial loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of these loans often depends on the successful operation of the property and the income stream of the borrowers, and in the case of commercial construction and land development loans, the successful completion and sale of the project. Such loans

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typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Commercial and industrial loans also expose us to additional risks since they typically are made on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s business and are secured by non-real estate collateral that may depreciate over time. In addition, since such loans generally entail greater risk than one- to four-family residential mortgage loans, we may need to increase our allowance for loan losses in the future to account for the likely increase in probable credit losses associated with the growth of such loans. Also, many of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.

In addition, much of the loans in our commercial loan portfolio were originated in recent years and are unseasoned. Our commercial loan portfolio increased from $137.5 million or 28.4% of total loans, at December 31, 2006 to $250.2 million or 41.8% of total loans at December 31, 2009 and was $206.3 million, or 42.5% of total loans, at March 31, 2011. During this period, the largest increase in our commercial loan portfolio was in commercial mortgage loans, which increased from $87.1 million, or 18.0% of total loans, at December 31, 2006 to $162.7 million, or 33.5% of total loans, at March 31, 2011. Given the large portion of our commercial loan portfolio that is unseasoned, we do not have a significant payment history pattern from which to judge future collectability, particularly in this period of unfavorable economic conditions. As a result, it may be difficult to predict the future performance of this component of our loan portfolio and these loans may have high delinquency or charge-off levels above our historical experience, which could adversely impact our future performance.

A continuation or worsening of national and local economic conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which may negatively impact our financial condition and results of operations.

Our business activities and earnings are affected by general business conditions in the United States and in our primary market area. These conditions include short-term and long-term interest rates, inflation, unemployment levels, monetary supply, consumer confidence and spending, fluctuations in both debt and equity capital markets and the strength of the economy in the United States generally and in our primary market area in particular. In recent years, the national economy has experienced recessionary conditions that have resulted in general economic downturns, with rising unemployment levels, declines in real estate values and an erosion in consumer confidence. The economic recession has also had a negative impact on our primary market area. Based on published statistics as of March 2011, twelve counties in western North Carolina, including three of the five counties in our primary market area (Madison, McDowell and Transylvania Counties), had unemployment rates that exceeded both the national and state unemployment rates. In addition, our primary market area has experienced a softening of the local real estate market, including reductions in local property values, and a decline in the local manufacturing industry, which employs many of our borrowers. A prolonged or more severe economic downturn, continued elevated levels of unemployment, further declines in the values of real estate, or other events that affect household and/or corporate incomes could impair the ability of our borrowers to repay their loans in accordance with their terms. Continued or further deterioration in local economic conditions could also drive the level of loan losses beyond the level we have provided for in our allowance for loan and lease losses, which could necessitate increasing our provision for loans losses and reduce our earnings. Additionally, the demand for our products and services could be reduced, which would adversely impact our liquidity and the level of revenues we generate.

The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy.

Nearly all of our loans are secured by real estate or made to businesses in our primary market area, which consists of Buncombe, Madison, McDowell, Henderson and Transylvania Counties in North Carolina and the surrounding areas. This concentration makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as inflation, unemployment, recession or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure.

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Changes in interest rates may hurt our profits and asset value.

Our net interest income is the interest we earn on loans and investments less the interest we pay on our deposits and borrowings. Our interest rate spread is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our borrowings. Changes in interest rates could adversely affect our interest rate spread and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our interest rate spread to expand or contract. Our liabilities are shorter in duration than our assets, so they will adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs will rise faster than the yield we earn on our assets, causing our interest rate spread to contract until the yield catches up. Changes in the slope of the “yield curve”—or the spread between short-term and long-term interest rates—will also reduce our interest rate spread. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities are shorter in duration than our assets, when the yield curve flattens or even inverts, we will experience pressure on our interest rate spread as our cost of funds increases relative to the yield we can earn on our assets.

Our business strategy includes moderate growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

Over the long term, we expect to experience growth in our assets, our deposits and the scale of our operations, whether through organic growth or acquisitions. However, achieving our growth targets requires us to successfully execute our business strategies. Our business strategies include continuing to diversify our loan portfolio by increasing our commercial and industrial lending activities and introducing new and competitive deposit products. Our ability to successfully grow will also depend on the continued availability of loan opportunities that meet our stringent underwriting standards. If we do not manage our growth effectively, we may not be able to achieve our business plan, and our business and prospects could be adversely affected.

Financial reform legislation recently enacted by Congress will, among other things, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our costs of operations.

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository institutions, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as Asheville Savings Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10.0 billion in assets. Banks and savings institutions with $10.0 billion or less in assets will be examined by their applicable bank regulators.

In addition, the Dodd-Frank Act will increase shareholder influence over boards of directors by requiring certain public companies to give shareholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow shareholders to nominate and solicit votes for their own candidates using a company’s proxy materials.

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We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

Asheville Savings Bank is subject to extensive government regulation, supervision and examination by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. ASB Bancorp, Inc. will also be subject to regulation and supervision by the Federal Reserve Board upon the consummation of the conversion and offering. Such regulation, supervision and examination govern the activities in which we may engage, and is intended primarily for the protection of the deposit insurance fund and our depositors. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

We may have credit risk in our investment and mortgage-backed securities portfolio.

At March 31, 2011, $204.3 million, or 27.2% of our assets, consisted of investment and mortgage-backed securities, many of which were issued by, or have principal and interest payments guaranteed by Fannie Mae or Freddie Mac. On September 7, 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into federal conservatorship. Although the federal government has committed substantial capital to Fannie Mae and Freddie Mac, these credit facilities and other capital infusions may not be adequate for their needs. If the financial support is inadequate, or if additional support is not provided when needed, these companies could continue to suffer losses and could fail to honor their guarantees and other obligations. As a result, the future roles of Fannie Mae and Freddie Mac could be significantly altered. Failure by Fannie Mae or Freddie Mac to honor their guarantees or obligations, or a significant restructuring of their roles, could have a significant adverse affect on the market value and cash flows of the investment and mortgage-backed securities we hold, resulting in substantial losses. We also maintain an investment in Federal Home Loan Bank of Atlanta stock, which totaled $4.0 million at March 31, 2011. In response to unprecedented market conditions and potential future losses, the Federal Home Loan Bank of Atlanta has implemented an initiative to preserve capital by significantly reducing the amount of its cash dividend payments, which has adversely affected our income. If the Federal Home Loan Bank of Atlanta is unable to meet minimum regulatory capital requirements or is required to aid the remaining Federal Home Loan Banks, our holding of Federal Home Loan Bank of Atlanta stock may be determined to be other-than-temporarily impaired and may require a charge to earnings.

If we continue to experience reduced loan demand, we will be required to invest a significant percentage of the offering proceeds in investment securities, which typically have a lower yield than our loan portfolio.

In recent periods, we have experienced a decline in loan demand as deteriorating economic conditions have resulted in elevated unemployment rates, reductions in property values and a decline in the manufacturing industry within certain segments of our primary market area. If we continue to experience reduced loan demand upon consummation of the offering, we will be required to invest a significant percentage of the offering proceeds in investment securities, which generally yield substantially less than the loans we hold in our portfolio. This would negatively impact our results of operations, which are substantially dependent on our net interest income, or the difference between the interest income earned on our interest-earning assets and the interest expense paid on our interest-bearing liabilities.

Increased and/or special Federal Deposit Insurance Corporation assessments will hurt our earnings.

The recent economic recession has caused a high level of bank failures, which has dramatically increased Federal Deposit Insurance Corporation resolution costs and led to a significant reduction in the balance of the Deposit Insurance Fund. As a result, the Federal Deposit Insurance Corporation has significantly increased the initial base assessment rates paid by financial institutions for deposit insurance. Increases in the base assessment rate have increased our deposit insurance costs and negatively impacted our earnings. In addition, in May 2009, the Federal Deposit Insurance Corporation imposed a special assessment on all insured institutions. Our special assessment, which was reflected in earnings for the quarter ended June 30, 2009, was approximately $334,000. In December 2009, in lieu of imposing an additional special assessment, the Federal Deposit Insurance Corporation required all institutions to prepay their assessments for all of 2010, 2011 and 2012, which for us totaled $3.6 million. Additional increases in the base assessment rate or additional special assessments would negatively impact our earnings.

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Strong competition within our market area could hurt our profits and slow growth.

Although we consider ourselves competitive in our primary market area of Buncombe, Madison, McDowell, Henderson and Transylvania Counties in North Carolina and the surrounding areas, we face intense competition both in making loans and attracting deposits. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area.

Risks Related to this Offering

Our stock price may decline when trading commences.

If you purchase shares in the offering, you may not be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.

There may be a limited market for our common stock, which may adversely affect our stock price.

Although we have received conditional approval to list our shares of common stock for trading on the Nasdaq Global Market, our shares of common stock may not be actively traded. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock on short notice and the sale of a large number of shares at one time could temporarily depress the market price. There also may be a wide spread between the bid and asked price for our common stock. When there is a wide spread between the bid and asked price, the price at which you may be able to sell our common stock may be significantly lower than the price at which you could buy it at that time.

Additional expenses following the offering from operating as a public company will adversely affect our profitability.

Following the offering, our noninterest expenses will increase as a result of the additional financial accounting, legal and various other additional expenses usually associated with operating as a public company and complying with public company disclosure obligations. These obligations, including the substantial public reporting requirements, will also place additional demands on our existing management team.

Additional expenses following the offering from the implementation of new equity benefit plans will adversely affect our profitability.

We will recognize additional annual employee compensation and benefit expenses stemming from options and shares of common stock granted to employees, directors and executives under new benefit plans. These additional expenses will adversely affect our profitability. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be material. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards

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and stock options generally over the vesting period of awards made to recipients. These benefit expenses in the first year following the offering have been estimated to be approximately $1.1 million after taxes at the maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. For further discussion of these plans, see “Our Management — Benefit Plans.”

Our low return on equity may negatively impact the value of our common stock.

Return on equity, which equals net income divided by average equity, is a ratio used by many investors to compare the performance of a particular company with other companies. For the three months ended March 31, 2011, our annualized return on average equity was 3.73% and our return on average equity for the year ended December 31, 2010 was (13.01)%. Our pro forma return on equity for the same periods is estimated to be 1.21% and (8.31)%, respectively, and our pro forma shareholders’ equity to assets ratio at March 31, 2011 is estimated to be 15.39%, assuming the sale of shares at the maximum of the offering range. Our publicly traded thrift peers used in the independent appraisal as of May 9, 2011 had an average return on equity of (2.73)% for the twelve months ended March 31, 2011. Over time, we intend to use the net proceeds from this offering to increase earnings per share and book value per share, without assuming undue risk, with the goal of achieving a return on equity that is competitive with other publicly held companies. This goal could take a number of years to achieve, and it may not be attained, and the expected increase in our noninterest expenses following the offering due to operating as a public company and from new equity benefit plans will likely further deter our ability to achieve a competitive return on equity. Consequently, you should not expect a competitive return on equity in the near future. Failure to achieve a competitive return on equity might make an investment in our common stock unattractive to some investors and might cause our common stock to trade at lower prices than comparable companies with higher returns on equity. See “Pro Forma Data” for an illustration of the financial impact of this offering.

We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.

We intend to contribute approximately 50% of the net proceeds of the offering to Asheville Savings Bank. ASB Bancorp, Inc. may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Asheville Savings Bank may use the portion of the proceeds that it receives to, among other things, fund new loans, open new branches, invest in securities and expand its business activities. ASB Bancorp, Inc. and Asheville Savings Bank may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time. We have not allocated specific amounts of proceeds for any of these purposes, and we will have significant flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively would reduce our profitability.

A significant percentage of our common stock will be held or controlled by our directors and executive officers and benefit plans.

We expect that our directors and executive officers, together with their associates, will subscribe for 160,500 shares in the offering. In addition, we intend to establish an employee stock ownership plan that will purchase an amount of shares equal to 8.0% of the shares sold in the offering. As a result, upon consummation of the offering, a total of up to 588,900, or 11.0%, and 740,100, or 10.2%, of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively. Furthermore, additional shares will be held by directors and management following the implementation of an equity incentive plan, which we intend to implement no earlier than six months following the completion of the offering. The articles of incorporation and bylaws of ASB Bancorp, Inc. contain supermajority voting provisions that require that the holders of at least 80% of ASB Bancorp, Inc.’s outstanding shares of voting stock approve certain actions including, but not limited to, the consummation of a business combination with an interested shareholder and the amendment of certain provisions of ASB Bancorp, Inc.’s articles of incorporation and bylaws. Because our directors and executive officers and benefit plans will hold a significant percentage of our outstanding common stock following the completion of the offering, the shares held by those individuals and benefit plans could be voted in a manner that would help ensure that the 80% supermajority needed to approve such actions could not be attained. For more information on the restrictions included in the articles of incorporation and bylaws of ASB Bancorp, Inc., see “Restrictions on the Acquisition of ASB Bancorp, Inc. and Asheville Savings Bank.”

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Issuance of shares for benefit programs may dilute your ownership interest.

We intend to adopt an equity incentive plan following the offering. If shareholders approve the new equity incentive plan, we intend to issue shares to our officers, employees and directors through this plan. If the restricted stock awards under the equity incentive plan are funded from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 3.8%, assuming awards of common stock equal to 4% of the shares sold in the offering are awarded under the plan. If the shares issued upon the exercise of stock options under the equity incentive plan are issued from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 9.1%, assuming stock option grants equal to 10% of the shares sold in the offering are granted under the plan. See “Pro Forma Data” and “Our Management — Benefit Plans.”

The articles of incorporation and bylaws of ASB Bancorp, Inc. and certain regulations may prevent or make more difficult certain transactions, including a sale or merger of ASB Bancorp, Inc.

Provisions of the articles of incorporation and bylaws of ASB Bancorp, Inc. may make it more difficult for companies or persons to acquire control of ASB Bancorp, Inc. Consequently, our shareholders may not have the opportunity to participate in such a transaction and the trading price of our common stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. These provisions also make more difficult the removal of current directors or management, or the election of new directors. These provisions include:

• an 80% supermajority voting requirement for shareholders to approve certain business combinations, which may have the effect of preventing a business combination which a majority of shareholders deem desirable but that is opposed by the board of directors;

• a limitation on the right to vote shares by any person who directly or indirectly beneficially owns more than 10% of ASB Bancorp, Inc.’s common stock by prohibiting the person from voting any shares held in excess of the 10% limit, which will prevent greater than 10% shareholders from voting all of their shares in favor of a proposed transaction or a nominee for director that is opposed by the board of directors;

• a provision that permits the board of directors to consider a variety of factors, including the social or economic effects of the transaction and the earnings prospects, experience and integrity of the acquirer, when evaluating a transaction that may involve a change in control of ASB Bancorp, Inc., which may enable the board of directors to oppose a transaction even if the price offered is significantly greater than the market price of ASB Bancorp, Inc.’s common stock;

• the election of directors to staggered terms of three years, which will prevent shareholders from effecting a change in the composition of the entire board of directors at any annual shareholders’ meeting;

• a requirement that director vacancies may only be filled by a majority vote of the board of directors, which prevents shareholders from nominating themselves or persons of their choosing to fill any vacancies on the board of directors;

• certain director eligibility requirements, including age, share ownership, residency and integrity requirements, which may perpetuate the terms of incumbent directors by preventing some individuals from serving as directors;

• a requirement that directors may be removed only for cause, which may perpetuate the terms of incumbent directors by preventing shareholders from voting to remove directors for reasons other than cause;

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• the absence of cumulative voting by shareholders in the election of directors, which, by preventing shareholders from voting their shares for or against a single nominee, makes it more difficult for shareholders to elect nominees opposed by the board of directors;

• a requirement that special meetings of shareholders may only be called by the board of directors, which prevents shareholders from calling a special meeting of shareholders to vote on a proposed transaction opposed by the board of directors;

• a requirement that shareholder proposals and nominations must generally be received not less than ninety days before the date of the annual meeting of shareholders and be subject to certain procedural and content requirements, which affords ASB Bancorp, Inc. additional time to rebut proposals that it opposes but that may be favored by shareholders;

• the ability of the board of directors to issue additional shares of common stock or shares of preferred stock without the prior approval of shareholders, which may enable the board of directors to impede a merger, tender offer or other takeover attempt that it opposes by making the transaction more expensive for the potential acquiror; and

• an 80% supermajority voting requirement to (i) amend the articles of incorporation provisions regarding the size and election of the board of directors, removal of directors, elimination of directors’ liability, indemnification, limitations on shareholder voting rights, approval of certain business combinations, calling of special meetings of shareholders and the evaluation of business combinations; and (ii) approve any amendment to the bylaws, which may make it more difficult to modify or eliminate such anti-takeover provisions included in the articles of incorporation and bylaws.

For further information, see “Restrictions on Acquisition of ASB Bancorp, Inc. and Asheville Savings Bank.”

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A WARNING ABOUT FORWARD-LOOKING STATEMENTS

This prospectus 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:

• statements of our goals, intentions and expectations;

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

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

• estimates of our risks and future costs and benefits.

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

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

• a continued decline in real estate values;

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

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

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

• adverse changes in the securities markets; and

• 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.

Any of the forward-looking statements that we make in this prospectus 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.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The summary consolidated financial information presented below is derived in part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 is derived in part from the audited consolidated financial statements of Asheville Savings Bank that appear elsewhere in this prospectus. The information at December 31, 2008, 2007 and 2006 and for the years ended December 31, 2007 and 2006 is derived in part from audited financial statements of Asheville Savings Bank and subsidiaries that do not appear in this prospectus.

The selected data at March 31, 2011 and for the three months ended March 31, 2011 and 2010 was not audited, but in the opinion of management, represents all adjustments necessary for a fair presentation. All of these adjustments are normal and recurring. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results of operations that may be expected for the entire year.

	At March 31,		At December 31,
(In thousands)	2011		2010		2009		2008		2007		2006
	(Unaudited)
Selected Financial Condition Data:
Total assets	$	750,709	$	749,965	$	749,307	$	705,095	$	638,656	$	597,034
Cash and cash equivalents		26,436		24,234		23,176		39,384		54,789		54,006
Securities available-for-sale		198,596		175,445		90,057		37,362		26,996		23,930
Investment securities held-to-maturity		5,720		5,948		6,958		5,442		10,856		12,523
Federal Home Loan Bank stock		3,970		3,970		3,993		5,020		3,325		2,952
Loans receivable, net		472,097		487,327		588,607		583,692		516,080		478,981
Loans held for sale		1,263		8,386		3,890		2,926		2,548		2,107
Foreclosed real estate		10,506		10,650		3,699		6,272		—		—
Deposits		616,586		619,757		608,538		535,640		505,290		482,000
Overnight and short-term borrowings		1,404		1,008		1,694		31,219		4,561		1,704
Advances from Federal Home Loan Bank		60,000		60,000		60,000		60,000		50,000		40,000
Total equity		63,295		62,881		73,649		69,921		71,059		66,822

	For the Three Months Ended March 31,				For the Year Ended December 31,
(In thousands)	2011		2010		2010			2009		2008		2007		2006
	(Unaudited)
Selected Operating Data:
Interest and dividend income	$	7,382	$	8,678	$	32,815		$	35,654	$	36,683	$	39,091	$	35,126
Interest expense		2,304		3,051		11,444			14,772		16,745		19,116		15,751
Net interest income		5,078		5,627		21,371			20,882		19,938		19,975		19,375
Provision for loan losses		657		1,859		22,419			4,655		3,049		932		647
Net interest income (loss) after provision for loan losses		4,421		3,768		(1,048	)		16,227		16,889		19,043		18,728
Noninterest income		1,680		2,058		7,683			7,166		5,286		5,686		5,920
Noninterest expenses		5,232		5,154		22,167			21,071		18,361		17,395		16,402
Income (loss) before income tax provision		869		672		(15,532	)		2,322		3,814		7,334		8,246
Income tax provision (benefit)		284		242		(6,074	)		791		1,382		2,642		2,983
Net income (loss)	$	585	$	430	$	(9,458	)	$	1,531	$	2,432	$	4,692	$	5,263

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	At or For the Three Months Ended March 31,						At or For the Year Ended December 31,
	2011			2010			2010			2009			2008			2007			2006
	(Unaudited)
Performance Ratios (1):
Return on average assets		0.32	%		0.23	%		(1.25	)%		0.21	%		0.37	%		0.75	%		0.90	%
Return on average equity		3.73			2.32			(13.01	)		2.14			3.33			6.70			8.10
Interest rate spread (2)		2.76			2.93			2.73			2.69			2.74			2.83			3.06
Net interest margin (3)		2.92			3.17			2.95			2.98			3.15			3.33			3.49
Other expenses to average assets		2.85			2.78			2.92			2.88			2.77			2.77			2.81
Efficiency ratio (4)		77.42			66.95			76.18			75.07			72.79			67.79			64.84
Average interest-earning assets to average interest-bearing liabilities		111.72			114.00			113.85			113.87			115.38			115.57			114.89
Average equity to average assets		8.55			9.98			9.57			9.78			11.01			11.14			11.13
Capital Ratios:
Total risk-based capital (to risk-weighted assets)		14.94			15.03			14.31			14.98			15.03			16.51			16.67
Tier I risk-based capital (to risk-weighted assets)		13.67			13.78			13.04			13.72			13.84			15.42			15.59
Tier I leverage capital (to total assets)		8.60			10.13			8.33			10.13			10.98			11.16			11.34
Tangible capital (to adjusted total assets)		8.43			9.73			8.38			9.83			9.92			11.13			11.19
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans		2.61			1.56			2.54			1.51			1.09			0.97			0.96
Allowance for loan losses as a percent of non-performing loans		89.02			52.18			94.43			39.90			180.26			102.98			192.45
Net charge-offs to average outstanding loans during the period		0.58			1.22			3.37			0.34			0.31			0.10			0.13
Non-performing loans as a percent of total loans		2.93			2.98			2.68			3.77			0.60			0.95			0.50
Non-performing assets as a percent of total assets		3.29			2.82			3.21			3.50			1.39			0.77			0.40
Other Data:
Number of offices		13			13			13			13			13			12			12
Number of deposit accounts		71,389			64,965			72,297			64,623			55,572			49,614			49,654
Number of loans		10,356			12,871			10,417			13,766			15,449			21,816			21,585

(1) Performance ratios for the three months ended March 31, 2011 and 2010 are annualized.

(2) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost on average interest-bearing liabilities. Tax exempt income is reported on a tax equivalent basis using a federal marginal tax rate of 34%.

(3) Represents net interest income as a percent of average interest-earning assets. Tax exempt income is reported on a tax equivalent basis using a federal marginal tax rate of 34%.

(4) Represents other expenses divided by the sum of net interest income and other income.

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USE OF PROCEEDS

The following table shows how we intend to use the net proceeds of the offering. The actual net proceeds will depend on the number of shares of common stock sold in the offering and the actual expenses incurred in connection with the offering. Payments for shares made through withdrawals from deposit accounts at Asheville Savings Bank will reduce deposits and will not result in the receipt of new funds for investment. See “Pro Forma Data” for the assumptions used to arrive at these amounts.

	Minimum of Offering Range						Midpoint of Offering Range						Maximum of Offering Range						Maximum, as Adjusted, of Offering Range
(Dollars in thousands)	5,355,000 Shares at $10.00 Per Share			Percent of Net Proceeds			6,300,000 Shares at $10.00 Per Share			Percent of Net Proceeds			7,245,000 Shares at $10.00 Per Share			Percent of Net Proceeds			8,331,750 Shares at $10.00 Per Share			Percent of Net Proceeds
Offering proceeds	$	53,550					$	63,000					$	72,450					$	83,318
Less: estimated offering expenses		(1,837	)					(1,924	)					(2,010	)					(2,110	)
Net offering proceeds	$	51,713			100.0	%	$	61,076			100.0	%	$	70,440			100.0	%	$	81,208			100.0	%
Less:
Proceeds contributed to Asheville Savings Bank	$	(25,857	)		(50.0	)%	$	(30,538	)		(50.0	)%	$	(35,220	)		(50.0	)%	$	(40,604	)		(50.0	)%
Proceeds used for loan to employee stock ownership plan		(4,284	)		(8.3	)		(5,040	)		(8.3	)		(5,796	)		(8.2	)		(6,665	)		(8.2	)
Proceeds remaining for ASB Bancorp, Inc. (1)	$	21,572			41.7	%	$	25,498			41.7	%	$	29,424			41.8	%	$	33,938			41.8	%

(1) Following the completion of the stock offering and in accordance with applicable regulations, ASB Bancorp, Inc. may purchase shares of its common stock in the open market in order to grant awards of restricted stock under its proposed equity incentive plan. Assuming a market price of $10.00 per share at the time of purchase, the cost of acquiring the shares would be approximately $4.3 million (428,400 shares) at the minimum of the offering range, $5.0 million (504,000 shares) at the midpoint of the offering range, $5.8 million (579,600 shares) at the maximum of the offering range and $6.7 million (666,540 shares) at the maximum, as adjusted, of the offering range. See “Pro Forma Data” and “Our Management — Benefit Plans — Nonqualified Deferred Compensation — Future Equity Incentive Plan.”

ASB Bancorp, Inc. intends to invest the proceeds it retains from the offering initially in short-term, liquid investments. Over time, ASB Bancorp, Inc. may use the proceeds it retains from the offering:

• to invest in securities;

• to repurchase shares of its common stock, subject to regulatory restrictions;

• to finance the possible acquisition of financial institutions or other businesses that are related to banking, although we currently have no definitive plans or commitments regarding potential acquisition opportunities;

• for the possible payment of dividends to shareholders; and

• for general corporate purposes.

Under current Federal Deposit Insurance Corporation regulations, ASB Bancorp, Inc. may not repurchase shares of its common stock during the first year following the offering, except to fund shareholder-approved equity benefit plans or, with prior regulatory approval, when extraordinary circumstances exist.

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Asheville Savings Bank may use the proceeds that it receives from the offering, which is shown in the table above as the amount contributed to Asheville Savings Bank:

• to fund new loans;

• to finance the possible expansion of its business activities through the establishment or acquisition of new branch offices and/or the acquisition of other financial institutions or financial services companies, including through Federal Deposit Insurance Corporation assisted transactions, although we currently have no definitive plans or commitments regarding potential expansion or acquisition opportunities;

• to invest in securities; and

• for general corporate purposes.

We may need regulatory approvals to engage in some of the activities listed above.

Except as described above, neither ASB Bancorp, Inc. nor Asheville Savings Bank has any specific plans for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. For a discussion of our business reasons for undertaking the offering, see “The Conversion and Stock Offering — Reasons for the Conversion.”

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OUR DIVIDEND POLICY

Following the offering, our board of directors will consider adopting a policy of paying cash dividends. We cannot guarantee that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future.

The board of directors may declare and pay periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards, and economic conditions. We will also consider the regulatory restrictions that affect the payment of dividends by Asheville Savings Bank to us, discussed below.

ASB Bancorp, Inc. is subject to North Carolina law, which generally prohibits ASB Bancorp, Inc. from paying dividends on its common stock if, after giving effect to the distribution, it would be unable to pay its debts as they become due in the usual course of business or if its total assets would be less than the sum of its liabilities and the amount that would be needed, if ASB Bancorp, Inc. were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference upon dissolution.

ASB Bancorp, Inc. will not be subject to Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks regulatory restrictions on the payment of dividends. However, our ability to pay dividends may depend, in part, upon dividends we receive from Asheville Savings Bank because we initially will have no source of income other than dividends from Asheville Savings Bank and earnings from the investment of the net proceeds from the offering that we retain. North Carolina banking law and Federal Deposit Insurance Corporation regulations limit dividends and other distributions from Asheville Savings Bank to us. For example, Asheville Savings Bank may not declare or pay a cash dividend on its capital stock if its effect would be to reduce the regulatory capital of Asheville Savings Bank below the amount required for the liquidation account to be established as required by Asheville Savings Bank’s plan of conversion. Similarly, no insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized. See “Regulation and Supervision — North Carolina Banking Laws and Supervision — Dividends” and “The Conversion and Stock Offering — Effects of Conversion to Stock Form — Liquidation Account.”

Any payment of dividends by Asheville Savings Bank to us that would be deemed to be drawn out of Asheville Savings Bank’s bad debt reserves would require Asheville Savings Bank to pay federal income taxes at the then current income tax rate on the amount deemed distributed. See “Federal and State Taxation — Federal Income Taxation.” ASB Bancorp, Inc. does not contemplate any distribution by Asheville Savings Bank that would result in this type of tax liability.

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MARKET FOR THE COMMON STOCK

We have not previously issued common stock and there is currently no established market for the common stock. We have received conditional approval to list our common stock for trading on the Nasdaq Global Market under the symbol “ASBB” upon completion of the offering. Keefe, Bruyette & Woods, Inc. intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. Keefe, Bruyette & Woods, Inc. also will assist us, if needed, in obtaining other market makers after the offering. We will try to obtain at least three market makers for our stock, but we cannot assure you that other market makers will be obtained or that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.

The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold. There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering. Purchasers of our common stock should recognize that there may be a limited trading market in the common stock and, therefore, should have the financial ability to withstand a longer-term investment horizon.

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CAPITALIZATION

The following table presents the historical capitalization of Asheville Savings Bank at March 31, 2011 and the capitalization of ASB Bancorp, Inc. reflecting the offering (referred to as “pro forma” information). The pro forma capitalization gives effect to the assumptions listed under “Pro Forma Data,” based on the sale of the number of shares of common stock indicated in the table. This table does not reflect the issuance of additional shares as a result of the exercise of options granted under the proposed equity incentive plan. A change in the number of shares to be issued in the offering may materially affect pro forma capitalization. We are offering our common stock on a best efforts basis. We must sell a minimum of 5,355,000 shares to complete the offering.

				Pro Forma Capitalization Based Upon the Sale of
(Dollars in thousands, except per share amounts)	Capitalization as of March 31, 2011			5,355,000 Shares at $10.00 Per Share			6,300,000 Shares at $10.00 Per Share			7,245,000 Shares at $10.00 Per Share			8,331,750 Shares at $10.00 Per Share
Deposits (1)	$	616,586		$	616,586		$	616,586		$	616,586		$	616,586
Borrowings		61,404			61,404			61,404			61,404			61,404
Total deposits and borrowed funds	$	677,990		$	677,990		$	677,990		$	677,990		$	677,990
Shareholders’ equity:
Preferred stock:
10,000,000 shares, $0.01 par value per share, authorized; none issued or outstanding	$	—		$	—		$	—		$	—		$	—
Common stock:
60,000,000 shares, $0.01 par value per share, authorized; specified number of shares assumed to be issued and outstanding (2)		—			54			63			72			83
Additional paid-in capital		—			51,659			61,013			70,368			81,124
Retained earnings (3)		67,106			67,106			67,106			67,106			67,106
Accumulated other comprehensive (loss), net of tax		(3,811	)		(3,811	)		(3,811	)		(3,811	)		(3,811	)
Less :
Common stock acquired by employee stock ownership plan (4)		—			(4,284	)		(5,040	)		(5,796	)		(6,665	)
Common stock to be acquired by equity incentive plan (5)		—			(2,142	)		(2,520	)		(2,898	)		(3,333	)
Total shareholders’ equity	$	63,295		$	108,582		$	116,811		$	125,041		$	134,504
Shareholders’ equity to assets (1)		8.43	%		13.64	%		14.52	%		15.39	%		16.36	%

(1) Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits and assets by the amounts of the withdrawals.

(2) Reflects total issued and outstanding shares of 5,355,000, 6,300,000, 7,245,000 and 8,331,750 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively.

(3) Retained earnings are restricted by applicable regulatory capital requirements.

(4) Assumes that 8% of the shares of common stock sold in the offering will be acquired by the employee stock ownership plan in the offering with funds borrowed from ASB Bancorp, Inc. Under generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership plan represents unearned compensation and is, accordingly, reflected as a reduction of capital and a liability to the employee stock ownership plan. As shares are released to plan participants’ accounts, a compensation expense will be charged, along with related tax benefit, and a reduction in the charge against capital will occur in the amount of the compensation expense recognized. Since the funds are borrowed from ASB Bancorp, Inc., the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the financial statements of Asheville Savings Bank. The loan will be repaid principally through Asheville Savings Bank’s contributions to the employee stock ownership plan and dividends payable on common stock held by the plan over the anticipated 15-year term of the loan. See “Our Management — Benefit Plans — Employee Stock Ownership Plan.”

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(5) Assumes the purchase in the open market at $10.00 per share, for restricted stock awards under the proposed equity incentive plan, of a number of shares equal to 4% of the shares of common stock sold in the offering. The shares are reflected as a reduction of shareholders’ equity. The equity incentive plan will be submitted to shareholders for approval at a meeting following the offering. See “Risk Factors — Issuance of shares for benefit programs may dilute your ownership interest,” “Pro Forma Data” and “Our Management — Benefit Plans — Future Equity Incentive Plan.”

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REGULATORY CAPITAL COMPLIANCE

At March 31, 2011, Asheville Savings Bank exceeded all regulatory capital requirements. The following table presents Asheville Savings Bank’s capital position relative to its regulatory capital requirements at March 31, 2011, on a historical and a pro forma basis. The table reflects receipt by Asheville Savings Bank of 50% of the net proceeds of the offering. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan is deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see “Use of Proceeds,” “Capitalization” and “Pro Forma Data.” The definitions of the terms used in the table are those provided in the capital regulations issued by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. For a discussion of the capital standards applicable to Asheville Savings Bank, see “Regulation and Supervision — Federal Banking Regulations — Capital Requirements.”

						Pro Forma at March 31, 2011
						Minimum of Offering Range						Midpoint of Offering Range						Maximum of Offering Range						Maximum, as Adjusted, of Offering Range
	Historical at March 31, 2011					5,355,000 Shares At $10.00 Per Share						6,300,000 Shares At $10.00 Per Share						7,245,000 Shares At $10.00 Per Share						8,331,750 Shares At $10.00 Per Share
(Dollars in thousands)	Amount		Percent of Assets (1)			Amount			Percent of Assets			Amount			Percent of Assets			Amount			Percent of Assets			Amount			Percent of Assets
Total capital under generally accepted accounting principles	$	63,295		8.43	%	$	84,868			10.93	%	$	88,793			11.37	%	$	92,719			11.80	%	$	97,234			12.29	%
Tier 1 Leverage Capital:
Capital level (2)	$	64,241		8.60	%	$	85,814			11.11	%	$	89,739			11.54	%	$	96,665			11.98	%	$	98,180			12.47	%
Requirement		29,871		4.00			30,905			4.00			31,092			4.00			31,280			4.00			31,495			4.00
Excess	$	34,370		4.60	%	$	54,909			7.11	%	$	58,647			7.54	%	$	62,385			7.98	%	$	66,685			8.47	%
Tier 1 Risk–Based Capital:
Capital level (2)	$	64,241		13.67	%	$	85,814			18.07	%	$	89,739			18.85	%	$	93,665			19.64	%	$	98,180			20.54	%
Requirement		18,794		4.00			19,000			4.00			19,038			4.00			19,075			4.00			19,118			4.00
Excess	$	45,447		9.67	%	$	66,814			14.07	%	$	70,701			14.85	%	$	74,500			15.64	%	$	79,062			16.54	%
Total Risk-Based Capital:
Total risk-based capital (3)	$	70,207		14.94	%	$	91,780			19.32	%	$	95,705			20.11	%	$	99,631			20.89	%	$	104,146			21.79	%
Requirement		37,587		8.00			38,001			8.00			38,076			8.00			38,151			8.00			38,237			8.00
Excess	$	32,620		6.94	%	$	53,779			11.32	%	$	57,629			12.11	%	$	61,480			12.89	%	$	65,909			13.79	%
North Carolina Savings Bank Capital:
Capital (2)	$	76,873		10.24	%	$	98,466			20.73	%	$	102,371			21.51	%	$	106,297			22.29	%	$	110,812			23.18	%
Requirement		37,541		5.00			38,834			5.00			39,068			5.00			39,302			5.00			39,572			5.00
Excess	$	39,332		8.37	%	$	59,612			12.55	%	$	63,303			13.30	%	$	66,995			14.05	%	$	71,240			14.91	%
Reconciliation of capital infusion to Asheville Savings Bank:
Net proceeds of offering						$	51,713					$	61,076					$	70,440					$	81,207
Proceeds to Asheville Savings Bank							25,857						30,538						35,220						40,604
Less: stock acquired by ESOP							(4,284	)					(5,040	)					(5,796	)					(6,665	)
Pro forma increase in GAAP and regulatory capital						$	21,573					$	25,498					$	29,424					$	33,939

(1) Tangible capital and core capital levels are shown as a percentage of adjusted total assets of $750.7 million. Risk-based capital levels are shown as a percentage of risk-weighted assets of $469.8 million.

(2) See note 11 of the notes to consolidated financial statements for a reconciliation of total capital under generally accepted accounting principles and each of tangible capital, core capital, Tier 1 risked based capital and total risk-based capital.

(3) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk-weighting.

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PRO FORMA DATA

The following tables show information about our net income and shareholders’ equity reflecting the sale of common stock in the offering. The information provided illustrates our pro forma net income and shareholders’ equity based on the sale of common stock at the minimum of the offering range, the midpoint of the offering range, the maximum of the offering range and the maximum, as adjusted, of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions:

• All shares of stock will be sold in the subscription and community offerings;

• Our employee stock ownership plan will purchase a number of shares equal to 8% of the shares sold in the offering with a loan from ASB Bancorp, Inc. that will be repaid in equal installments over 15 years;

• Keefe, Bruyette & Woods, Inc. will receive a success fee equal to 1.00% of the aggregate dollar amount of the common stock sold in the subscription and community offerings, except that no fee will be paid with respect to shares purchased by the employee stock ownership plan or by our officers, directors and employees and members of their immediate families; and

• Total expenses of the offering, excluding fees paid to Keefe, Bruyette & Woods, Inc., will be approximately $1.36 million.

Actual expenses may vary from this estimate, and the amount of fees paid to Keefe, Bruyette & Woods, Inc. (and potentially other broker-dealers) will depend upon whether a syndicate of broker-dealers or other means is necessary to sell the shares, and other factors.

Pro forma net income for the three months ended March 31, 2011 and the year ended December 31, 2010 has been calculated as if the offering were completed at the beginning of the period, and the net proceeds had been invested at 0.80% for the three months ended March 31, 2011 and 0.61% for the year ended December 31, 2010, which represents the two-year treasury rate at March 31, 2011.

A pro forma after-tax return of 0.50% and 0.38% is used for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively, after giving effect to a combined federal and state income tax rate of 38.0% for each period. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the number of shares of common stock indicated in the tables.

When reviewing the following tables you should consider the following:

• The final column gives effect to a 15% increase in the offering range, which may occur without any further notice if Feldman Financial increases its appraisal to reflect the results of this offering, changes in our financial condition or results of operations or changes in market conditions after the offering begins. See “The Conversion and Stock Offering — How We Determined the Offering Range and the $10.00 Per Share Purchase Price.”

• Since funds on deposit at Asheville Savings Bank may be withdrawn to purchase shares of common stock, the amount of funds available for investment will be reduced by the amount of withdrawals for stock purchases. The pro forma tables do not reflect withdrawals from deposit accounts.

• Historical per share amounts have been computed as if the shares of common stock expected to be issued in the offering had been outstanding at the beginning of the period covered by the table. However, neither historical nor pro forma shareholders’ equity has been adjusted to reflect the investment of the estimated net proceeds from the sale of the shares in the offering, the additional employee stock ownership plan expense or the proposed equity incentive plan.

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• Pro forma shareholders’ equity (“book value”) represents the difference between the stated amounts of our assets and liabilities. Book value amounts do not represent fair market values or amounts available for distribution to shareholders in the unlikely event of liquidation. The amounts shown do not reflect the federal income tax consequences of the restoration to income of Asheville Savings Bank’s special bad debt reserves for income tax purposes or give effect to the liquidation account in the event of liquidation, which would be required in the unlikely event of liquidation. See “Federal and State Taxation” and “The Conversion and Stock Offering — Effects of Conversion to Stock Form — Liquidation Account.”

• The amounts shown as pro forma shareholders’ equity per share do not represent possible future price appreciation of our common stock.

The following pro forma data may not represent the actual financial effects of the offering or our operating results after the offering. The pro forma data relies exclusively on the assumptions outlined above and in the notes to the pro forma tables. The pro forma data does not represent the fair market value of our common stock, the current fair market value of our assets or liabilities, or the amount of money that would be available for distribution to shareholders if we are liquidated after the offering.

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We are offering our common stock on a best efforts basis. We must sell a minimum of 5,355,000 shares to complete the offering.

	Three Months Ended March 31, 2011
	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			Maximum, as Adjusted,  of Offering Range
(Dollars in thousands, except per share amounts)	5,355,000 Shares at $10.00 Per Share			6,300,000 Shares at $10.00 Per Share			7,245,000 Shares at $10.00 Per Share			8,331,750 Shares at $10.00 Per Share
Gross proceeds	$	53,550		$	63,000		$	72,450		$	83,318
Less: estimated offering expenses		(1,837	)		(1,924	)		(2,010	)		(2,111	)
Estimated net conversion proceeds		51,713			61,076			70,440			81,207
Less: common stock acquired by employee stock ownership plan (1)		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: common stock to be acquired by equity incentive plan (2)		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Net investable proceeds	$	45,287		$	53,516		$	61,746		$	71,209
Pro Forma Net Income:
Pro forma net income:
Historical	$	585		$	585		$	585		$	585
Pro forma income on net investable proceeds		57			67			77			89
Less: pro forma employee stock ownership plan adjustments (1)		(44	)		(52	)		(60	)		(69	)
Less: pro forma restricted stock award expense (2)		(66	)		(78	)		(90	)		(103	)
Less: pro forma stock option expense (3)		(100	)		(117	)		(135	)		(155	)
Pro forma net income (loss)	$	432		$	405		$	377		$	347
Pro forma net income per share:
Historical	$	0.12		$	0.10		$	0.09		$	0.08
Pro forma income on net investable proceeds		0.01			0.01			0.01			0.01
Less: pro forma employee stock ownership plan adjustments (1)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Less: pro forma restricted stock award expense (2)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Less: pro forma stock option expense (3)		(0.02	)		(0.02	)		(0.02	)		(0.02	)
Pro forma net income per share	$	0.09		$	0.07		$	0.06		$	0.05
Offering price as a multiple of pro forma net income per share (annualized)		27.8x			35.7x			41.7x			50.0x
Number of shares used to calculate pro forma net income per share (4)		4,933,740			5,804,400			6,675,060			7,676,319
Pro Forma Shareholders’ Equity:
Pro forma shareholders’ equity (book value) (4):
Historical	$	63,295		$	63,295		$	63,295		$	63,295
Estimated net proceeds		51,713			61,076			70,440			81,207
Less: common stock acquired by employee stock ownership plan (1)		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: common stock to be acquired by equity incentive plan (2)		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Pro forma shareholders’ equity	$	108,582		$	116,811		$	125,041		$	134,504
Pro forma shareholders’ equity per share (4):
Historical	$	11.82		$	10.05		$	8.74		$	7.60
Estimated net proceeds		9.66			9.69			9.72			9.75
Less: common stock acquired by employee stock ownership plan (1)		(0.80	)		(0.80	)		(0.80	)		(0.80	)
Less: common stock to be acquired by equity incentive plan (2)		(0.40	)		(0.40	)		(0.40	)		(0.40	)
Pro forma shareholders’ equity per share	$	20.28		$	18.54		$	17.26		$	16.14
Offering price as a percentage of pro forma shareholders’ equity per share		49.3	%		53.9	%		57.9	%		62.0	%
Number of shares used to calculate pro forma shareholders’ equity per share (4)		5,355,000			6,300,000			7,245,000			8,331,750

(footnotes on pages          and         )

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	Year Ended December 31, 2010
	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			Maximum, as Adjusted, of Offering Range
(Dollars in thousands, except per share amounts)	5,355,000 Shares at $10.00 Per Share			6,300,000 Shares at $10.00 Per Share			7,245,000 Shares at $10.00 Per Share			8,331,750 Shares at $10.00 Per Share
Gross proceeds	$	53,550		$	63,000		$	72,450		$	83,318
Less: estimated offering expenses		(1,834	)		(1,924	)		(2,010	)		(2,111	)
Estimated net conversion proceeds		51,713			61,076			70,440			81,207
Less: common stock acquired by employee stock ownership plan (1)		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: common stock to be acquired by equity incentive plan (2)		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Net investable proceeds	$	45,287		$	53,516		$	61,746		$	71,209
Pro Forma Net Income (Loss):
Pro forma net income (loss):
Historical	$	(9,458	)	$	(9,458	)	$	(9,458	)	$	(9,458	)
Pro forma income on net investable proceeds		172			203			235			271
Less: pro forma employee stock ownership plan adjustments (1)		(177	)		(208	)		(240	)		(276	)
Less: pro forma restricted stock award expense (2)		(266	)		(312	)		(359	)		(413	)
Less: pro forma stock option expense (3)		(398	)		(469	)		(539	)		(620	)
Pro forma net income (loss)	$	(10,127	)	$	(10,244	)	$	(10,361	)	$	(10,496	)
Pro forma net income (loss) per share:
Historical	$	(1.91	)	$	(1.62	)	$	(1.41	)	$	(1.23	)
Pro forma income on net investable proceeds		0.04			0.03			0.03			0.04
Less: pro forma employee stock ownership plan adjustments (1)		(0.04	)		(0.04	)		(0.04	)		(0.04	)
Less: pro forma restricted stock award expense (2)		(0.05	)		(0.05	)		(0.05	)		(0.05	)
Less: pro forma stock option expense (3)		(0.08	)		(0.08	)		(0.08	)		(0.08	)
Pro forma net income (loss) per share	$	(2.04	)	$	(1.76	)	$	(1.55	)	$	(1.36	)
Offering price as a multiple of pro forma net income (loss) per share		(4.9)x			(5.7)x			(6.5)x			(7.4)x
Number of shares used to calculate pro forma net income per share (4)		4,955,160			5,829,600			6,704,040			7,709,646
Pro Forma Shareholders’ Equity:
Pro forma shareholders’ equity (book value) (4):
Historical	$	62,881		$	62,881		$	62,881		$	62,881
Estimated net proceeds		51,713			61,076			70,440			81,207
Less: common stock acquired by employee stock ownership plan (1)		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: common stock to be acquired by equity incentive plan (2)		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Pro forma shareholders’ equity	$	108,168		$	116,397		$	124,627		$	134,090
Pro forma shareholders’ equity per share (4):
Historical	$	11.74		$	9.99		$	8.68		$	7.54
Estimated net proceeds		9.66			9.69			9.72			9.75
Less: common stock acquired by employee stock ownership plan (1)		(0.80	)		(0.80	)		(0.80	)		(0.80	)
Less: common stock to be acquired by equity incentive plan (2)		(0.40	)		(0.40	)		(0.40	)		(0.40	)
Pro forma shareholders’ equity per share	$	20.20		$	18.48		$	17.20		$	16.09
Offering price as a percentage of pro forma shareholders’ equity per share		49.5	%		54.1	%		58.1	%		62.2	%
Number of shares used to calculate pro forma shareholders’ equity per share (4)		5,355,000			6,300,000			7,245,000			8,331,750

(footnotes on pages          and         )

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(1) Assumes that the employee stock ownership plan will acquire a number of shares of stock equal to 8% of the shares sold in the offering (428,400, 504,000, 579,600 and 666,540 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively). The employee stock ownership plan will borrow the funds to acquire these shares from the net offering proceeds retained by ASB Bancorp, Inc. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. This borrowing will have an interest rate equal to the prime rate as published in The Wall Street Journal, which is currently 3.25%, and a term of 15 years. Asheville Savings Bank intends to make contributions to the employee stock ownership plan in amounts at least equal to the principal and interest requirement of the debt. Interest income that ASB Bancorp, Inc. will earn on the loan will offset a portion of the compensation expense recorded by Asheville Savings Bank as it contributes to the employee stock ownership plan. As the debt is paid down, shares will be released for allocation to participants’ accounts and shareholders’ equity will be increased. The adjustment to pro forma net income for the employee stock ownership plan reflects the after-tax compensation expense associated with the plan. Applicable accounting principles require that compensation expense for the employee stock ownership plan be based upon the market value of shares committed to be released and that unallocated shares be excluded from earnings per share computations. An equal number of shares (1/15th of the total, based on a 15-year loan) will be released each year over the term of the loan. The valuation of shares committed to be released would be based upon the average market value of the shares during the year, which, for purposes of this calculation, was assumed to be equal to the $10.00 per share purchase price. If the average market value per share is greater than $10.00 per share, total employee stock ownership plan expense would be greater. See “Our Management — Benefit Plans — Employee Stock Ownership Plan.”

(2) Assumes that ASB Bancorp, Inc. will purchase in the open market a number of shares of stock equal to 4% of the shares sold in the offering (214,200, 252,000, 289,800 and 333,270 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively), that will be reissued as restricted stock awards under an equity incentive plan to be adopted following the offering. Purchases will be funded with cash on hand at ASB Bancorp, Inc. or with dividends paid to ASB Bancorp, Inc. by Asheville Savings Bank. The cost of these shares has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. In calculating the pro forma effect of the restricted stock awards, it is assumed that the required shareholder approval has been received, that the shares used to fund the awards were acquired at the beginning of the respective period and that the shares were acquired at the $10.00 per share purchase price. The issuance of authorized but unissued shares of the common stock instead of shares repurchased in the open market would dilute the ownership interests of existing shareholders by approximately 3.8%. The adjustment to pro forma net income for the restricted stock awards reflects the after-tax compensation expense associated with the awards. It is assumed that the fair market value of a share of ASB Bancorp, Inc. common stock was $10.00 at the time the awards were made, that shares of restricted stock issued under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the shares awarded was an amortized expense during each year, and that the combined federal and state income tax rate was 34%. If the fair market value per share is greater than $10.00 per share on the date shares are awarded under the equity incentive plan, total equity incentive plan expense would be greater.

(3) The adjustment to pro forma net income for stock options reflects the after-tax compensation expense associated with the stock options that may be granted under the equity incentive plan expected to be adopted following the offering. If the equity incentive plan is approved by shareholders, a number of shares equal to 10% of the shares sold in the offering (535,000, 630,000, 724,500 and 833,175 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively) will be reserved for future issuance upon the exercise of stock options that may be granted under the plan. Using the Black-Scholes option-pricing formula, the options are assumed to have a value of $4.11 for each option, based on the following assumptions: exercise price, $10.00; trading price on date of grant, $10.00; dividend yield, 0%; expected life, 10 years; expected volatility, 22.56%; and risk-free interest rate, 3.47%. Because there currently is no market for ASB Bancorp, Inc. common stock, the assumed expected volatility is based on the SNL Index for all publicly-traded thrifts. The dividend yield is assumed to be 0% because there is no history of dividend payments and the board of directors has not expressed an intention to commence dividend payments upon completion of the offering. It is assumed that stock options granted under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the options awarded was an amortized expense during each year, that 25% of the options awarded are non-qualified options and that the combined federal and state income tax rate was 34%. If the fair market value per share is different than $10.00 per share on the date options are awarded under the equity incentive plan, or if the assumptions used in the option-pricing formula are different from those used in preparing this pro forma data, the value of the stock options and the related expense would be different. Applicable accounting standards do not prescribe a specific valuation technique to be used to estimate the fair value of employee stock options. ASB Bancorp, Inc. may use a valuation technique other than the Black-Scholes option-pricing formula and that technique may produce a different value. The issuance of authorized but unissued shares of common stock to satisfy option exercises instead of shares repurchased in the open market would dilute the ownership interests of existing shareholders by approximately 9.1%.

(4) The number of shares used to calculate pro forma net income per share is equal to the total number of shares to be outstanding upon completion of the offering, less the number of shares purchased by the employee stock ownership plan not committed to be released within six months or one year following the offering. The number of shares used to calculate pro forma shareholders’ equity per share equals the total number of shares to be outstanding upon completion of the offering.

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OUR BUSINESS

General

ASB Bancorp, Inc., a North Carolina corporation, was incorporated in May 2011 to become the holding company for Asheville Savings Bank upon completion of the conversion. Before the completion of the conversion, ASB Bancorp, Inc. has not engaged in any significant activities other than organizational activities. Following completion of the conversion, ASB Bancorp, Inc.’s business activity will be the ownership of the outstanding capital stock of Asheville Savings Bank. ASB Bancorp, Inc. will not own or lease any property but will instead use the premises, equipment and other property of Asheville Savings Bank with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement that ASB Bancorp, Inc. and Asheville Savings Bank will enter into upon completion of the conversion. The expense allocation agreement generally provides that ASB Bancorp, Inc. will pay to Asheville Savings Bank, on a quarterly basis, fees for its use of Asheville Savings Bank’s premises, furniture, equipment and employees in an amount to be determined by the board of directors of ASB Bancorp, Inc. and Asheville Savings Bank. Such fees shall not be less than the fair market value received for such goods or services. In addition, ASB Bancorp, Inc. and Asheville Savings Bank will also enter into a tax allocation agreement upon completion of the conversion as a result of their status as members of an affiliated group under the Internal Revenue Code. The tax allocation agreement generally provides that ASB Bancorp, Inc. will file consolidated federal income tax returns with Asheville Savings Bank and its subsidiaries. The tax allocation agreement also formalizes procedures for allocating the consolidated tax liability of the group among its members and establishes procedures for the future payments by Asheville Savings Bank to ASB Bancorp, Inc. for tax liabilities attributable to Asheville Savings Bank and its subsidiaries. In the future, ASB Bancorp, Inc. may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

Founded in 1936, Asheville Savings Bank is a North Carolina chartered savings bank headquartered in Asheville, North Carolina. We operate as a community-oriented financial institution offering traditional financial services to consumers and businesses in our primary market area. We attract deposits from the general public and use those funds to originate primarily one-to four-family residential mortgage loans and commercial real estate loans, and, to a lesser extent, home equity loans and lines of credit, consumer loans, construction and land development loans, and commercial and industrial loans. We conduct our lending and deposit activities primarily with individuals and small businesses in our primary market area.

Our primary market area is Asheville, North Carolina and the rest of Buncombe County where we have eight branch offices, as well as Henderson, Madison, McDowell and Transylvania Counties where we have five branch offices.

Our emphasis on commercial mortgage, and commercial construction and land development loans has exposed us to losses as the recent economic recession, whose adverse effects were delayed in impacting western North Carolina, has adversely affected businesses and developers in our market area. In 2010, we charged-off $7.9 million of our commercial construction and land development loan portfolio and $6.1 million of our commercial mortgage portfolio. We have also suffered recent losses in our residential mortgage loan portfolio. In 2010, we charged-off $1.8 million of our residential mortgage loan portfolio and $1.1 million of our consumer loan portfolio. The losses in our consumer loan portfolio have been related primarily to our indirect financing of automobile loans and, as a result of such losses, we have suspended our indirect automobile financing activities. We are continuing to emphasize our commercial mortgage lending activities. However, due to recent economic conditions, we have also suspended financing the construction of any properties built on a speculative basis and are emphasizing the origination of commercial mortgage loans secured by owner-occupied properties.

Our website address is www.ashevillesavingsbank.com. Information on our website should not be considered a part of this prospectus.

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Market Area

We are headquartered in Asheville, North Carolina, which is the county seat of Buncombe County, North Carolina and consider Buncombe, Madison, McDowell, Henderson and Transylvania Counties in western North Carolina and the surrounding areas to be our primary market area. Asheville is situated in the Blue Ridge Mountains at the confluence of the Swannanoa River and French Broad River and is known for its natural beauty and scenic surroundings. In addition, the Asheville metropolitan area has a vibrant cultural and arts community that parallels that of many larger cities in the United States and is home to a number of historical attractions, the most prominent of which is the Biltmore Estate, a historic mansion with gardens and a winery that draws approximately 900,000 tourists each year. Due to its scenic location and diverse cultural and historical offerings, the Asheville metropolitan area has become a popular destination for tourists, which has historically positively impacted our local economy. In addition, affordable housing prices, combined with the region’s favorable climate, scenic surroundings and cultural attractions, have also made the Asheville metropolitan area an increasingly attractive destination for retirees seeking to relocate from other parts of the United States.

The Asheville metropolitan area benefits from a diverse economy, and there is no single employer or industry upon which a significant number of our customers are dependent. In addition to the tourism industry, Western North Carolina is also home to a number of manufacturing and technology companies, including Wilsonart International, Inc., Eaton Corporation, Thermo Fischer Scientific and Arvato Digital Services. Furthermore, the region is home to a number of educational organizations, private colleges and large public universities, such as the University of North Carolina at Asheville. Mission Health System, a leading employer in the Asheville metropolitan area, has also been nationally recognized as a top hospital network for cardiovascular and orthopedic medicine.

The recent economic recession has caused the Asheville metropolitan area to experience a decline in tourism and a reduced influx of retirees from other parts of the country, which has negatively impacted our local economy. In addition, the recent economic recession has also resulted in increased job losses in the manufacturing services sector. Over the course of the past year, the tourism industry in the Asheville metropolitan area has largely recovered, which has positively impacted the economy in a number of our local markets, such as Buncombe and Henderson Counties, that directly benefit from this industry and has caused the overall unemployment rate in the Asheville metropolitan area to decrease from 9.7% in March 2010 to 8.1% in March 2011. However, the Asheville metropolitan area has continued to experience a reduced number of relocating retirees and a decline in the manufacturing industry. As a result of such decline, as of March 2011, published statistics reflect that twelve counties in western North Carolina, including three of the five counties in our primary market area (Madison, McDowell and Transylvania Counties), had unemployment rates that exceeded both the national and state unemployment rates.

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the several financial institutions operating in our primary market area and from other financial service companies such as securities brokerage firms, credit unions and insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities. At June 30, 2010, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held approximately 10.85% of the deposits in Buncombe County, North Carolina, 23.31% of the deposits in Madison County, North Carolina, 16.49% of the deposits in McDowell County, North Carolina, 3.42% of the deposits in Henderson County, North Carolina and 4.92% of the deposits in Transylvania County, North Carolina. This data does not reflect deposits held by credit unions with which we also compete. In addition, banks owned by large national and regional holding companies and other community-based banks also operate in our primary market area. Some of these institutions are larger than us and, therefore, may have greater resources.

Our competition for loans comes primarily from financial institutions, including credit unions, in our primary market area and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from non-depository financial service companies entering the mortgage market, such as insurance companies, securities companies and specialty finance companies.

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We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet, and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future.

Lending Activities

General. The largest component of our loan portfolio is real estate mortgage loans, primarily one- to four-family residential mortgage loans and commercial mortgage loans, and to a lesser extent, revolving mortgage loans (which consist of home equity loans and lines of credit), consumer loans, construction and land development loans, and commercial and industrial loans. We originate loans for investment purposes, although we generally sell our fixed-rate residential mortgage loans into the secondary market with servicing released.

We intend to continue to emphasize residential and commercial mortgage lending, while also concentrating on ways to expand our commercial and industrial lending activities with a focus on serving small businesses and emphasizing relationship banking in our primary market area. We do not offer Alt-A, sub-prime or no-documentation mortgage loans.

One-to Four-Family Residential Loans. At March 31, 2011, we had $177.8 million in one- to four-family residential loans, which represented 36.7% of our total loan portfolio. Our origination of residential mortgage loans enables borrowers to purchase or refinance existing homes located in our primary market area.

Our residential lending policies and procedures generally conform to the secondary market guidelines. We generally offer a mix of adjustable rate mortgage loans and fixed-rate mortgage loans with terms of up to 30 years. Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to an initially discounted interest rate and loan fees for multi-year adjustable-rate mortgages. The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. We determine the loan fees, interest rates and other provisions of mortgage loans based on our own pricing criteria and competitive market conditions.

Interest rates and payments on our adjustable-rate mortgage loans generally adjust annually after an initial fixed period that typically ranges from one to seven years. Interest rates and payments on our adjustable-rate loans generally are indexed to the one year U.S. Treasury Constant Maturity Index.

While one-to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans on a regular basis. We do not offer residential mortgage loans with negative amortization and generally do not offer interest-only residential mortgage loans.

We generally do not make owner occupied one- to four-family residential real estate loans with loan-to-value ratios exceeding 95%. Loans with loan-to-value ratios in excess of 80% typically require private mortgage insurance. In addition, we generally do not make non-owner occupied one- to four-family residential real estate loans with loan-to-value ratios exceeding 80%. We require all properties securing mortgage loans to be appraised by a board-approved independent appraiser. We also require title insurance on all mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for all loans located in flood hazard areas.

Commercial Mortgage Loans. We offer fixed- and adjustable-rate mortgage loans secured by non-residential real estate and multi-family properties. At March 31, 2011, commercial mortgage loans totaled $162.7 million, or 33.5% of our total loan portfolio. Our commercial mortgage loans are generally secured by commercial,

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industrial and manufacturing, small to moderately-sized office and retail properties, hotels, multi-family properties and hospitals and churches located in our primary market area. Although we have historically made commercial mortgage loans that are secured by both owner-occupied and non-owner-occupied properties, we are currently emphasizing the origination of commercial mortgage loans that are secured by owner-occupied properties. At March 31, 2011, $35.6 million or 21.9% of our commercial real estate loans were secured by owner-occupied properties.

We originate fixed-rate and adjustable-rate commercial mortgage loans, generally with terms of three to five years and payments based on an amortization schedule of up to 25 years, resulting in “balloon” balances at maturity. For our adjustable-rate commercial mortgage loans, interest rates are typically equal to the prime lending rate as reported in The Wall Street Journal plus an applicable margin. Currently, our adjustable-rate commercial mortgage loans typically provide for an interest rate floor. Loans are secured by first mortgages, generally are originated with a maximum loan-to-value ratio of 85% and may require specified debt service coverage ratios depending on the characteristics of the project. Rates and other terms on such loans generally depend on our assessment of credit risk after considering such factors as the borrower’s financial condition, credit history, loan-to-value ratio, debt service coverage ratio and other factors, including whether the property securing the loan will be owner occupied.

At March 31, 2011, our largest commercial mortgage loan had an outstanding balance of $7.0 million. This loan was originated in November 2009 and is secured by a multi-use property, including a warehouse and office space, located in Fletcher, North Carolina. The loan is currently performing in accordance with its original terms.

Construction and Land Development Loans. We have originated construction and land development loans for commercial properties, such as retail shops and office units, and multi-family properties, and construction and land development loans for one-to four-family homes. At March 31, 2011, commercial construction and land development loans totaled $27.8 million, which represented 5.7% of our total loan portfolio, and residential construction and land development loans totaled $7.9 million, which represented 1.6% of our total loan portfolio. Residential construction loans are typically for a term of 12 months with monthly interest only payments, and generally are followed by an automatic conversion to a 15-year to 30-year permanent loan with monthly payments of principal and interest. Except for speculative loans, discussed below, residential construction loans are generally only made to homeowners and the repayment of such loans generally comes from the proceeds of a permanent mortgage loan for which a commitment is typically in place when the construction loan is originated. Interest rates on construction loans are generally tied to an index plus an applicable margin. We generally require a maximum loan-to-value ratio of 80% for all construction loans. We generally disburse funds on a percentage-of-completion basis following an inspection by a third party inspector.

In the past, we have originated speculative construction loans to builders who have not identified a buyer for the completed property at the time of origination. However, due to recent economic conditions, we are no longer emphasizing the origination of speculative construction loans. At March 31, 2011, we had speculative residential construction loans of $3.1 million and speculative commercial construction loans of $9.6 million.

At March 31, 2011, our largest construction loan secured by a project being built on speculation was an $8.6 million loan secured by a mixed-use residential condominium, commercial office and retail project located in western North Carolina. The borrower is in Chapter 11 bankruptcy. Through the bankruptcy process, we made an additional loan to a third party totaling $2.3 million. That third party then made a $2.9 million “debtor in possession” loan to the original borrower to facilitate the completion of the building. An interest reserve for our $8.6 million loan was created with a portion of the proceeds of the additional $2.9 million debtor in possession loan. The $2.3 million loan to the third party debtor in possession lender is secured by an assignment of the debtor in possession note. Both of these loans are performing in accordance with their terms. The mixed-use condominium, commercial office and retail project serving as collateral for the original $8.6 million loan consists of 29 residential condominiums, of which one has been sold, 11 commercial office condominiums, of which three have been sold, and eight commercial retail spaces, of which four are currently leased.

We also selectively originate loans to individuals and developers for the purpose of developing vacant land in our primary market area, typically for building an individual’s future residence or, in the case of a developer, residential subdivisions. Land development loans, which are offered for terms of up to 18 months, are generally

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indexed to the prime rate as reported in The Wall Street Journal plus an applicable margin. We generally require a maximum loan-to-value ratio to 75% of the discounted market value based upon expected cash flows upon completion of the project. We also originate loans to individuals secured by undeveloped land held for investment purposes. These loans are typically amortized for no more than fifteen years with a three or five-year balloon payment. At March 31, 2011, our largest land development loan had an outstanding balance of $3.9 million and was performing in accordance with its original terms at March 31, 2011.

Revolving Mortgages and Consumer Loans. We offer revolving mortgage loans, which consist of home equity loans and lines of credit, and various consumer loans, including automobile loans and loans secured by deposits. At March 31, 2011, revolving mortgage loans totaled $52.0 million, or 10.7% of our total loan portfolio, and consumer loans totaled $41.1 million, or 8.5% of our total loan portfolio. Our revolving mortgage loans consist of both home equity loans with fixed-rate amortizing term loans with terms of up to 15 years and adjustable rate lines of credit with interest rates indexed to the prime rate, as published in The Wall Street Journal, plus an applicable margin. Consumer loans typically have shorter maturities and higher interest rates than traditional one- to four-family lending. We typically do not originate home equity loans with loan-to-value ratios exceeding 80%, including any first mortgage loan balance. The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Until recently, we originated indirect financing for automobile loans. However, this product was suspended because we began experiencing substantial losses on that component of our portfolio. Any future reinstatement of this lending program will be conducted in accordance with prudent underwriting standards.

Commercial and Industrial Loans. We typically offer commercial and industrial loans to small businesses located in our primary market area. At March 31, 2011, commercial and industrial loans totaled $15.8 million, which represented 3.2% of our total loan portfolio. Commercial and industrial loans consist of floating rate loans indexed to the prime rate as published in The Wall Street Journal plus an applicable margin and fixed-rate loans for terms of up to 25 years, depending on the collateral type. Our commercial and industrial loan portfolio consists primarily of loans that are secured by equipment, accounts receivable and inventory, but also includes a smaller amount of unsecured loans for purposes of financing expansion or providing working capital for general business purposes. Key loan terms vary depending on the collateral, the borrower’s financial condition, credit history and other relevant factors.

At March 31, 2011, our largest commercial and industrial loan was the $2.3 million loan we made to a third party to finance a debtor in possession loan in connection with our largest speculative construction loan, which is performing in accordance with its original terms. At March 31, 2011, our second largest commercial and industrial loan had an outstanding balance of $1.4 million. This loan was originated in October 2009 and is secured by the borrower’s inventory of automobile parts. The loan is currently performing in accordance with its original terms.

Loan Underwriting

Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, an increased monthly mortgage payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.

Commercial Mortgage Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial mortgage lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income producing properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. We apply what we believe to be conservative underwriting standards when originating commercial mortgage loans and seek to limit our exposure to lending concentrations to related borrowers, types of business and geographies, as well as seeking to participate with other banks in both buying and selling larger loans of this nature. Management has hired additional experienced lending officers and credit

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management personnel over the past several years in order to continue to safely manage this type of lending. To monitor cash flows on income producing properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on commercial real estate loans. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability, and the value of the underlying property. An environmental survey is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.

Construction and Land Development Loans. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the building. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a building having a value which is insufficient to assure full repayment if liquidation is required. If we are forced to foreclose on a building before or at completion due to a default, we may be unable to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land development loans have substantially similar risks to speculative construction loans. To monitor cash flows on construction properties, we require borrowers and loan guarantors, if any, to provide annual financial statements and, in reaching a decision on whether to make a construction or land development loan, we consider and review a global cash flow analysis of the borrower and consider the borrower’s expertise, credit history and profitability. We also generally disburse funds on a percentage-of-completion basis following an inspection by a third party inspector.

Revolving Mortgages and Consumer Loans. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are secured by assets that depreciate rapidly, such as motor vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. In the case of home equity loans, real estate values may be reduced to a level that is insufficient to cover the outstanding loan balance after accounting for the first mortgage loan balance. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Commercial and Industrial Loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment income or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial and industrial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors and management. Selected employees have been granted individual lending limits, which vary depending on the individual, the type of loan and whether the loan is secured or unsecured. Currently, our Executive Vice President and Chief Lending Officer and our President and Chief Executive Officer each have aggregate secured lending authority up to $750,000 per loan and unsecured lending authority up to $250,000 per loan. Any single transaction of $250,000 or less, when

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the total relationship exposure is greater than $1,500,000, can be approved by either our Executive Vice President and Chief Lending Officer or our President and Chief Executive Officer. In addition, our Senior Vice President and Senior Credit Manager has secured lending authority up to $500,000 and unsecured lending authority up to $150,000 and our Vice President of Mortgage Lending has secured mortgage lending authority up to $350,000. Loan requests between $750,000 and $1,500,000 may be approved jointly by our Executive Vice President and Chief Lending Officer and our President and Chief Executive Officer. For loans in excess of $1,500,000, Asheville Savings Bank’s Loan Committee has final approval authority.

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is generally limited, by regulation, to 15% of our unimpaired capital and surplus. At March 31, 2011, our regulatory limit on loans to one borrower was $12.0 million. At that date, our largest lending relationship was also our largest commercial construction loan, an $8.6 million loan coupled with a “debtor in possession” loan to a third party in the amount of $2.3 million for a total related debt of $10.9 million. Both loans are currently performing in accordance with their terms.

Loan Commitments. We typically issue commitments for most loans conditioned upon the occurrence of certain events. Commitments to originate loans are legally binding agreements to lend to our customers. Generally, our loan commitments expire after 45 to 60 days. See note 13 to the notes to consolidated financial statements appearing elsewhere in this prospectus.

Investment Activities

We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored agencies and of state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in other permissible securities. As a member of the Federal Home Loan Bank of Atlanta, we also are required to maintain an investment in Federal Home Loan Bank of Atlanta stock, which is not publicly traded.

At March 31, 2011, our investment portfolio consisted primarily of U.S. government and agency securities, mortgage-backed securities and securities issued by government sponsored enterprises, and municipal securities. We do not currently invest in trading account securities.

Our investment objectives are: (i) to provide and maintain liquidity within the guidelines of North Carolina banking law and the regulations of the Federal Deposit Insurance Corporation and (ii) to manage interest rate risk. Our board of directors has the overall responsibility for the investment portfolio, including approval of the investment policy. Our President and Chief Executive Officer, our Chief Financial Officer and our Treasurer are responsible for implementation of the investment policy and monitoring our investment performance. Our board of directors reviews the status of our investment portfolio on a monthly basis.

Deposit Activities and Other Sources of Funds

General. Deposits, borrowings and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Deposit Accounts. Deposits are attracted from within our primary market area through the offering of a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), regular savings accounts and certificates of deposit. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, matching deposit and loan products and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our deposit pricing strategy has typically been to offer competitive rates on all types of deposit products, and to periodically offer special rates in order to attract deposits of a specific type or term.

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Borrowings. We use advances from the Federal Home Loan Bank of Atlanta to supplement our investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank of Atlanta and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth, the Federal Home Loan Bank’s assessment of the institution’s creditworthiness, collateral value and level of Federal Home Loan Bank stock ownership. We also utilize securities sold under agreements to repurchase and overnight repurchase agreements to supplement our supply of investable funds and to meet deposit withdrawal requirements.

Properties

We conduct our business through our main office, banking centers and other offices. The following table sets forth certain information relating to these facilities as of March 31, 2011.

Location	Year Opened		Square Footage		Owned/ Leased		Lease Expiration  Date		Net Book  Value at March 31, 2011
									(In thousands)
Banking Centers:
Downtown Asheville (Main Office)		1936		24,124		Owned		—	$	3,662
11 Church Street Asheville, North Carolina 28801
Black Mountain		1960		4,500		Owned		—		322
300 West State Street Black Mountain, North Carolina 28711
Mars Hill		1974		2,500		Owned		—		1,373
105 North Main Street Mars Hill, North Carolina 28754
Skyland		1976		3,108		Owned		—		706
1879 Hendersonville Road Asheville, North Carolina 28803
East Asheville		1978		3,570		Owned		—		133
10 South Tunnel Road Asheville, North Carolina 28805
North Asheville		1979		9,846		Owned		—		447
778 Merrimon Avenue Asheville, North Carolina 28804
West Asheville		1981		3,670		Owned		—		383
1012 Patton Avenue Asheville, North Carolina 28806
Marion		1981		6,000		Owned		—		197
162 North Main Street Marion, North Carolina 28752
Hendersonville		1992		4,000		Owned		—		660
601 North Main Street Hendersonville, North Carolina 28792
Brevard		1995		2,100		Owned		—		869
2 Market Street Straus Park Brevard, North Carolina 28712

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Location	Year Opened		Square Footage		Owned/ Leased	Lease Expiration  Date		Net Book  Value at March 31, 2011
								(In thousands)
Reynolds		2001		3,500	Owned		—	$	1,069
5 Olde Eastwood Village Boulevard US 74 East Asheville, North Carolina 28803
Enka-Candler		2003		3,500	Owned		—		1,080
907 Smoky Park Highway Candler, North Carolina 28715
Fletcher		2008		3,415	Lot Leased Structure Owned		1/31/2027		1,017
3551 Hendersonville Road Fletcher, North Carolina 28732
Other Offices:
Operations Center		2003		46,000	Leased		4/30/2017		465
901 Smoky Park Highway Candler, North Carolina 28715
Commercial Lending		1998		1,940	Owned		—		—	(1)
11 Church Street Asheville, North Carolina 28801

(1) Net book value is reflected in net book value for our main office located at 11 Church Street, Asheville, North Carolina.

Personnel

As of March 31, 2011, we had 153 full-time employees and 13 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.

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 incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Subsidiaries

Asheville Savings Bank has two subsidiaries, Appalachian Financial Services, Inc., which was formed to engage in investment activities but is currently inactive, and Wenoca, Inc., which serves as Asheville Savings Bank’s trustee regarding deeds of trust. Both subsidiaries are organized as North Carolina corporations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and the notes to consolidated financial statements that appear at the end of this prospectus.

Operating Strategy

Our primary objective is to operate and grow a profitable community-oriented financial institution serving customers in our primary market areas. We have sought to achieve this through the adoption of a business strategy designed to maintain a strong capital position and high asset quality. We have implemented a plan to resolve our asset quality problems and have hired senior management with backgrounds in consumer and commercial banking to help us diversify our product offerings and expand our commercial deposit and lending products and expand our consumer deposit and lending products, while emphasizing high asset quality standards. Our operating strategy includes the following:

• continuing to provide products and services to individuals and businesses in the communities served by our branch offices;

• continuing to originate residential and commercial mortgage loans;

• expanding our commercial and industrial lending activities and emphasizing the origination of small business loans;

• emphasizing lower cost core deposits to maintain low funding costs;

• expanding our market share within our primary market area; and

• seeking to enhance fee income through providing investment advisory services.

Continuing to provide products and services to individuals and businesses in the communities served by our branch offices.

We have operated continuously as a community-oriented financial institution since we were established in 1936. We are committed to meeting the financial needs of the communities in which we operate, and we are dedicated to providing quality personal service to our customers. We provide a broad range of consumer and business financial services through our network of branches and will continually seek out ways to improve convenience, safety and service through our product offerings.

Continuing to originate residential and commercial mortgage loans.

Our primary lending focus has been, and will continue to be, on operating as a residential and commercial mortgage lender. We originate fixed and adjustable-rate residential and commercial mortgage loans that are retained in our loan portfolio. However, most of the fixed-rate residential mortgage loans that we originate are sold into the secondary market with servicing released in order to better serve our customer base. At March 31, 2011, residential mortgage loans totaled $177.8 million, or 36.7% of our total loan portfolio, and commercial mortgage loans totaled $162.7 million, or 33.5% of our total loan portfolio. Although our total residential and commercial mortgage loans have decreased from a high of $388.2 million at December 31, 2009 to $340.5 million at March 31, 2011 as we dealt with some asset quality problems throughout 2009 and 2010 and experienced lower demand for commercial mortgage loans, we intend to continue to emphasize our residential and commercial mortgage lending activities.

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Expanding our commercial and industrial lending activities and emphasizing the origination of small business loans.

We are seeking to expand our commercial and industrial lending activities and to originate an increased number of small business loans. Management has hired additional experienced lending officers and credit management personnel over the past several years in order to continue to safely manage this type of lending. Although commercial and industrial lending has decreased recently as we have addressed asset quality issues and experienced decreased loan demand, our goal is to increase this portion of our portfolio using our conservative underwriting practices to increase the yield in our loan portfolio.

Emphasizing lower cost core deposits to maintain low funding costs.

We seek to increase net interest income by controlling costs of funding. As a traditional thrift institution, a greater percentage of our deposit accounts have been higher balance, higher cost certificates of deposits. Over the past several years, we have sought to reduce our dependence on traditional higher cost deposits in favor of stable lower cost demand deposits. We have utilized additional product offerings, technology and a focus on customer service in working toward this goal. In addition, we intend to seek demand deposits by growing commercial banking relationships.

Expanding our market share within our primary market area.

We intend to expand our market share in our primary market area by evaluating additional branch expansion opportunities. Subject to favorable market conditions, it is currently our goal to continue to open additional branch offices in our primary market area in the years following the offering. In addition, we are interested in pursuing opportunities to acquire other financial institutions, including through FDIC assisted transactions, and branches of financial institutions, in our primary market area and surrounding areas, although we currently have no definitive plans or commitments regarding potential acquisition opportunities.

Seeking to enhance fee income through providing investment advisory services.

Through a relationship with LPL Financial Services (formerly UVEST Investment Services), we currently provide a full array of investment services for individuals and small businesses, including full access to financial market instruments such as mutual funds and equities. For the three months ended March 31, 2011 and 2010, commission income relating to our investment advisory services totaled $65,000 and $49,000, respectively. In the future, we intend to continue to enhance our fee income by providing investment advisory services to our customers through our relationship with LPL Financial Services.

Overview

Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and securities, and interest expense, which is the interest that we pay on our deposits and borrowings. Other significant sources of pre-tax income are deposit and other service charge income, mortgage banking income derived from the sale of loans in the secondary market, income from debit card services, and income from the sale of securities.

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Expenses. The noninterest expense we incur in operating our business consists of salaries and employee benefits expenses, occupancy expenses, federal deposit insurance premiums and assessments, data processing expenses and other miscellaneous expenses. Following the offering, our noninterest expenses are likely to increase as a result of expenses related to shareholder communications and meetings, stock exchange listing fees, the employee stock ownership plan and additional accounting services.

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Salaries and employee benefits expenses consist primarily of: salaries, wages and bonuses paid to our employees; payroll taxes; and expenses for health insurance, retirement plans and other employee benefits. Following the offering, we will recognize additional annual employee compensation expenses stemming from the adoption of new equity benefit plans. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be based on the fair market value of the shares of common stock at specific points in the future. For an illustration of these expenses, see “Pro Forma Data.”

Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, rental expenses, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the related assets, which range from three to forty years.

Data processing expenses are the fees we pay to third parties for processing customer information, deposits and loans.

Federal deposit insurance premiums and assessments are payments we make to the Federal Deposit Insurance Corporation for insurance of our deposit accounts.

Other expenses include expenses for professional services, advertising, office supplies, postage, telephone, foreclosed properties, insurance and other miscellaneous operating expenses.

Critical Accounting Policies

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

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount 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 impacted 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 Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, 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 earnings. See note 1 of the notes to the consolidated financial statements included in this prospectus.

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 must estimate 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 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 14 of the notes to the consolidated financial statements included in this prospectus.

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Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Balance Sheet Analysis

General. Total assets increased $744,000, or 0.10%, to $750.7 million at March 31, 2011 from $749.9 million at December 31, 2010. Total loans, net decreased $15.3 million, or 3.1%, securities increased $22.9 million to $204.3 million due to proceeds from the repayment of loans and loan sales being used to purchase securities, and cash and cash equivalents increased $2.2 million to $26.4 million. Asset growth was funded through an increase in overnight and short-term borrowings and other liabilities.

Loans. Loans receivable decreased $15.3 million to $484.7 million at March 31, 2011 from $500.0 million at December 31, 2010. Loan originations totaled $32.9 million for the three months ended March 31, 2011 compared to $32.4 million in the three months ended March 31, 2010. Residential mortgage loan originations totaled $29.5 million, residential construction and land development loan originations totaled $618,000 and commercial mortgage loans, commercial construction and land development and commercial and industrial loan originations totaled $1.5 million, $586,000 and $450,000, respectively for the three months ended March 31, 2011 compared to $1.2 million, $54,000, and $881,000, respectively for the three months ended March 30, 2010. Origination activity was partially offset by $29.0 million of normal loan payments and payoffs and $25.5 million in loan sales for the three months ended March 31, 2011 compared to $28.0 million and $16.0 million, respectively, for the three months ended March 31, 2010.

Loans receivable decreased $97.6 million, or 16.3%, in 2010 to $500.0 million. Residential mortgage loan originations accounted for $121.4 million, or 61.6%, of the year’s $197.1 million total loan originations, down from $131.0 million in residential mortgage loan originations in 2009. Commercial mortgage loan originations totaled $43.5 million in 2010, down $30.9 million from the $74.4 million in commercial mortgage loan originations in 2009. Commercial and industrial loan originations totaled $7.7 million in 2010 compared to $10.7 million in 2009. There were no commercial construction and land development loan originations in 2010 or 2009; however residential construction and land development loan originations increased $3.7 million, or 30.6%, to $15.8 million in 2010 compared to $12.1 million in 2009. Revolving mortgage originations totaled $8.0 million in 2010 compared to $20.5 million in 2009 and consumer loan originations totaled $523,000 in 2010 compared to $26.2 million in 2009 due to management’s decision to suspend indirect automobile loan financing originations.

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The following table sets forth the composition of our loan portfolio at the dates indicated.

	At March 31,					At December 31,
	2011					2010					2009					2008
(Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Commercial:
Commercial mortgage	$	162,675		33.53	%	$	164,553		32.88	%	$	197,239		32.98	%	$	141,565		23.97	%
Construction and land development		27,830		5.74			28,473		5.69			30,158		5.04			28,998		4.91
Commercial and industrial		15,764		3.25			17,656		3.53			22,794		3.81			27,367		4.63
Total		206,269		42.52			210,682		42.10			250,191		41.83			197,930		33.51
Non-commercial:
Residential mortgage		177,846		36.65			180,439		36.06			190,965		31.93			201,160		34.06
Construction and land development 1-4 family residential		7,864		1.62			8,670		1.73			15,141		2.53			23,491		3.98
Revolving mortgage		52,042		10.73			53,432		10.68			55,038		9.20			53,834		9.10
Consumer		41,135		8.48			47,212		9.43			86,768		14.51			114,268		19.35
Total		278,887		57.48			289,753		57.90			347,912		58.17			392,753		66.49
Total loans		485,156		100.00	%		500,435		100.00	%		598,103		100.00	%		590,683		100.00	%
Less: net deferred loan origination fees		427					432					502					588
Less: allowance for loan losses		12,632					12,676					8,994					6,403
Loans receivable, net	$	472,097				$	487,327				$	588,607				$	583,692

	At December 31,
	2007					2006
(Dollars in thousands)	Amount		Percent			Amount		Percent
Commercial:
Commercial mortgage	$	91,465		17.53	%	$	87,078		17.98	%
Construction and land development		36,140		6.93			32,333		6.68
Commercial and industrial		24,235		4.65			18,053		3.73
Total		151,840		29.11			137,464		28.39
Non-commercial:
Residential mortgage		194,135		37.22			180,244		37.22
Construction and land development 1-4 family residential		23,580		4.52			21,555		4.45
Revolving mortgage		47,734		9.15			41,776		8.63
Consumer		104,349		20.00			103,193		21.31
Total		369,798		70.89			346,768		71.61
Total loans		521,638		100.00	%		484,232		100.00	%
Less: net deferred loan origination fees		485					613
Less: allowance for loan losses		5,073					4,638
Loans receivable, net	$	516,080				$	478,981

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Loan Maturity

The following tables set forth certain information at March 31, 2011 and December 31, 2010 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The tables do not include any estimate of prepayments that significantly shorten the average life of our loans and may cause our actual repayment experience to differ from that shown below. Demand loans, which are loans having no stated schedule of repayments and no stated maturity, are reported as due in one year or less.

	At March 31, 2011
(In thousands)	Commercial Mortgage		Commercial Construction and Land Development		Commercial and Industrial		Residential Mortgages		Residential Construction and Land		Revolving Mortgages		Consumer		Total Loans
Amounts due in:
One year or less	$	16,223	$	21,462	$	5,884	$	6,912	$	3,102	$	95	$	2,700	$	56,378
More than one year through two years		21,610		3,047		1,173		2,496		—		174		6,097		34,597
More than two years through three years		40,551		1,218		2,637		3,114		—		494		11,688		59,702
More than three years through five years		55,116		759		5,548		2,003		—		859		18,917		83,202
More than five years through ten years		25,796		1,005		522		16,926		—		16,676		1,060		61,985
More than ten years through fifteen years		3,313		339		—		10,443		—		33,744		654		48,493
More than fifteen years		66		—		—		135,952		4,762		—		19		140,799
Total	$	162,675	$	27,830	$	15,764	$	177,846	$	7,864	$	52,042	$	41,135	$	485,156

	At December 31, 2010
(In thousands)	Commercial Mortgage		Commercial Construction and Land Development		Commercial and Industrial		Residential Mortgages		Residential Construction and Land		Revolving Mortgages		Consumer		Total Loans
Amounts due in:
One year or less	$	16,930	$	22,901	$	5,277	$	6,243	$	3,312	$	142	$	2,423	$	57,228
More than one year through two years		12,511		2,473		1,528		1,241		—		168		6,494		24,415
More than two years through three years		42,290		1,277		2,895		4,510		—		376		12,434		63,782
More than three years through five years		62,570		747		6,314		2,655		—		912		24,953		98,151
More than five years through ten years		26,158		731		1,642		18,750		—		15,574		889		63,744
More than ten years through fifteen years		3,588		344		—		9,753		—		36,260		—		49,945
More than fifteen years		506		—		—		137,287		5,358		—		19		143,170
Total	$	164,553	$	28,473	$	17,656	$	180,439	$	8,670	$	53,432	$	47,212	$	500,435

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Fixed vs. Adjustable Rate Loans

The following table sets forth the dollar amount of all loans at March 31, 2011 that are due after March 31, 2012 and have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude unearned loan origination fees.

(In thousands)	Fixed Rates		Floating or Adjustable  Rates		Total
Commercial:
Commercial mortgage	$	81,443	$	65,009	$	146,452
Construction and land development		3,748		2,620		6,368
Commercial and industrial		8,422		1,458		9,880
Non-commercial:
Residential mortgage		82,415		88,519		170,934
Construction and land development		1,530		3,232		4,762
Revolving mortgage		—		51,947		51,947
Consumer		38,435		—		38,435
Total	$	215,993	$	212,785	$	428,778

The following table sets forth the dollar amount of all loans at December 31, 2010 that are due after December 31, 2011 and have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude unearned loan origination fees.

(In thousands)	Fixed Rates		Floating or Adjustable  Rates		Total
Commercial:
Commercial mortgage	$	82,145	$	65,478	$	147,623
Construction and land development		3,828		1,744		5,572
Commercial and industrial		10,816		1,563		12,379
Non-commercial:
Residential mortgage		84,015		90,181		174,196
Construction and land development		1,661		3,697		5,358
Revolving mortgage		—		53,290		53,290
Consumer		44,789		—		44,789
Total	$	227,254	$	215,953	$	443,207

Some of our adjustable rate loans contain rate floors that are equal to the initial interest rate on the loan. When market interest rates fall below the rate floor, as has occurred in recent months, loan rates do not adjust further downward. As market interest rates rise in the future, the interest rates on these loans may rise based on the contract rate (index plus the margin) exceeding the initial interest rate floor; however, contract interest rates will only increase when the index plus margin exceed the imposed rate floor.

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Loan Activity

The following table shows loans originated, purchased and sold during the periods indicated, including residential mortgage loans intended for sale in the secondary market.

	Three Months Ended March 31,						Year Ended December 31,
(In thousands)	2011			2010			2010			2009		2008		2007		2006
Total loans at beginning of period	$	495,713		$	592,497		$	592,497		$	586,618	$	518,628	$	481,088	$	475,624
Loans originated:
Real estate loans:
Commercial mortgage		1,520			1,161			43,547			74,382		92,923		76,070		49,049
Construction and land development		586			54			—			—		5,109		8,364		16,147
Commercial and industrial		450			881			7,737			10,742		15,255		10,925		2,816
Non-commercial:
Residential mortgage		29,463			28,715			121,439			131,017		97,731		88,251		84,062
Construction and land development		618			—			15,845			12,142		7,546		12,036		21,661
Revolving mortgage		208			1,433			7,966			20,524		32,010		33,479		30,339
Consumer		88			123			523			26,248		70,014		67,143		59,458
Total loans originated		32,933			32,367			197,057			275,055		320,588		296,268		263,532
Loans purchased:
Commercial:
Commercial mortgage		—			18			2,191			6,209		2,120		13,152		8,154
Construction and land development		104			26			41			—		939		1,500		—
Total loans purchased		104			44			2,232			6,209		3,059		14,652		8,154
Deduct:
Loan principal repayments		28,966			28,021			163,910			151,368		196,007		211,344		209,543
Loan sales		25,468			15,958			97,103			116,352		50,053		61,048		55,819
Foreclosed loans transferred to real estate owned		200			688			12,585			2,968		6,272		—		9
Charge-offs		804			1,817			18,863			2,193		1,893		681		885
Deductions for other items (1)		(48	)		70			3,612			2,504		1,432		307		(34	)
Net loan activity		(22,353	)		(14,143	)		(96,784	)		5,879		67,990		37,540		5,464
Total loans at end of period	$	473,360		$	578,354		$	495,713		$	592,497	$	586,618	$	518,628	$	481,088

(1) Other items consist of loan fees, the allowance for loan losses and loans in process.

Loan originations come from a number of sources. The primary sources of loan originations are existing customers, walk-in traffic, advertising and referrals from customers. We generally sell in the secondary market long-term fixed-rate residential mortgage loans that we originate. Our decision to sell loans is based on prevailing market interest rate conditions, interest rate management and liquidity needs. Occasionally, we have purchased participation interests in commercial real estate loans to supplement our loan portfolio. We underwrite participation interests using the same underwriting standards for loans that we originate for our portfolio. At March 31, 2011, our participation interests totaled $18.4 million, $11.0 million of which was secured by properties located outside of our primary market area. At March 31, 2011, $15.8 of our $18.4 million in participation interests were performing in accordance with their original loan terms.

Securities

At March 31, 2011, our securities portfolio consisted of securities of U.S. government agencies and corporations, securities of various government-sponsored agencies and of state and municipal governments and mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. Our securities portfolio is used to invest excess funds for increased yield, manage interest rate risk and as collateralization for public unit deposits.

At March 31, 2011, our securities portfolio represented 27.2% of total assets, compared to 24.2% at December 31, 2010 as a result of an increase in liquidity due to loan sales. At March 31, 2011, $198.6 million of our securities portfolio was classified as available for sale and $5.7 million of our securities portfolio was classified

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as held to maturity. Securities classified as held to maturity are United States government sponsored securities, mortgage-backed securities and state and local government securities. In addition, at March 31, 2011, we had $4.0 million of other investments, at cost, which consisted solely of Federal Home Loan Bank of Atlanta common stock. Securities increased by $22.9 million, or 12.6%, to $204.3 million at March 31, 2011 from $181.4 million at December 31, 2010 primarily as a result of proceeds from loan repayments and sales being invested in securities.

Total securities increased by $84.4 million, or 87.0%, to $181.4 million at December 31, 2010 from $97.0 million at December 31, 2009 primarily as a result of proceeds from loan repayments and sales being invested in securities. For all periods presented, our mortgage-backed and related securities did not include any private label issues or real estate mortgage investment conduits.

The following table sets forth the amortized costs and fair values of our investment securities at the dates indicated.

	At March 31, 2011				At December 31,
					2010				2009				2008
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
U.S. government agencies and corporations	$	62,732	$	62,250	$	50,254	$	50,043	$	25,048	$	25,108	$	6,000	$	6,294
Mortgage-backed and related securities		131,734		131,216		121,896		121,449		60,880		61,338		28,104		28,800
State and local government		4,494		4,460		3,379		3,287		1,026		1,030		—		—
Other debt securities		—		—		—		—		2,070		1,944		2,072		608
Other equity securities		669		670		664		666		641		637		617		1,660
Total securities available for sale	$	199,629	$	198,596	$	176,193	$	175,445	$	89,665	$	90,057	$	36,793	$	37,362
Securities held to maturity:
U.S. government agencies and corporations	$	1,087	$	1,151	$	1,090	$	1,168	$	1,102	$	1,096	$	—	$	—
Mortgage-backed and similar securities		2,223		2,362		2,449		2,598		3,452		3,590		5,442		5,501
State and local government		2,410		2,484		2,409		2,432		2,404		2,498		—		—
Other debt securities		—		—		—		—		—		—		—		—
Other equity securities		—		—		—		—		—		—		—		—
Total securities held to maturity	$	5,720	$	5,997	$	5,948	$	6,198	$	6,958	$	7,184	$	5,442	$	5,501
Total securities	$	205,349	$	204,593	$	182,141	$	181,643	$	96,623	$	97,241	$	42,235	$	42,863

The following table sets forth the stated maturities and weighted average yields of investment securities at March 31, 2011 and December 31, 2010. Weighted average yields on tax-exempt securities are presented on a tax equivalent basis using a federal marginal tax rate of 34%. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. Weighted average yield calculations on investments available for sale do not give effect to changes in fair value that are reflected as a component of equity. There were no investment securities with stated maturities of less than one year at March 31, 2011 or December 31, 2010.

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At March 31, 2011:

	More than One Year to Five Years					More than Five Years to Ten Years					More than Ten Years					Total
(Dollars in thousands)	Carrying Value1		Weighted Average Yield			Carrying Value1		Weighted Average Yield			Carrying Value1		Weighted Average Yield			Carrying Value1		Weighted Average Yield
Securities available for sale:
U.S. government agencies and corporations	$	39,575		2.70	%	$	22,675		2.88	%	$	—		—	%	$	62,250		2.76	%
Mortgage-backed and related securities		2,179		4.91			16,676		3.95			112,362		3.98			131,217		4.01
State and local government		—		—			1,128		5.00			3,331		4.67			4,459		4.75
Other debt securities		—		—			—		—			—		—			—		—
Other equity securities		—		—			—		—			670		—			670		—
Total securities available for sale	$	41,754		2.81	%	$	40,479		3.37	%	$	116,363		3.98	%	$	198,596		3.62	%
Securities held to maturity:
U.S. government agencies and corporations	$	—		—	%	$	1,087		2.71	%	$	—		—	%	$	1,087		2.38	%
Mortgage-backed and related securities		150		4.58			1,168		2.96			905		2.71			2,223		2.84
State and local government		—		—			—		—			2,410		5.54			2,410		5.43
Total securities held to maturity	$	150		4.58		$	2,255		2.84		$	3,315		4.77		$	5,720		3.84
Total	$	41,904		2.82	%	$	42,734		3.34	%	$	119,678		4.00	%	$	204,316		3.63	%

(1) Carrying value is fair value for securities available for sale and amortized cost for securities held to maturity.

At December 31, 2010:

	More than One Year to Five Years					More than Five Years to Ten Years					More than Ten Years					Total
(Dollars in thousands)	Carrying Value1		Weighted Average Yield			Carrying Value1		Weighted Average Yield			Carrying Value1		Weighted Average Yield			Carrying Value1		Weighted Average Yield
Securities available for sale:
U.S. government agencies and corporations	$	32,043		2.41	%	$	17,999		3.13	%	$	—		—	%	$	50,042		2.66	%
Mortgage-backed and related securities		2,522		4.91			14,592		3.81			104,335		4.05			121,449		4.06
State and local government		—		—			—		—			3,287		4.67			3,287		4.67
Other debt securities		—		—			—		—			—		—			—
Other equity securities		—		—			—		—			667		—			667		—
Total securities available for sale	$	34,565		2.59	%	$	32,591		3.43	%	$	108,289		4.04	%	$	175,445		3.66	%
Securities held to maturity:
U.S. government agencies and corporations	$	—		—	%	$	1,090		5.55	%	$	—		—	%	$	1,090		5.55	%
Mortgage-backed and related securities		187		5.00			1,276		5.50			986		5.83			2,449		5.58
State and local government		—		—			—		—			2,409		3.75			2,409		3.75
Total securities held to maturity	$	187		5.00		$	2,366		5.52		$	3,395		4.35		$	5,948		4.83
Total	$	34,752		2.60	%	$	34,957		3.57	%	$	111,684		4.05	%	$	181,393		3.70	%

(1) Carrying value is fair value for securities available for sale and amortized cost for securities held to maturity.

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Deposits

We accept deposits primarily from individuals and businesses who are located in our primary market area or who have a pre-existing lending relationship with us. We rely on competitive pricing, customer service, account features and the location of our branch offices to attract and retain deposits. Deposits serve as the primary source of funds for our lending and investment activities. Deposit accounts offered include individual and business checking accounts, money market accounts, individual NOW accounts, savings accounts and certificates of deposit. Noninterest-bearing accounts consist of free checking and commercial checking accounts.

The following table sets forth the balances of our deposit accounts at the dates indicated.

	At March 31, 2011					At December 31,
						2010					2009					2008
(In thousands)	Total		Percent			Total		Percent			Total		Percent			Total		Percent
Noninterest-bearing accounts	$	45,039		7.30	%	$	44,996		7.26	%	$	37,715		6.20	%	$	32,831		6.13	%
NOW accounts		135,347		21.95			134,836		21.76			125,648		20.65			86,112		16.08
Money market accounts		133,075		21.58			131,138		21.16			117,866		19.37			112,415		20.99
Savings accounts		22,461		3.64			21,384		3.45			18,973		3.12			16,804		3.14
Certificates of deposit		280,664		45.53			287,403		46.37			308,336		50.66			287,478		53.66
Total	$	616,586		100.00	%	$	619,757		100.00	%	$	608,538		100.00	%	$	535,640		100.00	%

Noninterest-bearing deposit and NOW accounts increased by 10.1% and 37.4% for the years ended December 31, 2010 and 2009, respectively, and increased 0.3% during the three months ended March 31, 2011. The increases in demand deposit and NOW accounts were primarily due to customers moving funds out of certificates of deposit and our marketing efforts to attract noninterest bearing deposit and NOW accounts.

Certificates of deposit decreased by $6.7 million during the three months ended March 31, 2011 and decreased $20.9 million in 2010 from $308.3 million at December 31, 2009 to $287.4 million at December 31, 2010. The decrease reflects management’s continued focus on reducing deposit interest rates to improve Asheville Savings Bank’s net interest margin. A portion of these funds were moved to other types of interest-bearing deposits with us including money market accounts. Our need for loan funding, ability to invest these funds for a positive return and consideration of other customer relationships influences our willingness to match competitor’s rates to retain these accounts, which we have not been willing to do in recent periods.

The following tables indicate the amount of jumbo certificates of deposit by time remaining until maturity at March 31, 2011 and December 31, 2010. Jumbo certificates of deposit require minimum deposits of $100,000.

Maturity Period	Amount
	(In thousands)
At March 31, 2011:
Three months or less	$	23,854
Over three through six months		17,003
Over six through twelve months		11,531
Over twelve months		48,310
Total	$	100,698
At December 31, 2010:
Three months or less	$	14,129
Over three through six months		23,313
Over six through twelve months		21,622
Over twelve months		43,426
Total	$	102,490

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The following table sets forth time deposits classified by rates at the dates indicated.

	At March  31, 2011		At December 31,
(In thousands)			2010		2009		2008
0.00 - 1.00%	$	69,130	$	55,780	$	3,315	$	77
1.01 - 2.00%		113,412		129,173		156,804		608
2.01 - 3.00%		89,679		91,623		89,095		71,165
3.01 - 4.00%		6,762		8,684		37,580		148,090
4.01 - 5.00%		1,681		2,143		21,208		67,118
5.01 - 6.00%		—		—		334		420
Total	$	280,664	$	287,403	$	308,336	$	287,478

The following table sets forth the amount and maturities of time deposits at March 31, 2011.

	Amount Due								Total		Percent of Total Time Deposit Accounts
(Dollars in thousands)	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years
0.00 - 1.00%	$	62,892	$	6,138	$	100	$	—	$	69,130		24.63	%
1.01 - 2.00%		67,649		29,880		15,523		360		113,412		40.41
2.01 - 3.00%		16,072		59,638		9,144		4,825		89,679		31.95
3.01 - 4.00%		4,007		1,775		687		293		6,762		2.41
4.01 - 5.00%		415		1,037		229		—		1,681		0.60
Total	$	151,035	$	98,468	$	25,683	$	5,478	$	280,664		100.00	%

The following table sets forth the amount and maturities of time deposits at December 31, 2010.

	Amount Due								Total		Percent of Total Time Deposit Accounts
(Dollars in thousands)	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years
0.00 - 1.00%	$	50,496	$	5,284	$	—	$	—	$	55,780		19.41	%
1.01 - 2.00%		95,965		17,858		15,123		227		129,173		44.94
2.01 - 3.00%		11,258		63,561		12,205		4,599		91,623		31.88
3.01 - 4.00%		5,269		2,108		822		485		8,684		3.02
4.01 - 5.00%		787		1,129		227		—		2,143		0.75
Total	$	163,775	$	89,940	$	28,377	$	5,311	$	287,403		100.00	%

The following table sets forth deposit activity for the periods indicated.

	Three Months Ended March 31,					Year Ended December 31,
(In thousands)	2011			2010		2010		2009		2008
Beginning balance	$	619,757		$	608,538	$	608,538	$	535,640	$	505,290
Increase (decrease) before interest credited		(4,877	)		6,475		2,195		60,547		15,906
Interest credited		1,706			2,455		9,024		12,351		14,444
Net increase (decrease) in deposits		(3,171	)		8,930		11,219		72,898		30,350
Ending balance	$	616,586		$	617,468	$	619,757	$	608,538	$	535,640

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Borrowings. We use borrowings from the Federal Home Loan Bank of Atlanta, federal funds purchased and other short-term borrowings to supplement our supply of funds for loans and investments and for interest rate risk management.

	Three Months Ended March 31,						Year Ended December 31,
(Dollars in thousands)	2011			2010			2010			2009			2008
Maximum balance outstanding at any month-end during period:
Federal Home Loan Bank advances	$	60,000		$	60,000		$	60,000		$	60,000		$	50,000
Overnight and short-term borrowings		1,617			1,638			1,638			30,783			43,410
Average balance outstanding during period:
Federal Home Loan bank advances	$	60,000		$	60,000		$	60,000		$	60,000		$	57,316
Overnight and short-term borrowings		1,737			1,524			1,189			4,051			6,026
Weighted average interest rate during period:
Federal Home Loan bank advances		4.03	%		4.03	%		4.03	%		4.03	%		3.77	%
Overnight and short-term borrowings		0.47			0.27			0.25			0.37			3.40
Balance outstanding at end of period:
Federal Home Loan bank advances	$	60,000		$	60,000		$	60,000		$	60,000		$	86,000
Overnight and short-term borrowings		1,404			1,492			1,008			1,694			5,219
Weighted average interest rate at end of period:
Federal Home Loan bank advances		4.03	%		4.03	%		4.03	%		4.02	%		4.04	%
Overnight and short-term borrowings		0.22			0.24			0.33			0.28			0.48

Asheville Savings Bank’s Federal Home Loan Bank advances are fixed rate borrowings that at the option of the Federal Home Loan Bank of Atlanta can be converted to variable rates. If the Federal Home Loan Bank of Atlanta exercises its options to convert the fixed rate advances to variable rates, then Asheville Savings Bank can accept the new terms or repay the advance without any prepayment penalty.

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Results of Operations for the Three Months Ended March 31, 2011 and 2010

Overview. Net income was $585,000 for the three months ended March 31, 2011 as compared to $430,000 for the three months ended March 31, 2010. The $155,000, or 36.0% increase in 2011 as compared to 2010 was primarily due to a $1.2 million decrease in provision for loan losses and a $747,000 decrease in interest expense, which was partially offset by a decrease in interest and dividend income of $1.3 million and a decrease in noninterest income of $378,000, as well as an increase in noninterest expenses of $78,000.

Net Interest Income. Net interest income decreased by $549,000, or 9.8%, to $5.1 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. Total interest income decreased by $1.3 million, or 14.9%, to $7.4 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, primarily as a result of a 64 basis point decrease in market interest rates and a decrease in the average balance of interest earning assets of $16.4 million from $720.6 million for the three months ended March 31, 2010 to $704.2 million for the three months ended March 31, 2011. Interest income on loans decreased $1.5 million, or 19.9%, to $6.2 million during the three months ended March 31, 2011 primarily due to a decrease in average outstanding loans of $98.6 million, or 16.6%, to $497.0 million during the period and a 21 basis point decrease in average loan yields. While loan originations increased by $566,000 for the three months ended March 31, 2011 compared to March 31, 2010, loan sales increased by $9.5 million during the same period, and loan principal repayments increased $945,000 from $28.0 million for the three months ended March 31, 2010 to $29.0 million for the three months ended March 31, 2011. The average balance of investment securities and mortgage-backed securities increased $26.8 million and $56.9 million, or 77.5% and 85.5%, respectively, to $61.4 million and $123.4 million, respectively, for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, primarily as a result of the reinvestment in securities of proceeds from loan repayments and sales.

Total interest expense decreased $747,000, or 24.5%, to $2.3 million for the three months ended March 31, 2011 due to a 53 basis point decrease in average interest-bearing deposit costs and a $2.0 million decrease in average interest-bearing deposit balances. Our average outstanding balance of borrowings remained stable at $61.7 million for the three months ended March 31, 2011 compared to $61.5 million for the three months ended March 31, 2010.

Provision for Loan Losses. The provision for loan losses was $657,000 for the three months ended March 31, 2011 compared to $1.9 million for the three months ended March 31, 2010. The decrease in the provision was due to fewer charge-offs on the loan portfolio and lower loan balances.

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Average Balances and Yields

The following tables present 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 for the periods indicated are derived by dividing annualized income or expense for the periods of less than twelve months and full-year income or expense for twelve-month periods by the average balances of assets or liabilities, respectively, 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. Tax exempt income on loans and on investment and mortgage-backed securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34%.

	At March  31, 2011			Three Months Ended March 31,
				2011								2010
(Dollars in thousands)	Weighted Average Yield/  Cost			Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
Assets:
Interest-bearing deposits at other financial institutions		0.25	%	$	18,478		$	11		0.24	%	$	19,942		$	13		0.26	%
Loans		4.96			496,951			6,193		5.05			595,553			7,728		5.26
Investment securities		2.51			61,361			388		2.56			34,560			321		3.90
Mortgage-backed and related securities		2.84			123,437			782		2.57			66,556			613		3.74
Other interest-earning assets		0.79			3,970			8		0.82			3,993			3		0.30
Total interest-earning assets		4.18			704,197			7,382		4.25			720,604			8,678		4.89
Allowance for loan losses					(12,771	)							(9,022	)
Noninterest-earning assets					52,234								40,586
Total assets				$	743,660							$	752,168
Liabilities and equity:
NOW accounts		0.81		$	133,558			314		0.95		$	123,233			491		1.62
Money market accounts		0.56			132,255			178		0.55			118,531			280		0.96
Savings accounts		0.31			21,686			17		0.32			19,173			18		0.38
Certificates of deposit		1.70			281,079			1,197		1.73			309,661			1,665		2.18
Total interest-bearing deposits		1.17			568,578			1,706		1.22			570,598			2,454		1.75
Federal Home Loan Bank advances		4.04			60,000			596		4.03			60,000			596		4.03
Overnight and short-term borrowings		0.22			1,737			2		0.47			1,524			1		0.27
Total interest-bearing liabilities		1.44			630,315			2,304		1.49			632,122			3,051		1.96
Noninterest-bearing deposits					43,852								38,640
Other noninterest-bearing liabilities					5,877								6,321
Total liabilities					680,044								677,083
Total equity					63,616								75,085
Total liabilities and equity				$	743,660							$	752,168
Net interest income							$	5,078							$	5,627
Interest rate spread										2.76								2.93
Net interest margin										2.92								3.17
Average interest-earning assets to average interest-bearing liabilities					111.72	%							114.00	%

59

	Year Ended December 31,
	2010								2009								2008
(Dollars in thousands)	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends			Yield/ Cost
Assets:
Interest-bearing deposits at other financial institutions	$	21,997		$	59		0.27	%	$	21,160		$	50		0.24	%	$	29,727		$	698			2.35	%
Loans		563,013			28,522		5.07			606,995			32,690		5.39			556,542			33,661			6.05
Investment securities		50,872			1,545		3.13			19,481			858		4.52			10,605			612			5.77
Mortgage-backed and related securities		87,474			2,674		3.06			50,053			2,047		4.09			32,762			1,551			4.73
Other interest-earning assets		3,982			15		0.38			4,020			9		0.22			3,866			161			4.16
Total interest-earning assets		727,338			32,815		4.52			701,709			35,654		5.09			633,502			36,683			5.79
Allowance for loan losses		(11,847	)							(7,314	)							(5,392	)
Noninterest-earning assets		44,085								36,956								35,016
Total assets	$	759,576							$	731,351							$	663,126
Liabilities and equity:
NOW accounts	$	127,879			1,780		1.39		$	106,560			1,688		1.58		$	78,272			880			1.12
Money market accounts		123,952			1,046		0.84			119,960			1,488		1.24			111,936			2,226			1.99
Savings accounts		19,994			70		0.35			18,148			73		0.40			16,519			82			0.50
Certificates of deposit		305,823			6,128		2.00			307,525			9,091		2.96			279,004			11,190			4.01
Total interest-bearing deposits		577,648			9,024		1.56			552,193			12,340		2.24			485,731			14,378			2.96
Federal Home Loan Bank advances		60,000			2,417		4.03			60,000			2,417		4.03			57,316			2,162			3.77
Overnight and short-term borrowings		1,189			3		0.25			4,051			15		0.37			6,026			205			3.40
Total interest-bearing liabilities		638,837			11,444		1.79			616,244			14,772		2.40			549,073			16,745			3.05
Noninterest-bearing deposits		42,870								35,264								33,767
Other noninterest-bearing liabilities		5,185								8,288								7,268
Total liabilities		686,892								659,796								590,108
Total equity		72,684								71,555								73,018
Total liabilities and equity	$	759,576							$	731,351							$	663,126
Net interest income				$	21,371							$	20,882							$	19,938
Interest rate spread							2.73	%							2.69	%								2.74	%
Net interest margin							2.95	%							2.98	%								3.15	%
Average interest-earning assets to average interest-bearing liabilities		113.85	%							113.87	%										115.38	%

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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 volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior 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 March 31, 2011 Compared to Three Months Ended March 31, 2010									Year Ended December 31, 2010 Compared to Year Ended December 31, 2009									Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
	Increase (Decrease) Due to									Increase (Decrease) Due to									Increase (Decrease) Due to
(In thousands)	Volume			Rate			Net			Volume			Rate			Net			Volume			Rate			Net
Interest income:
Interest-bearing deposits at other financial institutions	$	(1	)	$	(1	)	$	(2	)	$	2		$	7		$	9		$	(157	)	$	(491	)	$	(648	)
Loans receivable		(1,239	)		(296	)		(1,535	)		(2,291	)		(1,877	)		(4,168	)		2,900			(3,871	)		(971	)
Investment securities		193			(126	)		67			1,023			(336	)		687			418			(172	)		246
Mortgage-backed and related securities		404			(235	)		169			1,242			(615	)		627			730			(234	)		496
Other interest-earning assets		—			5			5			—			6			6			6			(158	)		(152	)
Total interest-earning assets		(643	)		(653	)		(1,296	)		(24	)		(2,815	)		(2,839	)		3,897			(4,926	)		(1,029	)
Interest expense:
NOW accounts		38			(215	)		(177	)		312			(220	)		92			379			429			808
Money market accounts		29			(131	)		(102	)		48			(490	)		(442	)		150			(888	)		(738	)
Savings accounts		2			(3	)		(1	)		7			(10	)		(3	)		8			(17	)		(9	)
Certificates of deposit		(144	)		(324	)		(468	)		(50	)		(2,913	)		(2,963	)		1,060			(3,159	)		(2,099	)
Total interest-bearing deposits		(75	)		(673	)		(748	)		317			(3,633	)		(3,316	)		1,597			(3,635	)		(2,038	)
Federal Home Loan Bank advances		—			—			—			—			—			—			104			151			255
Overnight and short-term borrowings		—			1			1			(8	)		(4	)		(12	)		(51	)		(139	)		(190	)
Total interest-bearing liabilities		(75	)		(672	)		(747	)		309			(3,637	)		(3,328	)		1,650			(3,623	)		(1,973	)
Net increase (decrease) in interest income	$	(568	)	$	19		$	(549	)	$	(333	)	$	822		$	489		$	2,247		$	(1,303	)	$	944

Noninterest Income. Noninterest income decreased $378,000 to $1.7 million during the three months ended March 31, 2011 from $2.1 million for the three months ended March 31, 2010. Factors that contributed to the decrease in noninterest income during the 2011 period were no gains on the sale of investment securities for the three months ended March 31, 2011 compared to gains on the sale of investment securities of $486,000 for the three months ended March 31, 2010 and a $96,000 decrease in fees on deposit and other service charge income, partially offset by a $33,000 increase in fees related to debit card volume and a $157,000 increase in mortgage banking income resulting from an increase in refinanced mortgage loans that were sold during the period. The decrease in deposit and other service charge income was primarily the result of changes in regulatory requirements implemented in August 2010. Other noninterest income increased during the 2011 period primarily due to an increase of $19,000 in income received from limited partnership interests.

Noninterest Expenses. Noninterest expenses increased $78,000 for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. Foreclosed property expenses increased $72,000 as a result of higher provisions for write-downs of foreclosed properties and salary and benefits expense decreased by $54,000 primarily due to a reduction in accruals under the management incentive plan. Data processing fees increased by $66,000 during the three months ended March 31, 2011 as a result of expenses related to additional data processing services, and advertising expenses decreased $103,000 primarily due to the timing of advertising during the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

Income Tax Expense. Income tax expense increased by $42,000 for the three months ended March 31, 2011 as compared to the three month period ended March 31, 2010 primarily due to an increase in pre-tax income. The effective tax rate was 32.7% for the three months ended March 31, 2011 compared to 36.0% for the three months ended March 31, 2010.

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Total Comprehensive Income. Total comprehensive income for the periods presented consists of net income and the change in unrealized gains on securities available for sale, net of tax. Total comprehensive income was $414,000 and $443,000 for the three months ended March 31, 2011 and 2010, respectively. The decrease in total comprehensive income resulted primarily from a $285,000 increase in unrealized losses on securities available for sale for the three months ended March 31, 2011 compared to a $23,000 increase in unrealized gains on securities available for sale for the three months ended March 31, 2010.

Results of Operations for the Years Ended December 31, 2010 and 2009

Overview. We incurred a net loss of $9.5 million for the year ended December 31, 2010 compared to net income of $1.5 million for the year ended December 31, 2009 primarily due to a $17.8 million increase in the provision for loan losses to $22.4 million for the year ended December 31, 2010 compared to $4.7 million for the year ended December 31, 2009. The significant increase in the provision for loan losses was due to an increase of $16.7 million in net charge-offs on the loan portfolio from $2.0 million in 2009 to $18.7 million in 2010. Our primary source of income during each of the years ended December 31, 2010 and 2009 was net interest income, which increased from $20.9 million at December 31, 2009 to $21.4 million at December 31, 2010. Noninterest income increased by $517,000 during the year ended December 31, 2010, while noninterest expenses increased by $1.1 million during 2010.

Net Interest Income. Net interest income increased by $489,000, or 2.3%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009, primarily due to a decrease in interest on loans, which was offset by an increase in income from securities, as well as a decrease in interest expense. Total interest income decreased by $2.8 million, or 8.0%, as loan interest income decreased by $4.2 million, or 12.8%, during the year ended December 31, 2010, due primarily to a decrease in average loan balances of $44.0 million, or 7.2%, primarily because loan charge-offs and loan repayments were not replaced by new loan originations, and a 32 basis point decrease in the yield earned on loans during fiscal 2010. Income from securities increased by $1.3 million primarily due to an increase in the average balance of investment securities and mortgage-backed and related securities of $31.4 million and $37.4 million, respectively, the effect of which was partially offset by a decrease in the yield earned on investment securities and mortgage-backed and related securities of 139 basis points and 103 basis points, respectively. The increased balance of investment securities and mortgage-backed and related securities was primarily due to the reinvestment into securities of proceeds from loan repayments and sales, as well as deposit growth. Total interest expense decreased by $3.3 million, or 22.5%, during the year ended December 31, 2010, primarily resulting from a 61 basis point decrease in the cost of interest-bearing liabilities, the effect of which was partially offset by a $22.6 million, or 3.7%, increase in average interest-bearing liabilities. Interest-bearing liabilities increased due primarily to an increase in the average balance of deposits of $25.5 million, or 4.6%, principally due to growth in NOW and money market accounts. The cost of interest bearing liabilities decreased primarily due to a decrease of 68 basis points in the cost of deposits. The decrease in the cost of deposits was due primarily to our continued focus on reducing deposit interest rates by not aggressively competing for certificates of deposit. The average balance of Federal Home Loan Bank of Atlanta advances and overnight and short-term borrowings for the year ended December 31, 2010 was $61.2 million as compared to $64.0 million for the year ended December 31, 2009.

Provision for Loan Losses. The provision for loan losses was $22.4 million for the year ended December 31, 2010 as compared to $4.7 million for the year ended December 31, 2009. The increase in the provision was necessary to replenish the allowance for loan losses that was depleted due to $18.7 million in net charge-offs of non-performing loans in 2010, as well as management’s efforts to increase the allowance for loan losses in response to continued elevated levels of non-performing loans, which increased from $3.6 million at December 31, 2008 to $16.6 million and $13.4 million at December 31, 2009 and 2010, respectively. Net charge-offs of $2.1 million and $18.7 million were recognized in 2009 and 2010, respectively. The allowance is determined based upon management’s analysis of historical loss, environmental factors, as well as updated calculations for allowances needed for impaired loans. Among the qualitative risk factors that we consider in determining the loss percentages include current industry conditions, unemployment rates, the levels and trends of delinquencies, percentage of classified loans to total loans, charge-offs, bankruptcy filings and collateral values in our primary market area.

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Noninterest Income. During the year ended December 31, 2010, total noninterest income increased $517,000, or 7.2%, as compared to the year ended December 31, 2009. The increase in noninterest income was primarily the result of an increase of $259,000 in gains realized from sales of investment securities, a $178,000 increase in income from debit card services resulting from an increase in debit card activity, and a $76,000 increase in deposit and other service charge income related to ATM activity, partially offset by a decrease of $14,000 in mortgage banking income.

Noninterest Expenses. Noninterest expenses increased by $1.1 million, or 5.2%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. The primary factors effecting the change were a $2.0 million increase in foreclosed property expenses as a result of higher provisions for write-downs of foreclosed properties, a $126,000 increase in professional and outside services that resulted from legal services related to loan collections, as well as an $81,000 increase in occupancy expense due to a special maintenance assessment, which was partially offset by a $722,000 decrease in salaries and employee benefits due primarily to the decision to limit accrued payouts in 2010 under Asheville Savings Bank’s management incentive and long-term incentive plans, as well as a $377,000 decrease in federal deposit insurance premiums due to a special assessment in 2009, a $46,000 decrease in data processing fees as a result of a vendor credit applied during 2009, and a $29,000 decrease in advertising expenses as a result of overhead cost reduction.

Income Tax Expense. We recorded an income tax benefit of $6.1 million for the year ended December 31, 2010 compared to a provision for income tax expense of $791,000 for the year ended December 31, 2009 primarily due to a pre-tax loss of $15.5 million in 2010 compared to pre-tax income of $2.3 million in 2009. The effective tax rate was 39.1% for the year ended December 31, 2010 compared to 34.1% for the year ended December 31, 2009, with the increase primarily resulting from the decrease in favorable permanent tax diffences relative to the size of the pre-tax loss in 2010 and the pre-tax income in 2009.

Total Comprehensive Income (Loss). Total comprehensive income or loss for the periods presented consists of net income, the change in unrealized gains and losses on securities available for sale, and certain changes in our benefit obligations under our retirement plans, net of tax. We incurred a total comprehensive loss of $10.8 million in 2010 compared to a total comprehensive income of $3.7 million in 2009. The changes in the components of comprehensive income were a net loss of $9.5 million in 2010 compared to net income of $1.5 million in 2009, a $683,000 increase in unrealized losses on securities available for sale in 2010 compared to a $107,000 increase in unrealized losses on securities available for sale in 2009, and a $627,000 increase in retirement plan benefit obligations in 2010 compared to a $2.3 million decrease in retirement plan benefit obligations in 2009.

Results of Operations for the Years Ended December 31, 2009 and 2008

Overview. Net income was $1.5 million for the year ended December 31, 2009 compared to $2.4 million for the year ended December 31, 2008. Our primary source of income during each of the years ended December 31, 2009 and 2008 was net interest income, which increased from $19.9 million in 2008 to $20.9 million in 2009. Noninterest income increased by $1.9 million during 2009, while noninterest expenses increased by $2.7 million.

Net Interest Income. Net interest income increased by $944,000, or 4.7%, for the year ended December 31, 2009 as compared to the year ended December 31, 2008, primarily due to a decrease of $1.0 million in interest income, which was offset by a $2.0 million decrease in interest expense. The $1.0 million, or 2.8%, decrease in total interest income mainly resulted from a $971,000, or 2.9%, decrease in interest income from loans that was primarily attributable to a $3.9 million decline from a 66 basis point reduction in loan yields that was partially offset by a $2.9 million increase caused by a $50.5 million growth in loan volumes. Income from securities increased $742,000 primarily due to increases in the average balances of investment securities and mortgage-backed and related securities of $8.9 million and $17.3 million, respectively, the effect of which was partially offset by a decrease in the yield earned on investment securities and mortgage-backed and related securities of 125 basis points and 64 basis points, respectively. The increased balance of investment securities and mortgage-backed and related securities was primarily due to the investment of proceeds from deposit growth into the securities portfolio. Total interest expense decreased by $2.0 million, or 11.8%, during the year ended December 31, 2009 that primarily resulted from a 65 basis point decrease in the cost of interest-bearing liabilities, the effect of which was partially offset by increased interest expense from a $67.2 million, or 12.2%, increase in average interest-bearing liabilities. Average interest-

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bearing liabilities increased due primarily to a $66.5 million, or 13.7%, increase in average deposits . The decrease in the cost of interest-bearing liabilities was due primarily to a 72 basis point decrease in the cost of deposit funds. Federal Home Loan Bank of Atlanta advances and other overnight and short-term borrowings at December 31, 2009 averaged $64.1 million in 2009 as compared to $63.3 million in 2008.

Provision for Loan Losses. The provision for loan losses was $4.7 million for the year ended December 31, 2009 as compared to $3.0 million for the year ended December 31, 2008. The increase in the provision was necessary to replenish the allowance for loan losses that was depleted due to $2.1 million in net charge-offs of non-performing loans in 2009, as well as management’s efforts to increase the allowance for loan losses in response to a significant increase in non-performing loans, which increased from $3.6 million at December 31, 2008 to $16.6 million at December 31, 2009. The allowance is determined based upon management’s analysis of historical loss, environmental factors, as well as updated calculations for allowances needed for impaired loans. Among the qualitative risk factors that we consider in determining the loss percentages include current industry conditions, unemployment rates, the levels and trends of delinquencies, percentage of classified loans to total loans, charge-offs, bankruptcy filings and collateral values in our primary market area.

Noninterest Income. During the year ended December 31, 2009, total noninterest income increased $1.9 million, or 35.6%, as compared to the year ended December 31, 2008. The increase in noninterest income was primarily the result of an $876,000 increase in mortgage banking income resulting from an increase in loans sold to the secondary market, a $539,000 increase in realized gains on sales of investment securities, a $97,000 increase in income from debit card services resulting from an increase in debit card activity, a $331,000 increase in deposit fees and other service charges related to an increase in NOW accounts.

Noninterest Expenses. Noninterest expenses increased by $2.7 million, or 14.8%, for the year ended December 31, 2009 as compared to the year ended December 31, 2008. The primary factors effecting the change were a $1.3 million increase in federal deposit insurance premiums due to a special assessment and an increase in the Federal Deposit Insurance Corporation base assessment rates, a $916,000 increase in salaries and employee benefits resulting mainly from an increase in our qualified pension expense, a $208,000 increase in data processing fees related to additional software licensing agreements, and a $43,000 increase in other expenses, partially offset by a $191,000 decrease in advertising fees due to reductions in certain media advertising.

Income Tax Expense. Provision for income taxes decreased to $791,000 during the year ended December 31, 2009 from $1.4 million during the year ended December 31, 2008 primarily due to a decrease in pre-tax income. The effective tax rate was 34.1% for the year ended December 31, 2009 compared to 36.2% for the year ended December 31, 2008, with the reduction primarily resulting from the effects of an increase in favorable permanent tax differences.

Total Comprehensive Income. Total comprehensive income (loss) for the periods presented consists of net income and the change in unrealized gains (losses) on securities available for sale, net of tax. Total comprehensive income was $3.7 million and ($1.1 million) for the years ended December 31, 2009 and 2008, respectively. The increase in total comprehensive income resulted from a decrease in pension expense of $3.2 due to the freeze of Asheville Savings Bank’s pension plan. Total comprehensive income or loss for the periods presented consists of net income, the change in unrealized gains and losses on securities available for sale, and certain changes in our benefit obligations under our retirement plans, net of tax. We reported total comprehensive income of $3.7 million in 2009 compared to a total comprehensive loss of $1.1 million in 2008. The changes in the components of comprehensive income were net income of $1.5 million in 2009 compared to $2.4 million in 2008, a $107,000 increase in unrealized losses on securities available for sale in 2009 compared to a $192,000 increase in unrealized gains on securities available for sale in 2008, and a $2.3 million decrease in retirement plan benefit obligations in 2009 compared to a $3.8 million increase in retirement plan benefit obligations in 2008.

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

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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 risk, liquidity risks 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 Non-performing 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 non-performing 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.

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. When property is acquired it 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 non-performing assets at the dates indicated.

	At March 31,			At December 31,
(Dollars in thousands)	2011			2010			2009			2008			2007			2006
Non-accrual loans:
Commercial:
Construction and land development	$	4,744		$	5,205		$	438		$	—		$	2,949		$	93
Commercial mortgage		5,319			3,810			6,666			—			—			787
Other commercial real estate		—			—			—			—			—			—
Commercial and industrial		308			377			1,408			—			—			—
Total nonaccrual commercial loans		10,371			9,392			8,512			—			2,949			880
Non-commercial:
Construction and land development		280			553			456			—			—			—
Residential		3,259			3,194			5,558			—			—			—
Revolving mortgage		239			191			489			—			—			—
Consumer		41			94			1,463			—			37			33
Total nonaccrual non-commercial loans		3,819			4,032			7,966			—			37			33
Total nonaccrual loans		14,190			13,424			16,478			—			2,986			913
Accruing loans past due 90 days or more:
Commercial:
Construction and land development		—			—			—			12			13			550
Commercial mortgage		—			—			—			—			—			38
Other commercial real estate		—			—			—			—			—			—
Commercial and industrial		—			—			—			68			3			9
Total accruing commercial loans past due 90 days or more		—			—			—			80			16			597
Non-commercial:
Construction and land development		—			—			—			374			—			—
Residential		—			—			91			1,790			849			301
Revolving mortgage		—			—			—			525			456			168
Consumer		—			—			15			782			619			431
Total accruing non-commercial loans past due 90 days or more		—			—			106			3,471			1,924			900
Total accruing loans past due 90 days or more		—			—			106			3,551			1,940			1,497
Total nonperforming loans (non- accrual and 90 days or more past due)		14,190			13,424			16,584			3,551			4,926			2,410
Real estate owned		10,506			10,650			3,699			6,272			—			—
Other non-performing assets		—			—			—			—			—			—
Total non-performing assets		24,696			24,074			20,283			9,823			4,926			2,410
Performing troubled debt restructurings1		11,575			18,246			21,216			—			199			513
Performing troubled debt restructurings and total non-performing assets	$	36,271		$	42,320		$	41,499		$	9,823		$	5,125		$	2,923
Total non-performing loans to total loans		2.92	%		2.68	%		2.77	%		0.60	%		0.94	%		0.50	%
Total non-performing loans to total assets		1.89			1.79			2.21			0.50			0.77			0.40
Total non-performing assets and troubled debt restructurings to total assets		3.29			3.21			2.71			1.39			0.77			0.40
Performing troubled debt restructurings and total non-performing assets to total assets		4.83			5.64			5.54			1.39			0.80			0.49

(1) Troubled debt restructurings do not include troubled debt restructurings that remain on nonaccrual status and are included in nonaccrual loans above.

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The decrease in non-performing loans from December 31, 2009 to December 31, 2010 was attributable to our efforts to aggressively charge-off loans that we believed we may not be able to fully collect. The increase in non-performing loans from December 31, 2010 to March 31, 2011 was primarily attributable to one commercial loan that was added to nonaccrual status during the quarter.

We periodically modify loans to extend the term or make other concessions to help borrowers stay current on their loan and to avoid foreclosure. We do not forgive principal or interest on loans or modify the interest rates on loans to rates that are below market rates. At March 31, 2011, we had $18.6 million of these modified loans, which are also referred to as troubled debt restructurings, as compared to $20.1 million at December 31, 2010. The decrease in troubled debt restructurings during the three months ended March 31, 2011 was primarily the result of fewer restructured loans during the period and loans meeting the criteria to no longer be considered restructured. All troubled debt restructurings were restructured in order help the borrowers remain current on their debt obligation. At March 31, 2011, $7.1 million of the total $18.6 million of troubled debt restructurings were not current.

Interest income that would have been recorded for the three months ended March 31, 2011 and the year ended December 31, 2010, had non-accruing loans been current according to their original terms, amounted to $209,000 and $471,000, respectively. Interest income of $106,000 and $376,000 related to non-performing loans was included in interest income for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively.

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

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

	At March 31,		At December 31,
(In thousands)	2011		2010		2009		2008		2007		2006
Special mention assets	$	29,414	$	30,490	$	34,432	$	8,555	$	6,936	$	970
Substandard assets		32,025		31,854		34,329		3,145		4,863		1,701
Doubtful assets		—		—		—		—		—		788
Loss assets		255		265		197		—		65		11
Total classified assets	$	61,694	$	62,609	$	68,958	$	11,700	$	11,864	$	3,470

Classified assets include loans that are classified due to factors other than payment delinquencies, such as lack of current financial statements and other required documentation, insufficient cash flows or other deficiencies, and, therefore are not included as non-performing assets. Other than as disclosed in the above tables, there are no other loans where management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

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Delinquencies. The following table provides information about delinquencies (including non-accrual loans) in our loan portfolio at the dates indicated.

	At March 31, 2011								At December 31, 2010
	30-89 Days				90 Days or More				30-89 Days				90 Days or More
(In thousands)	Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans
Commercial:
Construction and land development		—	$	—		5	$	4,744		4	$	462		4	$	3,451
Commercial mortgage		1		589		5		5,319		3		2,298		3		3,363
Commercial and industrial		11		136		4		300		20		288		2		290
Non-commercial:
Construction and land development		—		—		2		280		2		282		3		553
Residential mortgage		12		1,301		18		2,593		48		4,996		20		2,878
Revolving mortgage		10		491		4		135		19		576		7		191
Consumer		215		1,268		11		41		165		1,387		9		94
Total		249	$	3,785		49	$	13,412		261	$	10,289		48	$	10,820

	At December 31,
	2009								2008
	30-89 Days				90 Days or More				30-89 Days				90 Days or More
(In thousands)	Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans
Commercial:
Construction and land development		3	$	95		3	$	438		1	$	142		3	$	1,082
Commercial mortgage		3		2,226		3		6,293		6		4,920		4		1,201
Commercial and industrial		39		1,689		9		210		46		1,036		19		432
Non-commercial:
Construction and land development		3		569		4		456		—		—		—		—
Residential mortgage		58		7,024		27		4,707		12		384		4		89
Revolving mortgage		35		1,318		10		589		47		1,754		28		1,057
Consumer		297		3,254		118		1,512		326		3,611		116		1,719
Total		438	$	16,175		174	$	14,205		438	$	11,847		174	$	5,580

Analysis and Determination of the Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. On a monthly basis, we evaluate the need to establish allowances for probable losses on loans. When additional allowances are necessary, a provision for loan losses is charged to earnings. Our methodology for assessing the appropriateness of the allowance for loan losses is reviewed periodically by the board of directors. The board of directors also reviews the allowance for loan losses established on a quarterly basis.

General Valuation Allowance. We establish a general valuation allowance for loans that should be adequate to reserve for the estimated credit losses inherent in each segment of our loan portfolio, given the facts and circumstances as of the valuation date for all loans in the portfolio that have not been classified. Estimated loss percentages are assigned to loans based upon factors that include historical loan losses, delinquency trends, volume and interest rate trends, bank policy changes, and national, regional and local economic conditions. These loss factors will be evaluated at least annually by our Asset Quality Committee, which consists of our President and Chief Executive Officer, our Executive Vice President and Chief Financial Officer, our Executive Vice President and Chief Lending Officer, and other key personnel from our credit, finance, and risk management departments, and documentation of this review is maintained in the Asset Quality Committee minutes. The Asset Quality Committee may also determine that certain events or circumstances have taken place that would impact the loan portfolio for the time period being reviewed, such as a natural disaster. In such cases, methodologies should be based on events that might not yet be recognized in the loan grading or performance of the loan groupings. The Asset Quality Committee reports to the audit committee of our board of directors on a quarterly basis.

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Specific Valuation Allowance. The allowance for loan losses takes into consideration that specific losses on loans deemed to be impaired are recognized in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 310. Pursuant to ASC Topic 310, we deem a loan to be impaired when it is probable that we will not be able to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. Generally, all classified loans (loans classified substandard, doubtful, and loss) are considered impaired and are measured for impairment under ASC Topic 310 in order to determine if an impairment reserve is required. In addition, loans that are deemed to be troubled debt restructurings are considered impaired and evaluated for an impairment reserve under ASC Topic 310. Further, any non-accrual loan are considered impaired unless there is strong and credible evidence that the loan will begin performing according to the contractual terms of the loan agreement within a reasonable period of time. Such evidence must be well documented in a credit memorandum for the loan file. Any impaired loan, when evaluated for an impairment reserve under ASC Topic 310 and no requirement for such reserve is determined, will still be deemed impaired and will not be analyzed with respect to a general valuation allowance. Rather, such loan will continue to be included in impaired loans under ASC Topic 310 with a zero reserve.

ASC Topic 310 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, for collateral dependent loans, the fair value of the collateral, net of estimated costs of disposal. Since full collection of principal and interest is not expected for impaired loans, income accrual is normally discontinued on such loans at the time they first become impaired.

Unallocated Valuation Allowance. Our allowance for loan losses methodology may also include an unallocated component to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the loan portfolio.

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The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.

	At March 31,								At December 31,
	2011								2010								2009
(Dollars in thousands)	Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans
Commercial:
Construction and land development	$	1,410		11.16	%		5.74	%	$	1,232		9.72	%		5.69	%	$	494		5.49	%		5.04	%
Commercial mortgage		5,342		42.29			33.53			5,486		43.28			32.88			3,432		38.16			32.98
Commercial and industrial		934		7.39			3.25			782		6.17			3.53			381		4.24			3.81
Total commercial loans		7,686		60.85			42.52			7,500		59.17			42.10			4,307		47.89			41.83
Non-commercial:
Construction and land development		767		6.07			1.62			749		5.91			1.73			242		2.69			2.53
Residential mortgage		2,181		17.27			36.65			2,207		17.41			36.06			1,489		16.56			31.93
Revolving mortgage		1,062		8.41			10.73			1,021		8.05			10.68			688		7.65			9.20
Consumer		927		7.34			8.48			1,041		8.21			9.43			2,069		23.00			14.51
Total non-commercial loans		4,937		39.08			57.48			5,018		39.59			57.90			4,488		49.90			58.17
Total		12,623		99.93			100.00			12,518		98.75			100.00			8,795		97.79			100.00
Unallocated		9		0.07			0.00			158		1.25			0.00			199		2.21			0.00
Total allowance for loan losses	$	12,632		100.00	%		100.00	%	$	12,676		100.00	%		100.00	%	$	8,994		100.00	%		100.00	%

	At December 31,
	2008								2007								2006
(Dollars in thousands)	Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans
Commercial:
Construction and land development	$	370		5.78	%		4.91	%	$	343		6.76	%		6.93	%	$	405		8.73	%		6.68	%
Commercial mortgage		1,921		30.00			23.97			936		18.45			17.53			1,080		23.29			17.98
Commercial and industrial		376		5.87			4.63			337		6.64			4.65			539		11.62			3.73
Total commercial loans		2,667		41.65			33.51			1,616		31.85			29.11			2,024		43.64			28.39
Non-commercial:
Construction and land development		247		3.86			3.98			229		4.51			4.52			270		5.82			4.45
Residential mortgage		869		13.57			34.06			1,078		21.25			37.22			714		15.39			37.22
Revolving mortgage		431		6.73			9.10			606		11.94			9.15			369		7.96			8.63
Consumer		1,721		26.88			19.35			1,395		27.49			20.00			1,261		27.19			21.31
Total non-commercial loans		3,268		51.04			66.49			3,308		65.20			70.89			2,614		56.36			71.61
Total		5,935		92.69			100.00			4,924		97.04			100.00			4,638		100.00			100.00
Unallocated		468		7.31			0.00			150		2.96			0.00			—		0.00			0.00
Total allowance for loan losses	$	6,403		100.00	%		100.00	%	$	5,074		100.00	%		100.00	%	$	4,638		100.00	%		100.00	%

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. The Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks may require us to increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operation.

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Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	Three Months Ended March 31,						Year Ended December 31,
(Dollars in thousands)	2011			2010			2010			2009			2008			2007			2006
Allowance for loan losses at beginning of period	$	12,676		$	8,994		$	8,994		$	6,403		$	5,074		$	4,638		$	4,670
Provision for loan losses		657			1,859			22,419			4,655			3,049			932			647
Charge offs:
Commercial:
Construction and land development		23			930			7,926			—			488			—			—
Commercial mortgage		109			—			6,074			—			—			—			—
Commercial and industrial		14			160			692			214			—			—			—
Total commercial loans		146			1,090			14,692			214			488			—			—
Non-commercial:
Construction and land development (1-4 family residential)		78			148			351			94			—			—			—
Residential mortgage		181			131			1,767			82			—			—			17
Revolving mortgage		274			120			919			199			—			—			—
Consumer		125			328			1,135			1,605			1,405			681			899
Total non-commercial loans		658			727			4,172			1,980			1,405			681			916
Total charge-offs		804			1,817			18,864			2,194			1,893			681			916
Recoveries:
Commercial:
Construction and land development		—			—			—			—			31			—			—
Commercial mortgage		—			—			—			—			—			—			—
Commercial and industrial		66			2			12			9			—			—			—
Total commercial loans		66			2			12			9			31			—			—
Non-commercial:
Construction and land development (1-4 family residential)		1			—			—			—			—			—			—
Residential mortgage		1			—			—			—			—			—			—
Revolving mortgage		7			—			—			1			—			—			—
Consumer		28			36			115			120			142			185			237
Total non-commercial loans		37			36			115			121			142			185			237
Total recoveries		103			38			127			130			173			185			237
Net charge-offs (recoveries)		701			1,779			18,737			2,064			1,720			496			679
Allowance for loan losses at end of period		12,632			9,074			12,676			8,994			6,403			5,074			4,638
Allowance for loan losses to non-performing loans		89.02	%		51.75	%		94.43	%		54.23	%		180.32	%		103.00	%		192.45	%
Allowance for loan losses to total loans outstanding at the end of the period		2.60			1.54			2.49			1.50			1.08			0.97			0.95
Net charge-offs (recoveries) to average loans outstanding during the period		0.58			1.22			3.37			0.34			0.31			0.10			0.14

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

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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, which includes members of management, to communicate, coordinate and control all aspects involving asset-liability management. The committee establishes and monitors 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 primarily of long-term, fixed-rate mortgage loans, adjustable rate mortgage loans and investments that typically adjust more slowly to changes in interest rates than our interest-bearing liabilities, which are primarily term deposits. Accordingly, our earnings are usually adversely affected during periods of rising interest rates and positively impacted during periods of declining interest rates.

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.

Based on the results of 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 changes in our estimated net interest income at March 31, 2011.

	Present Value of Equity								Projected Net Interest Income
Basis Point (“bp”) Change in Rates	Market Value		$ Change			% Change			Net Interest Income		$ Change			% Change
300bp	$	68,639	$	(20,425	)		(22.93	)%	$	20,292	$	(1,992	)		(8.94	)%
200		75,529		(13,536	)		(15.20	)		20,745		(1,539	)		(6.91	)
100		83,679		(5,385	)		(6.05	)		21,569		(715	)		(3.21	)
0		89,065		—			—			22,284		—			—
(100)		82,107		(6,957	)		(7.81	)%		21,365		(919	)		(4.12	)%

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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 March 31, 2011, cash and cash equivalents totaled $26.4 million. Securities classified as available-for-sale, amounting to $198.6 million and interest-bearing deposits in other banks of $18.0 million at March 31, 2011, provide additional sources of liquidity. In addition, at March 31, 2011, we had the ability to borrow a total of approximately $55.3 million from the Federal Home Loan Bank of Atlanta. At March 31, 2011, we had $60.0 million in Federal Home Loan Bank advances outstanding and $7.0 million in letters of credit to secure public funds deposits.

At March 31, 2011, we had $103.6 million in commitments to extend credit outstanding. Certificates of deposit due within one year of March 31, 2011 totaled $151.0 million, or 53.8% of certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods due to the recent low interest rate environment and local competitive pressure. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due within one year of March 31, 2011. Based on past experience, we believe that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The following tables present our contractual obligations at March 31, 2011 and December 31, 2010.

			Payments due by period
Contractual Obligations	Total		Less than One Year		One to Three Years		Three to Five Years		More Than Five Years
	(In thousands)
At March 31, 2011:
Long-term debt obligations	$	60,000	$	—	$	—	$	—	$	60,000
Capital lease obligations		—		—		—		—		—
Operating lease obligations		2,385		355		1,065		965		—
Purchase obligations		—		—		—		—		—
Other long-term liabilities reflected on balance sheet		—		—		—		—		—
Total	$	62,385	$	355	$	1,065	$	965	$	60,000
At December 31, 2010:
Long-term debt obligations	$	60,000	$	—	$	—	$	—	$	60,000
Capital lease obligations		—		—		—		—		—
Operating lease obligations		2,474		355		1,065		1,054		—
Purchase obligations		—		—		—		—		—
Other long-term liabilities reflected on balance sheet		—		—		—		—		—
Total	$	62,474	$	355	$	1,065	$	1,054	$	60,000

Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts and Federal Home Loan Bank advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

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Financing and Investing Activities

The following table presents our primary investing and financing activities during the periods indicated.

	Three Months Ended March 31,						Year Ended December 31,
(In thousands)	2011			2010			2010			2009			2008
Investing activities:
Securities available for sale:
Purchases	$	(32,123	)	$	(27,418	)	$	(178,988	)	$	(87,893	)	$	(20,416	)
Proceeds from sales		—			2,000			18,908			16,923			—
Proceeds from maturities and/or calls		1,000			1,458			51,104			7,000			4,779
Securities held to maturity:
Purchases		—			—			—			(3,512	)		—
Proceeds from maturities and/or calls		—			—			—			13			4,003
Principal repayments on mortgage- backed and asset-backed securities		7,564			3,999			23,423			13,380			6,931
Net decrease (increase) in loans receivable		14,397			11,880			66,548			(8,154	)		(76,785	)
Financing activities:
Net increase (decrease) in deposits		(3,171	)		8,930			11,219			72,898			30,350
Net proceeds from (repayments of) Federal Home Loan Bank advances		—			—			—			(26,000	)		51,284
Net proceeds from (repayments of) repurchase agreements		396			(202	)		(686	)		(3,526	)		(14,625	)

Capital Management. We are subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, 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 March 31, 2011, we exceeded all of our regulatory capital requirements and were considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision — Federal Banking Regulations —Capital Requirements,” “Regulatory Capital Compliance” and note 11 of the notes to consolidated financial statements included in this prospectus.

Following completion of this offering, we will manage our capital for maximum shareholder benefit. The capital from the offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. Our financial condition and results of operations will be enhanced by the capital from the offering, resulting in increased net interest-earning assets and net income. However, the large increase in equity resulting from the capital raised in the offering will, initially, have an adverse impact on our return on equity. Following the offering, we may use capital management tools such as cash dividends and common share repurchases. However, under Federal Deposit Insurance Corporation regulations, we will not be allowed to repurchase any shares during the first year following the offering, except to fund the restricted stock awards under the equity benefit plan after its approval by shareholders, unless extraordinary circumstances exist and we receive regulatory approval.

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 information about our loan commitments, unused lines of credit and letters of credit, see note 13 of the notes to consolidated financial statements.

For the three months ended March 31, 2011 and the year ended December 31, 2010, 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.

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Impact of Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see note 1 of the notes to consolidated financial statements included in this prospectus.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented in this prospectus have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial positions and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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OUR MANAGEMENT

Board of Directors

The board of directors of ASB Bancorp, Inc. and Asheville Savings Bank are each comprised of eight persons who are elected for terms of three (3) years, approximately one-third of whom are elected annually. The same individuals comprise the boards of directors of ASB Bancorp, Inc. and Asheville Savings Bank.

All of our directors are independent under the current listing standards of the Nasdaq Stock Market, except for Suzanne S. DeFerie, who serves as President and Chief Executive Officer of ASB Bancorp, Inc. and Asheville Savings Bank. In determining the independence of directors, the board of directors considered the various deposit, loan and other relationships that each director has with Asheville Savings Bank, including loans and lines of credit made to John B. Gould, Leslie D. Green and Kenneth E. Hornowski, in addition to the transactions disclosed under “—Transactions with Asheville Savings Bank,” but determined in each case that these relationships did not interfere with their exercise of independent judgment in carrying out their responsibilities as a director.

Information regarding the directors is provided below. Unless otherwise stated, each person has held his or her current occupation for the last five years. Ages presented are as of March 31, 2011. The starting year of service as director relates to service on the board of directors of Asheville Savings Bank.

The following directors have terms ending in 2012:

John B. Dickson served as President and Chief Executive Officer of Asheville Savings Bank from 1990 until his retirement in December 2007. Age 66. Director since 1990.

Mr. Dickson’s extensive knowledge of Asheville Savings Bank’s operations, along with his former experience in the local banking industry and involvement in business and civic organizations in the communities that we serve, affords the board of directors with valuable insight regarding the business and operations of Asheville Savings Bank.

John B. Gould is vice chairman of the board of directors and has served as the President of Cason Companies, Inc., a petroleum and building supplies company, since 1976. In addition, Mr. Gould has been the managing member of Gould Properties, LLC, a real estate leasing company, since 2008. Age 58. Director since 1997.

Mr. Gould’s background offers the board of directors substantial small company management experience, specifically within the region in which Asheville Savings Bank conducts its business, and provides the board of directors with valuable insight regarding the local business and consumer environment. In addition, Mr. Gould’s background provides the board of directors with critical experience in certain real estate matters, which are essential to the business of Asheville Savings Bank.

Dr. Kenneth E. Hornowski is a retired local dentist and has served as an adjunct professor of dentistry at the University of North Carolina at Chapel Hill since 2001. Age 59. Director since 1998.

Dr. Hornowski’s strong ties to the community, through his former dental practice and his academic contributions to the University of North Carolina at Chapel Hill, provides the board of directors with opportunities to continue to serve the local community. He also is a strong advocate of Asheville Savings Bank through his civic and community involvement.

The following directors have terms ending in 2013:

Suzanne S. DeFerie has served as President and Chief Executive Officer of Asheville Savings Bank since January 2008. Prior to that, Ms. DeFerie was Executive Vice President and Chief Financial Officer of Asheville Savings Bank from October 1991 to December 2007. Age 54. Director since 2008.

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Ms. DeFerie’s extensive experience in the local banking industry and involvement in business and civic organizations in the communities in which Asheville Savings Bank serves affords the board of directors with valuable insight regarding the business and operations of Asheville Savings Bank. Ms. DeFerie’s knowledge of all aspects of Asheville Savings Bank’s business and history, combined with her success and strategic vision, position her well to continue to serve as our President and Chief Executive Officer.

Leslie D. Green is a community volunteer. Age 53. Director since 1998.

As a result of her extensive contributions to community organizations such as the Mission Hospital Ambassador Program, Leadership Asheville and the Asheville Junior League, Ms. Green provides the board of directors with numerous opportunities to continue to serve the local community. She is also is a strong advocate of Asheville Savings Bank through her widespread civic and community involvement.

Wyatt S. Stevens is an attorney and shareholder with the law firm of Roberts & Stevens, P.A. Age 41. Director since 2004.

As a practicing attorney, Mr. Stevens effectively provides the board of directors with important knowledge and insight necessary to assess the legal issues inherent to the business of Asheville Savings Bank.

The following directors have terms ending in 2014:

Patricia S. Smith serves as chairman of the board of directors of Asheville Savings Bank and is the retired president and executive director of the Community Foundation of Western North Carolina, a nonprofit organization that promotes philanthropy in western North Carolina. Age 64. Director since 1996.

Ms. Smith’s strong ties to the community, through her former role as president and executive director of the Community Foundation of Western North Carolina, provides the board of directors with opportunities to continue to serve the local community. She is also is a strong advocate of Asheville Savings Bank through her current involvement with local civic and community organizations.

Stephen P. Miller served as Executive Vice President of The Biltmore Company, a company designed to promote tourism in Western North Carolina, from 1977 through June 2011. Age 56. Director since 1999.

Mr. Miller’s strong ties to the community, through his work with The Biltmore Company, provides the board of directors with valuable insight regarding the local business and consumer environment. He also is a strong advocate of Asheville Savings Bank through his civic and community involvement.

Executive Officers

The executive officers of ASB Bancorp, Inc. and Asheville Savings Bank are elected annually by the board of directors and serve at the board’s discretion. The executive officers of ASB Bancorp, Inc. and Asheville Savings Bank are:

Name	Position
Suzanne S. DeFerie	President and Chief Executive Officer of both ASB Bancorp, Inc. and Asheville Savings Bank
Kirby A. Tyndall	Executive Vice President and Chief Financial Officer of both ASB Bancorp, Inc. and Asheville Savings Bank
David A. Kozak	Executive Vice President and Chief Lending Officer of Asheville Savings Bank
Fred A. Martin	Executive Vice President and Chief Information Officer of Asheville Savings Bank

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Since the formation of ASB Bancorp, Inc., none of the ASB Bancorp, Inc.’s executive officers, directors or other personnel have received remuneration from ASB Bancorp, Inc.

Below is information regarding our other executive officers who are not also directors. Ages presented are as of March 31, 2011.

Kirby A. Tyndall has served as Executive Vice President and Chief Financial Officer of Asheville Savings Bank since September 2010. Mr. Tyndall was Vice President and Finance Special Projects Coordinator at Asheville Savings Bank from November 2009 to September 2010. Prior to joining Asheville Savings Bank in November 2009, Mr. Tyndall served as Executive Vice President, Chief Financial Officer, Secretary and Treasurer of Bank of Granite, located in Granite Falls, North Carolina, from June 1997 to July 2009. Age 56.

David A. Kozak has served as Executive Vice President and Chief Lending Officer of Asheville Savings Bank since July 2010. Mr. Kozak was Executive Vice President and Senior Lending Officer of Asheville Savings Bank from April 2008 to July 2010. Prior to joining Asheville Savings Bank in April 2008, Mr. Kozak served as First Vice President, Commercial Lending Manager at SunTrust Bank. Age 50.

Fred A. Martin joined Asheville Savings Bank in 2006 and has served as Executive Vice President and Chief Information Officer of Asheville Savings Bank since June 2007. Prior to joining Asheville Savings Bank, Mr. Martin served as North Carolina Lead Network Engineer and Assistant Director of Information Technology for SouthTrust Bank. Age 41.

Board Leadership Structure and Board’s Role in Risk Oversight

The board of directors of Asheville Savings Bank has determined that the separation of the offices of Chairman of the Board and President and Chief Executive Officer will enhance board independence and oversight. Moreover, the separation of the positions of Chairman of the Board and President and Chief Executive Officer will enable the President and Chief Executive Officer to focus on her responsibilities of running ASB Bancorp, Inc. and Asheville Savings Bank and expanding and strengthening our franchise while enabling the Chairman of the Board to lead the board of directors in its fundamental role of providing advice to and independent oversight of management. Consistent with this determination, Patricia S. Smith serves as Chairman of the Board of ASB Bancorp, Inc. and Asheville Savings Bank Ms. Smith is independent under the listing requirements of the Nasdaq Stock Market.

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including credit, interest rate, liquidity, operational, strategic and reputation risks. Management is responsible for the day-to-day management of risks we face, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. To do this, the Chairman of the Board meets regularly with management to discuss strategy and risks we face. Senior management attends the board meetings and is available to address any questions or concerns raised by the board on risk management and any other matters. The Chairman of the Board and independent members of the board work together to provide strong, independent oversight of our management and affairs through our standing committees and regular meetings of independent directors.

Meetings and Committees of the Board of Directors

We conduct business through meetings of our board of directors and its committees. During the year ended December 31, 2010, the board of directors of Asheville Savings Bank met 14 times. Given that ASB Bancorp, Inc. was incorporated in May 2011, the board of directors of ASB Bancorp, Inc. did not meet during the year ended December 31, 2010.

In connection with the formation of ASB Bancorp, Inc., the board of directors established Audit, Compensation and Nominating and Corporate Governance Committees.

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The Audit Committee consists of John B. Dickson (Chair), John B. Gould, Patricia S. Smith and Wyatt S. Stevens. The Audit Committee is responsible for providing oversight relating to our financial statements and financial reporting process, systems of internal accounting and financial controls, internal audit function, annual independent audit and the compliance and ethics programs established by management and the board. Each member of the Audit Committee is independent in accordance with the listing requirements of the Nasdaq Stock Market. The board of directors of ASB Bancorp, Inc. has designated John B. Dickson as an audit committee financial expert under the rules of the Securities and Exchange Commission. The Audit Committee of ASB Bancorp, Inc. did not meet during the year ended December 31, 2010. However, the Audit Committee of Asheville Savings Bank met five times during the year ended December 31, 2010.

The Compensation Committee consists of John B. Gould (Chair), Leslie D. Green, Kenneth E. Hornowski, Stephen P. Miller and Patricia S. Smith. The Compensation Committee is responsible for human resources policies, salaries and benefits, incentive compensation, executive development and management succession planning. Each member of the Compensation Committee is independent in accordance with the listing requirements of the Nasdaq Stock Market. The Compensation Committee of ASB Bancorp, Inc. did not meet during the year ended December 31, 2010. However, the Compensation Committee of Asheville Savings Bank met five times during the year ended December 31, 2010.

The Nominating and Corporate Governance Committee consists of Kenneth E. Hornowski (Chair), Patricia S. Smith and Wyatt S. Stevens. The Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become board members and recommending a group of nominees for election as directors at each annual meeting of shareholders, ensuring that the board and its committees have the benefit of qualified and experienced independent directors, and developing a set of corporate governance policies and procedures. Each member of the Nominating and Corporate Governance Committee is independent in accordance with the listing requirements of the Nasdaq Stock Market. The Nominating and Corporate Governance Committee of ASB Bancorp, Inc. did not meet during the year ended December 31, 2010.

Each of ASB Bancorp, Inc.’s committees listed above operates under a written charter, which governs its composition, responsibilities and operations. In addition, Asheville Savings Bank maintains an Executive Committee, an Asset/Liability Committee and a Loan Committee.

Corporate Governance Policies and Procedures

In addition to having established committees of the board of directors, ASB Bancorp, Inc. has also adopted several policies to govern the activities of both ASB Bancorp, Inc. and Asheville Savings Bank, including a corporate governance policy and a code of business conduct and ethics. The corporate governance policy addresses and governs:

• the duties and responsibilities of each director;

• the composition, responsibilities and operation of the board of directors;

• the establishment and operation of board committees;

• succession planning;

• procedures for convening executive sessions of independent directors;

• the board of directors’ interaction with management and third parties; and

• the evaluation of the performance of the board of directors and chief executive officer.

The code of business conduct and ethics, which applies to all employees and directors, addresses conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics is designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.

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Compensation Discussion and Analysis

The compensation provided to our “named executive officers” for 2010 is set forth in detail in the Summary Compensation Table and supporting tables and narrative that follow the Summary Compensation Table. The purpose of this Compensation Discussion and Analysis is to explain our executive compensation philosophy, objectives and design, and our compensation elements for our named executive officers. Our “named executive officers” are those executives listed in the Summary Compensation Table under the Executive Compensation section of this prospectus.

Compensation Philosophy

Our compensation philosophy starts from the premise that our success depends, in large part, on the dedication and commitment of the people we place in key operating positions to drive our business strategy. We strive to satisfy the demands of our business model by providing our management team with incentives tied to the successful implementation of our business objectives. However, we recognize that we operate in a competitive environment for talent. Therefore, our approach to compensation considers the full range of compensation techniques that enable us to compare favorably with our peers as we seek to attract and retain key personnel.

We currently base our compensation decisions on the following principles:

• Meeting the Demands of the Market – Our goal is to compensate our employees at competitive levels that position us as the employer of choice among our peers who provide similar financial services in the markets we serve.

• Driving Performance – We structure our short-term and long-term incentive compensation plans around the attainment of corporate performance goals that return positive results to our bottom line. Our short-term plan provides annual cash incentives and our long-term incentive plan provides phantom equity grants.

• Reflecting our Business Philosophy – Our approach to compensation reflects our values and the way we do business in the communities we serve.

Following our initial public offering, we expect that an equity-based plan will replace our current long-term incentive compensation plan and therefore will add the following principle to our overall compensation philosophy:

• Aligning with Stockholders – We intend to use equity compensation as a key component of our compensation mix to develop a culture of ownership among our key personnel and to align their individual financial interest with the interests of our stockholders.

Role of Compensation Committee

The Compensation Committee of the board of directors of Asheville Savings Bank has been charged with the responsibility for establishing, implementing and monitoring adherence to our compensation philosophy and assuring the named executive officers are effectively compensated in a manner which is internally equitable and externally competitive. The Compensation Committee engaged Blanchard Chase LLC in 2010 to assist them in this process. See “— Role of Compensation Consultant” for information on the services provided by Blanchard Chase LLC during the 2010 fiscal year.

Role of Management

Our Chief Executive Officer and Human Resources Manager develop recommendations, with the assistance of outside compensation consultants, regarding the appropriate mix and level of compensation that should be provided to our named executive officers and directors. The Chief Executive Officer develops recommendations for the other named executive officers and the Compensation Committee (with board approval) determines our Chief Executive Officer’s compensation package. The management recommendations consider the objectives of our

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compensation philosophy and the range of compensation programs authorized by the Compensation Committee. The Chief Executive Officer meets with the Compensation Committee to discuss the recommendations and also reviews with the Committee her recommendations concerning the compensation of our named executive officers. Our Chief Executive Officer does not participate in Committee discussions relating to her compensation.

Role of the Compensation Consultant

Prior to our initial public offering, the board of directors of Asheville Savings Bank engaged Blanchard Chase LLC to conduct a detailed compensation review of our executive and director compensation programs and arrangements. In 2010, Blanchard Chase LLC assisted our Compensation Committee in the design and implementation of the 2010 Asheville Savings Bank Management Incentive Plan, as amended and restated (the “MIP”). Blanchard Chase LLC also provided a detailed compensation analysis for overall executive and director pay. Once we become a public company, we anticipate utilizing the Blanchard Chase LLC analysis prepared in November 2010 to help us formulate our compensation program as a public company. We also anticipate continuing to utilize the expertise of outside independent compensation consultants.

Peer Group

For 2010, the Compensation Committee, with the assistance of Asheville Savings Bank’s Human Resources Manager, selected the following financial institutions as a peer group to benchmark compensation levels for its named executive officers:

Crescent State Bank

Peoples Bankcorp

North State Bank

Waccamaw Bankcorp

The East Carolina Bank

Citizens South Bank

These financial institutions were selected based on asset size ($573 million to $1.0 million as of June 30, 2009), geographic proximity to Asheville Savings Bank and operating characteristics. In addition to reviewing the compensation data of these peer institutions, the Compensation Committee also reviewed other publicly available salary data, such as the North Carolina Bankers Association annual compensation review, American Bankers Association compensation survey and salary information provided from the Bank Administration Institute.

Compensation Elements

The following elements made up the fiscal 2010 compensation program for our named executive officers. All compensation was paid by Asheville Savings Bank.

Element	Form of Compensation	Purpose	Performance Criteria
Base salary	Cash	Provides a competitive level of fixed compensation that attracts and retains skilled management	Each individual officer’s performance and contribution to Asheville Savings Bank.

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Element	Form of Compensation	Purpose	Performance Criteria
Incentive compensation (Management Incentive Plan and Long-Term Incentive Plan)	Cash	Provides additional compensation to attract and retain skilled management. The Long-term Incentive Plan was frozen effective January 1, 2011.	Management Incentive Plan: On an annual basis, Asheville Savings Bank sets aside a pool of funds and distributes the funds based on each participant’s achievement of individual performance goals. Long-Term Incentive Plan: The Board in its sole discretion decides when an equity right will be granted based on the overall performance of Asheville Savings Bank. The value of the equity rights are based on the year over year increase in Asheville Savings Bank’s retained earnings.
Health and welfare plans	Eligibility to receive available health and other welfare benefits paid for, in whole or in part, by Asheville Savings Bank, S.S.B., including broad-based medical, dental, life insurance, long-term care and disability plans	Provides a competitive, broad-based employee benefits structure	Not performance-based.
Non-qualified deferral plan (Officers and Directors Deferral Plan)	Cash deferral plan	Provides management with a mechanism to defer income	Not performance-based. Currently no named executive officers participate in the plan.
Qualified and non-qualified retirement plans	Retirement benefits which are distributable in cash	Provides competitive retirement-planning benefits to attract and retain skilled management	Not performance-based 401(k) Plan, tax-qualified defined benefit pension plan and non-qualified defined benefit pension plan.

Following our initial public offering, our ability to introduce equity awards to our compensation mix will depend on stockholder approval of an equity compensation program and compliance with applicable regulatory guidelines relating to such programs. We expect that our Compensation Committee will work closely with independent compensation consultants to help us benchmark our compensation program and our financial performance to our peers.

Base Salary. Our Compensation Committee sets base salaries for our named executive officers based primarily on:

(1) base salaries paid to executive officers at comparable companies, and

(2) each individual officer’s performance and contribution to our Company.

Our financial performance for the prior year can also play a role in the Committee’s consideration of annual salary adjustments. The Committee’s information on base salaries at comparable companies comes from a variety of sources including, but not limited to, the North Carolina Bankers Association annual compensation survey and an internal analysis prepared by Asheville Savings Bank’s Human Resources Manager. See “Peer Group” for information on the peer financial institutions that were used by the Compensation Committee to benchmark base salaries for fiscal 2010. See “Executive Compensation — Summary Compensation Table” for the base salaries paid to our named executive officers in fiscal 2010.

Incentive Compensation Program.

Management Incentive Plan. The MIP to provide participants with an incentive to enhance the profitability of Asheville Savings Bank within the constraints of safe, sound banking practices by providing participants with a cash payment if Asheville Savings Bank attains certain corporate performance goals. The Chief Executive Officer of Asheville Savings Bank administers the plan with the consent and approval of the board of

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directors or its designated committee. Subject to the provisions of the plan, the board of directors has the authority, to determine the levels for performance factors and award triggers, to approve incentive awards, interpret the plan and prescribe all rules relating to the plan. The Chief Executive Officer recommends the employees who should participate in the plan each year and the board of directors of Asheville Savings Bank approves their participation in the plan. The MIP also provides participants with the opportunity to defer an incentive award earned under the plan through the Officers and Directors Deferral Plan. As of December 31, 2010, none of our named executive officers elected to defer MIP awards into the Officers and Directors Deferral Plan.

The MIP provides for annual payouts. The Compensation Committee, in conjunction with the board of directors, establishes the performance goals for each of our named executive officers on an annual basis, focusing on performance measures that are critical to our growth and profitability. The 2010 MIP targeted four performance measures: (1) corporate net income, (2) asset quality, (3) average asset growth, and (4) capital ratio. The Compensation Committee assigns a weighting to each performance measure. In 2010, the highest weighting was assigned to corporate net income (40%). See the individual scorecards below for the weighting given to each of the performance goals. The minimum, target and maximum levels are then linked to an incentive opportunity that is calculated based on each executive’s base salary and position in Asheville Savings Bank. For example, Ms. DeFerie’s incentive opportunities range from 22.5% of base pay at the minimum level, 45% of base pay at the target level and 67.5% of base pay at the maximum level. To be eligible to receive an MIP payout, plan participants must be employed by Asheville Savings Bank on the last day of the plan year. However, the Compensation Committee, in its sole discretion, may pay awards on a pro rata basis if the named executive officers are not employed as of the payment date due to retirement or disability. Before MIP awards are distributed, our board of directors or its designated committee must approve the awards and our external auditors must confirm that all of the corporate goals (as set forth in the scorecards below) have been satisfied. Typically MIP payments are made within 2-1/2 months of the end of the program year, which begins in January and ends in December. See “Executive Compensation—Summary Compensation Table” for details on MIP awards distributed in 2010. See also “Executive Compensation—Grant of Plan-Based Awards” for additional information on the threshold, target and stretch levels for the 2010 MIP.

2010 Management Incentive Plan Awards

The following charts set forth the performance measures and the weight given to each measure for each named executive officer. The charts also illustrate the threshold, target and maximum levels of incentive compensation each named executive was eligible to earn upon the achievement of each of the noted goals. The board of directors can also exercise negative discretion and make no payments under the Plan despite the satisfaction of the noted performance goals. All of the named executive officers participated in the 2010 MIP, however, in light of Asheville Savings Bank’s financial results for the 2010 fiscal year and in order to insure that full payment of the incentive awards were made to the other MIP participants whose goals were not solely corporate based, senior management (Messrs. Tyndall, Kozak and Martin and Ms. DeFerie) elected to waive the portion of the MIP that they would have earned in 2010.

Suzanne S. DeFerie, President and Chief Executive Officer				Payment Range as a Percentage of Base Salary						Performance Goals
Bank Objective:	Weight			Minimum (22.5% )		Target (45%)		Maximum (67.5%)		Minimum			Target			Maximum
Corporate Net Income		40	%		23,400		46,800		70,200		2,784			3,712			5,568
Asset Quality		35	%		20,475		40,950		61,425		1.25	%		0.80	%		0.75	%
Average Asset Growth		10	%		5,850		11,700		17,550		662,820			732,718			769,354
Capital Ratio		15	%		8,775		17,550		26,325		9.82	%		10.67	%		11.00	%
		100	%		58,500		117,000		175,500

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Kirby A. Tyndall, Executive

Vice President and Chief

Financial Officer (1)

				Minimum		Target		Maximum		Performance Goals
Bank Objective:	Weight			(17.5%)		(35%)		(52.5%)		Minimum			Target			Maximum
Corporate Net Income		40	%		3,733		7,466		11,199		2,784			3,712			5,568
Asset Quality		35	%		3,267		6,533		9,800		1.25	%		0.80	%		0.75	%
Average Asset Growth		10	%		934		1,867		2,801		662,820			732,718			769,354
Capital to Assets Ratio		15	%		1,400		2,800		4,200		9.82	%		10.67	%		11.00	%
		100	%		9,334		18,666		28,000

(1) Prorated for tenure in current position at Asheville Savings Bank.

David A. Kozak, Executive

Vice President and Chief

Lending Officer

				Minimum		Target		Maximum		Performance Goals
Bank Objective:	Weight			(17.5%)		(35%)		(52.5%)		Minimum			Target			Maximum
Corporate Net Income		40	%		10,150		20,300		30,450		2,784			3,712			5,568
Asset Quality		35	%		8,881		17,763		26,644		1.25	%		0.80	%		0.75	%
Average Asset Growth		10	%		2,538		5,075		7,613		662,820			732,718			769,354
Capital to Assets Ratio		15	%		3,806		7,613		11,419		9.82	%		10.67	%		11.00	%
		100	%		25,375		50,751		76,126

Fred A. Martin, Executive

Vice President and Chief

Information Officer

				Minimum		Target		Maximum		Performance Goals
Bank Objective:	Weight			(17.5%)		(35%)		(52.5%)		Minimum			Target			Maximum
Corporate Net Income		40	%		8,400		16,800		25,200		2,784			3,712			5,568
Asset Quality		35	%		7,350		14,700		22,050		1.25	%		0.80	%		0.75	%
Average Asset Growth		10	%		2,100		4,200		6,300		662,820			732,718			769,354
Capital to Assets Ratio		15	%		3,150		6,300		9,450		9.82	%		10.67	%		11.00	%
		100	%		21,000		42,000		63,000

William F. Richmond,

Treasurer (1)

				Minimum		Target		Maximum		Performance Goals
Bank Objective:	Weight			(17.5%)		(35%)		(52.5%)		Minimum			Target			Maximum
Corporate Net Income		40	%		1,250		2,500		3,750		2,784			3,712			5,568
Asset Quality		35	%		1,094		2,188		3,282		1.25	%		0.80	%		0.75	%
Average Asset Growth		10	%		313		625		938		662,820			732,718			769,354
Capital to Assets Ratio		15	%		469		937		1,406		9.82	%		10.67	%		11.00	%
		100	%		3,126		6,250		9,376

(1) Prorated for tenure in current position at Asheville Savings Bank.

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Richard Duff, Executive

Vice President and Chief

Credit Officer (1)

				Minimum		Target		Maximum		Performance Goals
Bank Objective:	Weight			(17.5%)		(35%)		(52.5%)		Minimum			Target			Maximum
Corporate Net Income		40	%		11,550		23,100		34,650		2,784			3,712			5,568
Asset Quality		35	%		10,106		20,213		30,319		1.25	%		0.80	%		0.75	%
Average Asset Growth		10	%		2,888		5,775		8,663		662,820			732,718			769,354
Capital to Assets Ratio		15	%		4,331		8,663		12,994		9.82	%		10.67	%		11.00	%
		100	%		28,875		57,751		86,626

(1) Retired from Asheville Savings Bank in 2010.

Long-term Incentive Plan. The Asheville Savings Bank Long-Term Incentive Plan (the “LTIP”) was implemented by Asheville Savings Bank to assist Asheville Savings Bank and its subsidiaries in attracting and retaining capable directors and employees to: (i) provide a long range incentive for directors and selected employees to remain in the management and service of Asheville Savings Bank and (ii) encourage the directors and selected employees to perform at levels of effectiveness that result in an increase in Asheville Savings Bank’s financial success, by rewarding the participants with the potential to share in equity interests (“Equity Rights”) under the plan. An Equity Right provides participants with an opportunity to share in future “equity increases” which is defined as the year over year percentage increase in Asheville Savings Bank’s retained earnings. The time period for evaluating an increase (“Vesting Period”) begins on the first day of the year in which the Board elects to make an Equity Rights grant (“Initial Bank Equity Grant Date”) and ends on the third year following the Initial Bank Equity Grant Date. In order to be eligible for a distribution under the LTIP, the holder of an Equity Right must be an eligible employee or eligible director at all times from the grant date to the expiration of the Vesting Period. All distributions are made in cash and subject to tax withholding (if applicable). The plan provides for accelerated vesting, in the Board’s sole discretion, upon death or disability and in the event of a Change in Control Transaction (as defined in the LTIP).

The LTIP is administered by the Compensation Committee of the board of directors of Asheville Savings Bank. On an annual basis, the board of directors determines whether it will make an Equity Rights grant to eligible employees and directors.

2010 Equity Rights Grants

In light of Asheville Savings Bank’s financial results for the 2010 fiscal year, the Equity Rights granted to our named executive officers in 2010 presently have no value. The outstanding unvested Equity Rights grants to our named executive officers in 2008 and 2009 also have no value. In January 2011, the board of directors reviewed the effectiveness of LTIP in achieving its stated purpose and Asheville Savings Bank’s plans to convert from mutual to stock form of organization and decided to freeze the LTIP effective January 1, 2011.

Health and Welfare Plans

Our current health and welfare benefit plans are open to all full-time employees. Generally, under each plan, our named executive officers receive either the same benefit as all other salaried employees or a benefit that is exactly proportional, as a percentage of salary, to the benefits that others receive. In addition, Asheville Savings Bank also provides a disability income replacement benefit to all employees equal to 60% of base salary. Our named executive officers are entitled to an additional 15% which results in providing our officers with a 75% income replacement benefit in the event of a disability. Our named executive officers are eligible to receive long-term care insurance at no cost to them.

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Retirement Plans

401(k) Plan. Participation in our tax-qualified 401(k) plan is available to all of our employees who meet minimum eligibility requirements. This plan allows our employees to save money for retirement in a tax-advantaged manner. Asheville Savings Bank matches 100% of the first 3% a participant defers into the plan and 50% in the next 2%. All of our named executive officers are eligible to participate in this plan. See “Our Management—Executive Compensation—Retirement Benefits” for additional information on Asheville Savings Bank’s 401(k) plan.

Defined Benefit Plan. Participants in Asheville Savings Bank’s defined benefit pension plan receive retirement benefits based on a participant’s years of service and average compensation over all years of service with Asheville Savings Bank. Participants are 100% vested in their pension plan benefits after five years of service. The Pension Plan was frozen to new participation effective January 1, 2010. See “Management—Executive Compensation—Retirement Benefits” for additional information on Asheville Savings Bank’s defined benefit pension plan.

Non-qualified Defined Benefit Pension Plan. Our non-qualified defined benefit pension plan (the “Excess Plan”) is intended to provide supplemental retirement benefits to a select group of management or highly compensated employees. The plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code and is to be construed and interpreted in accordance with the requirements of Section 409A and the regulations and guidance issued thereunder. Participants are entitled to an accrued benefit under the Excess Plan equal to the difference between the accrued benefit under our tax-qualified Defined Benefit Pension Plan without regard to the limits imposed by Sections 401(a)(17) and 415 the Internal Revenue Code on compensation and the actual accrued benefit under the Defined Benefit Pension Plan. Participants vest in their Excess Plan benefit in accordance with the vesting schedule in the Defined Benefit Pension Plan. Generally, participants may elect the form of annuity payment under the Excess Plan. As of December 31, 2010, Ms. DeFerie was the only active named executive officer participating in the Excess Plan. Mr. Duff is currently receiving payments from the Excess Plan. See “Management—Executive Compensation—Retirement Benefits” for additional information on Asheville Savings Bank’s non-qualified defined benefit pension plan.

Plans and Arrangements to be Implemented in Connection with the Stock Offering

In connection with our initial public offering, we intend to implement an employee stock ownership plan (“ESOP”), employee severance compensation plan, employment agreements and a stock-based deferral plan.

Employee Stock Ownership Plan. The purpose of implementing an ESOP is to give eligible employees an additional retirement benefit in ASB Bancorp, Inc. common stock at no cost to the employee. In addition, participation in the ESOP will allow employees to have an equity interest in the new holding company. See “Management—Executive Compensation—Retirement Benefits” for detailed information on the proposed ESOP.

Stock-based Deferral Plan. A stock-based deferral plan will allow participants to defer a portion of their income and invest the funds in ASB Bancorp, Inc. common stock in connection with the stock offering. Participants currently participating in the Officers and Directors Deferral Plan will be provided with a one-time election to transfer all or a portion of his or her account balance into the new stock-based deferral plan for the purpose of investing in the stock offering. Our named executive officers and our directors are eligible to participate in the stock-based deferral plan. Following the stock offering, participants will be able to defer future compensation into the plan and invest it in ASB Bancorp, Inc. common stock. The plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code and is to be construed and interpreted in accordance with the requirements of Section 409A and the regulations and guidance issued thereunder.

Employment Agreements. We expect to enter into employment agreements with our named executive officers following the close of the stock offering. The severance provided under the employment agreements will be contingent on the occurrence of certain termination events, and are intended to provide our named executive officers with a sense of security in making the commitment to dedicate their professional careers to the success of Asheville

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Savings Bank and ASB Bancorp, Inc. Payments under the agreements will be capped at no more than the deductibility limits allowed by the Internal Revenue Code Section 280G. See “Management—Executive Compensation—Employment Agreements and Severance Arrangement” for detailed information on the proposed employment agreements.

Employee Severance Compensation Plan. Following the close of the stock offering, we intend to adopt an employee severance compensation plan that will provide severance payments in the event an eligible employee is terminated in connection with a change in control of Asheville Savings Bank or ASB Bancorp, Inc. See “Management—Executive Compensation—Employment Agreements and Severance Arrangement” for detailed information on the proposed severance plan.

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Executive Compensation

Summary Compensation Table. The following information is furnished for the principal executive officer, principal financial officer and all other executive officers of Asheville Savings Bank whose total compensation for the year ended December 31, 2010 exceeded $100,000. These individuals are referred to in this prospectus as “named executive officers.”

Name and Principal Position	Year		Salary			Bonus		Non-Equity Incentive  Plan Compensation			Change in Pension Value and Nonqualified Deferred Compensation Earnings (1)		All Other Compensation (2)		Total
Suzanne S. DeFerie President and Chief Executive Officer		2010	$	265,631	(3)	$	—	$	—		$	139,433	$	21,603	$	426,667
Kirby A. Tyndall (5) (9) Executive Vice President and Chief Financial Officer		2010		110,000			—		—			—		1,054		111,054
David A. Kozak (6) Executive Vice President and Chief Lending Officer		2010		160,000			—		—			8,727		14,577		183,304
Fred A. Martin Executive Vice President and Chief Information Officer		2010		120,000			—		—			8,922		7,256		136,178
William F. Richmond (7) (9) Treasurer		2010		89,000			—		626	(4)		—		3,107		92,733
Richard Duff (8) (9) Former Executive Vice President and Chief Lending Officer		2010		89,375			—		—			—		13,319		102,694

(1) Represents the aggregate year over year change in the actuarial present value of the accumulated benefit under all defined benefit plans (including supplemental plans) as of December 31, 2010. The most significant portion of the change in value is due to a decrease in the discount rate assumptions used in the tax-qualified defined benefit plan’s actuarial calculation. See “—Retirement Benefits” footnote 2 to the pension plan table below for more information.

(2) Details of the amounts disclosed in the “All Other Compensation” column are provided in the table below. Perquisites are not listed in the table below because they did not exceed $10,000 for any named executive officer.

	Ms. DeFerie		Mr. Tyndall		Mr. Kozak		Mr. Martin		Mr. Richmond		Mr. Duff
Employer contributions to 401(k) plan	$	10,375	$	267	$	6,205	$	—	$	2,475	$	4,506
Executive long-term care insurance premiums		5,778		—		7,524		6,882		—		8,224
Disability insurance premiums		1,166		787		848		374		632		589

(3) Includes director fees of $5,631 for service on Asheville Savings Bank’s board of directors during 2010.

(4) Represents an award earned under Asheville Savings Bank’s Management Incentive Plan. See “—Compensation Discussion and Analysis—Incentive Compensation Program” for a description of the plan.

(5) Mr. Tyndall was appointed Executive Vice President and Chief Financial Officer of Asheville Savings Bank effective September 1, 2010. From January 1, 2010 to August 31, 2010, Mr. Tyndall served as Vice President and Finance Special Projects Coordinator of Asheville Savings Bank.

(6) Mr. Kozak was appointed Executive Vice President and Chief Lending Officer of Asheville Savings Bank effective July 16, 2010. From January 1, 2010 to July 15, 2010, Mr. Kozak served as Executive Vice President and Senior Lending Officer of Asheville Savings Bank.

(7) Mr. Richmond was appointed Treasurer of Asheville Savings Bank effective September 1, 2010. From January 1, 2010 to August 31, 2010, Mr. Richmond served as Executive Vice President and Chief Financial Officer of Asheville Savings Bank, S.S. B. on a part-time basis.

(8) Mr. Duff retired as Executive Vice President and Chief Lending Officer of Asheville Savings Bank effective July 15, 2010.

(9) Messrs. Tyndall and Richmond are not eligible to participate in the defined benefit pension plan as the plan was frozen to new participants effective January 1, 2010. Mr. Duff is currently in pay status under the defined benefit pension plan and the non-qualified defined benefit pension plan.

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Grants of Plan Based Awards

The following table sets forth the threshold, target and maximum awards that may be earned by each named executive officer under the Asheville Savings Bank Management Incentive Plan, as amended and restated (“MIP”) as of December 31, 2010.

Name	Estimated Possible  Payouts Under Non-Equity Incentive Plan Awards (2)
	Threshold ($)		Target ($)		Maximum ($)
Suzanne S. DeFerie	$	58,500	$	117,000	$	175,500
Kirby A. Tyndall (2)		9,333		18,666		27,999
David A. Kozak		25,375		50,750		76,125
Fred A. Martin		21,000		42,000		63,000
William F. Richmond (2)		3,125		6,250		9,375
Richard Duff		28,875		57,750		86,625

(1) The amounts reflected under the “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” columns reflect the MIP award for the named executive officers for the year ended December 31, 2010. The “Threshold” column reflects the minimum bonus which could be earned by the named executive officers. Performance of Asheville Savings Bank below the specified level would result in no bonus. The “Target” column and the “Maximum” columns represent the amounts that would be earned had Asheville Savings Bank performed at the one hundred percent (100%) payout and maximum payout percentages as specified under the goals established in connection with the incentive plans for the year ended December 31, 2010. For additional information regarding the MIP, see “—Compensation Discussion and Analysis—Incentive Plan Compensation Programs.”

(2) Amounts are prorated for service at Asheville Savings Bank in the named executive officer’s current position.

Employment Agreements and Severance Arrangements

Proposed Employment Agreements. Asheville Savings Bank does not currently maintain employment agreements with any of its employees. Upon completion of the conversion, ASB Bancorp, Inc. and Asheville Savings Bank intend to enter into (i) a three-year employment agreement with Suzanne S. DeFerie, our President and Chief Executive Officer, and (ii) two-year employment agreements (each with a three-year change in control provision) with Kirby A. Tyndall, our Executive Vice President and Chief Financial Officer, David A. Kozak, our Executive Vice President and Chief Lending Officer, and Fred A. Martin, our Executive Vice President and Chief Information Officer. Our continued success depends to a significant degree on the skills and competence of these named executive officers, and the employment agreements are intended to ensure that we maintain a stable management base following the conversion and offering.

The employment agreements will each provide for three- or two-year terms, as applicable, subject to annual renewal by the board of directors for an additional year beyond the then-current expiration date. The initial base salaries under the employment agreements will be $280,000, $163,000, $165,000 and $140,000 for Ms. DeFerie and Messrs. Tyndall, Kozak and Martin, respectively. The agreements will also provide for participation in employee benefit plans and programs maintained for the benefit of employees and senior management personnel, including incentive compensation, health and welfare benefits, retirement benefits and certain fringe benefits as described in the agreements.

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Upon termination of any of the executive’s employment for “cause,” as defined in the agreement, the executive will receive no further compensation or benefits under the agreement. If we terminate the executive for reasons other than cause, or if the executive resigns after the occurrence of specified circumstances that constitute constructive termination, referred to in the agreement as a termination for “good reason,” the executive will continue to receive his base salary for the remaining unexpired term of the agreement and will receive continued medical, dental and life insurance benefits until the earlier of re-employment, attaining age 65, death or the end of the remaining unexpired term of the agreement.

Under each of the employment agreements, if, in connection with or following a change in control (as described in the agreements), we terminate the executive without cause or if the executive terminates employment voluntarily under certain circumstances specified in the agreement, the executive will receive a severance payment equal to 3.0 times his or her average annual taxable compensation for the five preceding taxable years, or such lesser time period if the executive has not worked for Asheville Savings Bank for five years at the time the benefit is determined. In addition, the executive will receive continued coverage under our medical, dental and life insurance programs for 36 months.

Section 280G of the Internal Revenue Code provides that severance payments that equal or exceed three times the individual’s base amount are deemed to be “excess parachute payments” if they are contingent upon a change in control. Individuals receiving excess parachute payments are subject to a 20% excise tax on the amount of the payment in excess of the base amount, and we would not be entitled to deduct such amount. The agreements will provide for the reduction of change in control payments to the executives to the extent necessary to ensure that they will not receive “excess parachute payments,” which otherwise would result in the imposition of an excise tax, if such reduction would result in a larger after-tax payment to the executive.

Upon termination of employment without cause or for good reason (other than termination in connection with a change in control), each executive will be required to adhere to a one-year non-competition restriction.

Employee Severance Compensation Plan. In connection with the conversion, we expect to adopt an employee severance plan to provide benefits to eligible employees who terminate employment in connection with a change in control. With the exception of officers at the senior vice president and vice president levels, employees will be eligible for severance benefits under the plan if they complete a minimum of one year of service and do not enter into a separate employment or change in control agreement. Officers at the senior vice president and vice president levels will not be required to complete one year of service to be eligible for severance benefits under the plan. Under the severance plan, if, within twelve months after a change in control, an employee’s employment involuntarily terminates, or if an employee voluntarily terminates employment without being offered continued employment in a comparable position, the terminated employee, if he or she was an officer of Asheville Savings Bank, will receive a severance payment based on their position. Under the plan, officers at the senior vice president, vice president and assistant vice president level would be eligible to receive a severance payment equal to 18 months, 12 months and nine months of base compensation, respectively. If the terminated employee was not an officer, he or she would be eligible to receive a severance payment equal to two weeks of base compensation for each year of service with a minimum payment of four weeks of base compensation and a maximum payment of 52 weeks of base compensation. Based solely on compensation levels and years of service at December 31, 2011, and assuming that a change in control occurred on December 31, 2011, and that all eligible employees became entitled to severance payments, the aggregate payments due under the severance plan would equal approximately $3.8 million.

Retirement Benefits

Tax-qualified Defined Benefit Pension Plan. The Pension Plan for the Employees of Asheville Savings Bank is a funded and tax qualified retirement program that covers approximately 254 eligible employees and retirees of Asheville Savings Bank. In December 2009, the plan was frozen to new participants. The plan provides benefits based on a formula that takes into account a portion of an employee’s earnings for each fiscal year, subject to applicable Internal Revenue Service limitations. If a participant elects to retire upon the attainment of age 65, his or her normal retirement benefit will be determined using the following formula: 40% of average compensation as of December 31, 2009, reduced for years of service which are less than 25 years, plus 0.65% of average compensation as of December 31, 2009 in excess of $10,000 multiplied by years of service as of

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December 31, 2009 (up to a maximum of 25 years), plus 0.5% of post-2009 average compensation multiplied by years of service on or after January 1, 2010, when such years of service combined with years of service as of December 31, 2009 does not exceed 25 years. With respect to the pension plan, “average compensation” is defined as follows: (i) for years of service completed before January 1, 2009, pay received in 2008; and (ii) for years of service completed after December 31, 2008, pay received during the year in which a participant retires. In no event will average compensation exceed the average of a participant’s final five consecutive calendar years of actual compensation. The plan defines compensation as a participant’s Form W-2 compensation, including certain applicable pre-tax deductions, up to the Internal Revenue Service limits on compensation.

Non-Qualified Defined Benefit Pension Plan. Asheville Savings Bank maintains a non-qualified defined benefit pension plan to provide participants whose compensation under Asheville Savings Bank’s tax-qualified defined benefit pension plan exceeds the limitations established under the Internal Revenue Code to receive a restorative benefit under a non-qualified defined benefit pension plan. Benefits payable under the non-qualified pension plan are equal to the excess of (i) the amount that would be payable in accordance with the terms of the tax-qualified defined benefit pension plan disregarding the limitations imposed pursuant to Sections 401(a)(17) and 415 of the Internal Revenue Code over (ii) the pension benefit actually payable under the tax-qualified defined benefit pension plan taking the Section 401(a)(17) and 415 limitations into account. Ms. DeFerie is the only named executive officer that is accruing a benefit under the non-qualified pension plan. Mr. Duff is currently in pay status under the plan. All benefits are payable in the same time and manner as the benefits are paid under the Bank’s tax-qualified defined benefit pension plan.

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The following table sets forth the actuarial present value at December 31, 2010 of each named executive officer’s accumulated benefit under our tax-qualified and non-tax-qualified defined benefit plans, along with the number of years of credited service under the respective plans. The tax-qualified defined benefit pension plan was frozen to new participants effective January 1, 2010. Messrs. Tyndall and Richmond do not participate in our tax-qualified and non-tax-qualified defined benefit pension plans.

Name	Plan Name	Number of Years of Credited Service (1)		Present Value of Accumulated Benefit ($) (2)
Suzanne S. DeFerie	Asheville Savings Bank Employees’ Pension Plan		19	$	567,702
	Asheville Savings Bank Non-Qualified Pension Plan		19		192,218
David A. Kozak	Asheville Savings Bank Employees’ Pension Plan		3		29,307
	Asheville Savings Bank Non-Qualified Pension Plan		—		—
Fred A. Martin	Asheville Savings Bank Employees’ Pension Plan		5		31,260
	Asheville Savings Bank Non-Qualified Pension Plan		—		—

(1) Represents the number of years of credited service used only to determine the benefit under the pension plan.

(2) The present value of each executive’s accumulated benefit assumes normal retirement (age 65), the election of a single life form of pension and is based on a 5.5% discount rate for the Employees’ Pension Plan and 5.2% for the Non-Qualified Pension Plan.

401(k) Plan. We maintain a 401(k) plan (the “401(k) Plan”), a tax-qualified defined contribution plan, for eligible employees of Asheville Savings Bank. Participants may elect to make annual salary deferral contributions to the 401(k) Plan on a pre-tax basis, subject to limitations imposed by the Internal Revenue Code of 1986, as amended. For 2011, the salary deferral contribution limit is $16,500; provided, however, that participants over age 50 may contribute an additional elective contribution of $5,500 to the 401(k) Plan. In addition to salary deferral contributions, the 401(k) Plan provides that we can make matching contributions and non-elective employer contributions to the accounts of plan participants. During the 2010 plan year, we matched 100% of the first 3% of a participant’s contributions and 50% of the next 2% of a participant’s contributions. Participants are 100% vested in all contributions made to the 401(k) Plan.

In connection with the offering, the plan has added another investment alternative, the ASB Bancorp, Inc. Stock Fund (the “Stock Fund”), which will permit participants to invest their 401(k) plan funds in ASB Bancorp, Inc. common stock. Unlike the employee stock ownership plan, the 401(k) plan does not have priority subscription rights to purchase common stock in the offering. A 401(k) plan participant who elects to purchase common stock in the offering through self-directed purchases within the plan will receive the same subscription priority, and be subject to the same purchase limitations, as if the participant had elected to purchase the common stock using funds outside the plan. See “The Conversion and Stock Offering—Subscription Offering and Subscription Rights” and “—Limitations on the Purchase of Shares.” Asheville Savings Bank has appointed                      as the Stock Fund trustee. The trustee will purchase common stock in the offering on behalf of plan participants, to the extent that shares are available. Participants will direct the trustee regarding the voting of shares purchased for their plan accounts through the Stock Fund.

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Employee Stock Ownership Plan. In connection with the conversion, Asheville Savings Bank has adopted an employee stock ownership plan for eligible employees. All eligible employees who are at least 21 years of age and employed by Asheville Savings Bank as of the close of the stock offering will begin participation in the plan on the later of January 1, 2011 or the entry date following their first date of employment with Asheville Savings Bank. Following the close of the stock offering, all eligible employees who are at least 21 years of age and have completed one year of service with Asheville Savings Bank will participate in the employee stock ownership plan as of the plan entry date following or coincident with their date of employment.

We have engaged Pentegra Trust Company, an independent third party trustee to purchase in the offering, on behalf of the employee stock ownership plan, 8% of the shares of ASB Bancorp, Inc. common stock sold in the stock offering (428,400, 504,000 and 579,600 shares at the minimum, midpoint and maximum of the offering range, respectively). The purchase of common stock by the employee stock ownership plan in the offering will comply with all applicable regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks except to the extent waived by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The employee stock ownership plan intends to fund its stock purchase through a loan from ASB Bancorp, Inc. equal to 100% of the aggregate purchase price of the common stock. The loan will be repaid principally through Asheville Savings Bank’s contributions to the employee stock ownership plan and dividends payable on common stock held by the plan over an expected 15-year term of the loan. We anticipate that the fixed interest rate for the employee stock ownership plan loan will be the prime rate, as published in the Wall Street Journal, on the closing date of the offering. See “Pro Forma Data.”

The trustee will hold the shares purchased in a loan suspense account, and will release the shares from the suspense account on a pro rata basis as Asheville Savings Bank repays the loan. The trustee will allocate the shares released among active participants on the basis of each active participant’s proportional share of compensation. Participants will vest in their employee stock ownership plan allocations ratable over a six year period. Participants will be credited with past service for vesting purposes under the employee stock ownership plan. Participants will become fully vested upon age 65, death or disability, a change in control, or termination of the plan. Generally, participants will receive distributions from the employee stock ownership plan upon separation from service. The plan reallocates any unvested shares of common stock forfeited upon termination of employment among the remaining participants in the plan.

Participants may direct the plan trustee how to vote the shares of common stock credited to their accounts. The plan trustee will vote all unallocated shares and allocated shares for which participants do not provide instructions on any matter in the same ratio as it votes those shares for which participants provide instructions, subject to fulfillment of its fiduciary responsibilities as trustee.

Under applicable accounting requirements, Asheville Savings Bank will record a compensation expense for a leveraged employee stock ownership plan at the fair market value of the shares when they are committed to be released from the suspense account to participants’ accounts under the plan.

Non-Qualified Deferred Compensation

Stock-Based Deferral Plan. In connection with the stock offering, we have adopted a stock-based deferral plan for certain eligible officers and members of the board of directors. The stock-based deferral plan allows participants to use funds transferred from Asheville Savings Bank’s existing deferred compensation plan to purchase common stock in the offering. For purposes of the stock purchase priorities and the stock purchase limitations in the stock offering, the stock purchases by participants through the new stock-based deferral plan will be treated in the same manner as an individual stock purchase outside the plan and will be subject to each participant’s individual eligibility to purchase stock in the offering and to the stock purchase limitations in the stock offering. The new stock-based deferral plan also permits eligible officers and members of the board of directors to make future elections to defer compensation into the plan and invest such deferrals in ASB Bancorp, Inc. common stock.

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Benefits to be Considered Following the Completion of the Offering

Equity Incentive Plan. Following the offering, ASB Bancorp, Inc. plans to adopt an equity incentive plan that will provide for grants of stock options and restricted stock. ASB Bancorp, Inc. will submit the equity incentive plan to shareholders for approval. In accordance with applicable regulations, ASB Bancorp, Inc. anticipates that the plan, if adopted and approved by shareholders within the first year after the offering, will authorize a number of stock options equal to 10% of the shares sold in the conversion stock offering, and a number of shares of restricted stock equal to 4% of the shares sold in the offering. Therefore, the number of shares reserved under the plan, if adopted and approved by shareholders within that one-year period, will range from 749,700 shares, assuming 5,355,000 shares are sold in the offering at the minimum of the offering range, to 1,014,300 shares, assuming 7,245,000 shares are sold in the offering at the maximum of the offering range. The equity incentive plan will comply with all applicable regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, except to the extent waived by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks.

Director Compensation

The following table sets forth the compensation received by individuals who served as non-employee directors of Asheville Savings Bank during the year ended December 31, 2010.

	Fees Earned or Paid  in Cash (1)		All Other Compensation (2)		Total
John M. Cross (3)	$	63,510	$	11,416	$	74,926
John B. Dickson		22,750		10,227		32,977
John B. Gould		29,018		4,788		33,806
Leslie D. Green		29,668		5,926		35,594
Kenneth E. Hornowski		29,718		3,795		33,513
Stephen P. Miller		27,993		6,075		34,068
Patricia S. Smith		45,555		10,076		55,631
Wyatt S. Stevens		29,668		3,266		32,934

(1) Directors have the option to defer all or a portion of fees earned pursuant to the terms of the Asheville Savings Bank Officers and Directors Deferred Compensation Plan. See “—Officers and Directors Deferred Compensation Plan” below.

(2) Represents long term care premium payments.

(3) Mr. Cross retired as a director of Asheville Savings Bank effective March 15, 2011.

Officers and Directors Deferred Compensation Plan. Asheville Savings Bank currently maintains the Asheville Savings Bank’s Officers and Directors Deferred Compensation Plan for eligible officers and directors of the Bank. The purpose of the plan is to provide participants with a vehicle to defer compensation until separation from service with Asheville Savings Bank. Currently all of the directors are actively participating in the plan and none of named executive officers participate in the plan.

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Retainer and Meeting Fees For Non-Employee Directors. The following table sets forth the applicable retainers and fees that will be paid to our directors for their service on the board of directors of Asheville Savings Bank for the year ending December 31, 2011 and for their service on the board of directors of ASB Bancorp, Inc. following the completion of the conversion.

Board of Directors of Asheville Savings Bank:
Annual Retainer for Chairman of the Board	$	22,200
Annual Retainer for Vice Chairman of the Board		16,650
Annual Retainer of All Other Board Members		11,100
Board Meeting Fee for Chairman of the Board		1,300
Board Meeting Fee for Vice Chairman of the Board		975
Board Meeting Fee for All Other Board Members		650
Committee Meeting Fee for All Directors		350

Policies and Procedures for Approval of Related Persons Transactions

ASB Bancorp, Inc. has adopted a Policy and Procedures Governing Related Persons Transactions, which is a written policy and set of procedures for the review and approval or ratification of transactions involving related persons. Under the policy, related persons consist of directors, director nominees, executive officers, persons or entities known to us to be the beneficial owner of more than five percent of any outstanding class of voting securities of ASB Bancorp, Inc., or immediate family members or certain affiliated entities of any of the foregoing persons.

Transactions covered by the policy consist of any financial transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, in which:

• the aggregate amount involved will or may be expected to exceed $50,000 in any calendar year;

• ASB Bancorp, Inc. is, will or may be expected to be a participant; and

• any related person has or will have a direct or indirect material interest.

The policy excludes certain transactions, including:

• any compensation paid to an executive officer of ASB Bancorp, Inc. if the compensation committee of the board of directors approved (or recommended that the board approve) such compensation;

• any compensation paid to a director of ASB Bancorp, Inc. if the board or an authorized committee of the board approved such compensation; and

• any transaction with a related person involving consumer and investor financial products and services provided in the ordinary course of ASB Bancorp, Inc.’s business and on substantially the same terms as those prevailing at the time for comparable services provided to unrelated third parties or to ASB Bancorp, Inc.’s employees on a broad basis (and, in the case of loans, in compliance with the Sarbanes-Oxley Act of 2002).

Related person transactions will be approved or ratified by the audit committee. In determining whether to approve or ratify a related person transaction, the audit committee will consider all relevant factors, including:

• whether the terms of the proposed transaction are at least as favorable to ASB Bancorp, Inc. as those that might be achieved with an unaffiliated third party;

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• the size of the transaction and the amount of consideration payable to the related person;

• the nature of the interest of the related person;

• whether the transaction may involve a conflict of interest; and

• whether the transaction involves the provision of goods and services to ASB Bancorp, Inc. that are available from unaffiliated third parties.

A member of the audit committee who has an interest in the transaction will abstain from voting on the approval of the transaction but may, if so requested by the chairman of the audit committee, participate in some or all of the discussion relating to the transaction.

Transactions with Related Persons

Loans and Extensions of Credit. The Sarbanes-Oxley Act of 2002 generally prohibits loans by ASB Bancorp, Inc. to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans by Asheville Savings Bank to its executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk of repayment or present other unfavorable features. Asheville Savings Bank is therefore prohibited from making any new loans or extensions of credit to executive officers and directors at different rates or terms than those offered to the general public. Notwithstanding this rule, federal regulations permit Asheville Savings Bank to make loans to executive officers and directors at reduced interest rates if the loan is made under a benefit program generally available to all other employees and does not give preference to any executive officer or director over any other employee. All outstanding loans made by Asheville Savings Bank to its directors and executive officers, and members of their immediate families, were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Asheville Savings Bank, and did not involve more than the normal risk of collectability or present other unfavorable features.

Pursuant to ASB Bancorp, Inc.’s audit committee charter, the audit committee will periodically review, no less frequently than quarterly, a summary of ASB Bancorp, Inc.’s transactions with directors and executive officers of ASB Bancorp, Inc. and with firms that employ directors, as well as any other related person transactions, to recommend to the disinterested members of the board of directors that the transactions are fair, reasonable and within ASB Bancorp, Inc. policy and should be ratified and approved. Also, in accordance with banking regulations and its policy, the board of directors will review all loans made to a director or executive officer in an amount that, when aggregated with the amount of all other loans to such person and his or her related interests, exceed the greater of $25,000 or 5% of ASB Bancorp, Inc.’s capital and surplus (up to a maximum of $500,000) and such loans must be approved in advance by a majority of the disinterested members of the board of directors. Additionally, pursuant to ASB Bancorp, Inc.’s Code of Ethics and Business Conduct, all executive officers and directors of ASB Bancorp, Inc. must disclose any existing or potential conflicts of interest to the President and Chief Executive Officer of ASB Bancorp, Inc. Such potential conflicts of interest include, but are not limited to, the following: (1) ASB Bancorp, Inc. conducting business with or competing against an organization in which a family member of an executive officer or director has an ownership or employment interest and (2) the ownership of more than 5% of the outstanding securities or 5% of total assets of any business entity that does business with or is in competition with ASB Bancorp, Inc.

Indemnification for Directors and Officers

ASB Bancorp, Inc.’s articles of incorporation provide that ASB Bancorp, Inc. shall indemnify all officers, directors and employees of ASB Bancorp, Inc. to the fullest extent permitted under North Carolina law against all expenses and liabilities reasonably incurred by them in connection with or arising out of any action, suit or

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proceeding in which they may be involved by reason of their having been a director or officer of ASB Bancorp, Inc. Such indemnification may include the advancement of funds to pay for or reimburse reasonable expenses incurred by an indemnified party to the fullest extent permitted under North Carolina law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of ASB Bancorp, Inc. pursuant to its articles of incorporation or otherwise, ASB Bancorp, Inc. has been advised by counsel that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

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SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

The following table presents certain information as to the proposed purchases of common stock by our directors and executive officers, including their associates, if any, as defined by applicable regulations. No individual has entered into a binding agreement to purchase these shares and, therefore, actual purchases could be more or less than indicated. Directors and executive officers and their associates may not purchase more than 25% of the shares sold in the offering. Like all of our depositors, our directors and officers have subscription rights based on their deposits. For purposes of the following table, sufficient shares are assumed to be available to satisfy subscriptions in all categories. All directors and officers as a group would own 3.0% of our outstanding shares at the minimum of the offering range and 2.2% of our outstanding shares at the maximum of the offering range.

	Proposed Purchases of Stock in the Offering
Name	Number of Shares		Dollar Amount		Percent of Common Stock Outstanding at Minimum of Offering Range
Directors:
John B. Dickson		10,000	$	100,000		*
Suzanne S. DeFerie		25,000		250,000		*
John B. Gould		25,000		250,000		*
Leslie D. Green		15,000		150,000		*
Kenneth E. Hornowski		10,000		100,000		*
Stephen P. Miller		25,000		250,000		*
Patricia S. Smith		25,000		250,000		*
Wyatt S. Stevens		5,000		50,000		*
Executive Officers Who Are Not Directors:
Kirby A. Tyndall		10,000		100,000		*
David A. Kozak		5,000		50,000		*
Fred A. Martin		5,500		55,000		*
All directors and executive officers as a group (11 persons)		160,500	$	1,605,000		3.0%

* Less than 1.0%.

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REGULATION AND SUPERVISION

Asheville Savings Bank is currently a North Carolina chartered mutual savings bank. Once the mutual to stock conversion has been completed, Asheville Savings Bank will be the wholly owned subsidiary of ASB Bancorp, Inc., a North Carolina corporation and registered bank holding company. Ashville Savings Bank, S.S.B.’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. Asheville Savings Bank is subject to extensive regulation by the North Carolina Commissioner of Banks, as its chartering agency, and by the Federal Deposit Insurance Corporation, as its deposit insurer. Asheville Savings Bank is required to file reports with, and is periodically examined by, the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of depositors and, for purposes of the Federal Deposit Insurance Corporation, the protection of the insurance fund. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the North Carolina legislature, the Federal Deposit Insurance Corporation or Congress, could have a material adverse impact on ASB Bancorp, Inc., Asheville Savings Bank and their operations. Asheville Savings Bank is a member of the Federal Home Loan Bank of Atlanta. Upon consummation of the conversion, ASB Bancorp, Inc. will be regulated as a bank holding company by the Federal Reserve Board.

Certain regulatory requirements applicable to Asheville Savings Bank and to ASB Bancorp, Inc. are referred to below or elsewhere herein. The description of statutory provisions and regulations applicable to savings institutions and their holding companies set forth below and elsewhere in this document does not purport to be a complete description of such statutes and regulations and their effects on Asheville Savings Bank and ASB Bancorp, Inc. and is qualified in its entirety by reference to the actual laws and regulations.

Recent Regulatory Reform

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was enacted on July 21, 2010, will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act will eliminate the Office of Thrift Supervision and require that federal savings associations be regulated by the Office of the Comptroller of the Currency (the primary federal regulator for national banks). The Dodd-Frank Act also authorizes the Federal Reserve Board to supervise and regulate all savings and loan holding companies.

The Dodd-Frank Act requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository institutions, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. In addition, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months. These new leverage and capital requirements must take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10.0 billion in assets. Banks and savings institutions with $10.0 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives the state attorneys general the ability to enforce applicable federal consumer protection laws.

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The Dodd Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments, permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and provides that noninterest bearing transaction accounts have unlimited deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act will increase shareholder influence over boards of directors by requiring companies to give shareholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow shareholders to nominate and solicit votes for their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded.

It is difficult to predict at this time what impact the new legislation and implementing regulations will have on community banks such as Asheville Savings Bank, including the lending and credit practices of such banks. Moreover, many of the provisions of the Dodd-Frank Act are not yet in effect, and the legislation requires various federal agencies to promulgate numerous and extensive implementing regulations over the next several years. Although the substance and scope of these regulations cannot be determined at this time, it is expected that the legislation and implementing regulations will increase our operating and compliance costs and restrict our ability to pay dividends in the future.

North Carolina Banking Laws and Supervision

General. As a North Carolina savings bank, Asheville Savings Bank is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks and to various North Carolina statutes and regulations which govern, among other things, investment powers, lending and deposit taking activities, borrowings, maintenance of surplus and reserve accounts, distributions of earnings and payment of dividends. In addition, Asheville Savings Bank is also subject to North Carolina consumer protection and civil rights laws and regulations. The approval of the North Carolina Commissioner of Banks is required for a North Carolina savings bank to establish or relocate branches, merge with other financial institutions, organize a holding company, issue stock and undertake certain other activities.

Net Worth Requirement. North Carolina law requires that a North Carolina savings bank maintain a net worth of not less than 5% of its total assets. Intangible assets must be deducted from net worth and assets when computing compliance with this requirement.

Investment Activities. Subject to limitation by the North Carolina Commissioner of Banks, North Carolina savings banks may make any loan or investment or engage in any activity that is permitted to federally chartered institutions. In addition to such lending authority, North Carolina savings banks are generally authorized to invest funds in certain statutorily permitted investments, including but not limited to (i) obligations of the United States, or those guaranteed by it; (ii) obligations of the State of North Carolina; (iii) bank demand or time deposits; (iv) stock or obligations of the federal deposit insurance fund or a Federal Home Loan Bank; (v) savings accounts of any savings institution as approved by the board of directors; and (vi) stock or obligations of any agency of the State of North Carolina or of the United States or of any corporation doing business in North Carolina whose principal business is to make education loans. However, a North Carolina savings bank cannot invest more than 15% of its total assets in business, commercial, corporate and agricultural loans, and cannot directly or indirectly acquire or retain any corporate debt security that is not of investment grade.

Loans to One Borrower Limitations. North Carolina law provides state savings banks with broad lending authority. However, subject to certain limited exceptions, no loans and extensions of credit to any borrower outstanding at one time and not fully secured by readily marketable collateral shall exceed 15% of the net worth of the savings bank. In addition, loans and extensions of credit fully secured by readily marketable collateral may not exceed 10% of the net worth of the savings bank. These limitations do not apply to loans or obligations made: (i) for any purpose otherwise permitted under North Carolina law in an amount not to exceed $500,000; (ii) to develop domestic residential housing units, not to exceed the lesser of $30.0 million or 30% of the savings bank’s net worth, provided that the purchase price of each single-family dwelling in the development does not exceed $500,000 and the aggregate amount of loans made pursuant to this authority does not exceed 150% of the savings bank’s net worth; or (iii) to finance the sale of real property acquired in satisfaction of debts in an amount up to 50% of the savings bank’s net worth.

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Dividends. A North Carolina stock savings bank may not declare or pay a cash dividend on, or repurchase any of, its capital stock if after making such distribution, the institution would become, or if it already is, “undercapitalized” (as such term is defined under applicable law and regulations) or such transaction would reduce the net worth of the institution to an amount which is less than the minimum amount required by applicable federal and state regulations.

Regulatory Enforcement Authority. Any North Carolina savings bank that does not operate in accordance with the regulations, policies and directives of the North Carolina Commissioner of Banks may be subject to sanctions for noncompliance, including revocation of its articles of incorporation. The North Carolina Commissioner of Banks may, under certain circumstances, suspend or remove officers or directors of a state savings bank who have violated the law or conducted the bank’s business in a manner which is unsafe or unsound. Upon finding that a state savings bank has engaged in an unsafe, unsound or discriminatory manner, the North Carolina Commissioner of Banks may issue an order to cease and desist and impose civil monetary penalties on the institution.

Federal Banking Regulations

Capital Requirements. Under the Federal Deposit Insurance Corporation’s regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (“state non-member banks”), such as Asheville Savings Bank, are required to comply with minimum leverage capital requirements. For an institution determined by the Federal Deposit Insurance Corporation to not be anticipating or experiencing significant growth and to be, in general, a strong banking organization rated composite 1 under Uniform Financial Institutions Ranking System established by the Federal Financial Institutions Examination Council, the minimum capital leverage requirement is a ratio of Tier 1 capital to total assets of 3.0%. For all other institutions, the minimum leverage capital ratio is not less than 4.0%. Tier 1 capital is the sum of common shareholder’s equity, noncumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except for certain servicing rights and credit card relationships) and certain other specified items.

In addition, Federal Deposit Insurance Corporation regulations require state non-member banks to maintain certain ratios of regulatory capital to regulatory risk-weighted assets, or “risk-based capital ratios.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items to four risk-weighted categories ranging from 0.0% to 100.0%. State non-member banks must maintain a minimum ratio of total capital to risk-weighted assets of at least 8.0%, of which at least one-half must be Tier 1 capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and certain other capital instruments, and a portion of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institution’s Tier 1 capital.

Standards for Safety and Soundness. As required by statute, the federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit system, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. Most recently, the agencies have established standards for safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

Investment Activities. Since the enactment of Federal Deposit Insurance Corporation Improvement Act, all state chartered federally insured banks, including savings banks, have generally been limited in their investment activities to principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law. The Federal Deposit Insurance Corporation Improvement Act and the Federal Deposit

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Insurance Corporation regulations permit exceptions to these limitations. For example, state chartered banks may, with Federal Deposit Insurance Corporation approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange or the Nasdaq Global Market and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. The maximum permissible investment is 100.0% of Tier 1 Capital, as specified by the Federal Deposit Insurance Corporation’s regulations, or the maximum amount permitted by North Carolina law, whichever is less. In addition, the Federal Deposit Insurance Corporation is authorized to permit such institutions to engage in state authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if they meet all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund. The Federal Deposit Insurance Corporation has adopted regulations governing the procedures for institutions seeking approval to engage in such activities or investments. The Gramm-Leach-Bliley Act of 1999 specifies that a non-member bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.

Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

The Federal Deposit Insurance Corporation has adopted regulations to implement the prompt corrective action legislation. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater and a leverage ratio of 5.0% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, and generally a leverage ratio of 4.0% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or generally a leverage ratio of less than 4.0%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0%, or a leverage ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

“Undercapitalized” banks must adhere to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. A bank’s compliance with such a plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the Federal Deposit Insurance Corporation to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

Transactions with Affiliates. Transactions between banks and their related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, Sections 23A and 23B of the Federal Reserve Act and Regulation W (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to non-affiliates. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and other similar transactions. In addition, loans or other extensions of credit by the financial institution to the affiliate are required to be collateralized in accordance with the requirements set forth in

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Section 23A of the Federal Reserve Act. The Sarbanes-Oxley Act of 2002 generally prohibits loans by a company to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws assuming such loans are also permitted under the law of the institution’s chartering state. Under such laws, Asheville Savings Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such person’s control, is limited. The law limits both the individual and aggregate amount of loans Asheville Savings Bank may make to insiders based, in part, on Asheville Savings Bank’s capital position and requires certain board approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are further limited by specific categories.

Enforcement. The Federal Deposit Insurance Corporation has extensive enforcement authority over insured state savings banks, including Asheville Savings Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices. The Federal Deposit Insurance Corporation has authority under federal law to appoint a conservator or receiver for an insured bank under limited circumstances. The Federal Deposit Insurance Corporation is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” The Federal Deposit Insurance Corporation may also appoint itself as conservator or receiver for an insured state non-member institution under specific circumstances on the basis of the institution’s financial condition or upon the occurrence of other events, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; and (4) insufficient capital, or the incurring of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

Insurance of Deposit Accounts. The Federal Deposit Insurance Corporation insures deposits at Federal Deposit Insurance Corporation insured financial institutions such as Asheville Savings Bank. Deposit accounts in Asheville Savings Bank are insured by the Federal Deposit Insurance Corporation generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The Federal Deposit Insurance Corporation charges the insured financial institutions premiums to maintain the Deposit Insurance Fund.

As part of its plan to restore the Deposit Insurance Fund in the wake of the large number of bank failures following the financial crisis, the Federal Deposit Insurance Corporation imposed a special assessment of 5 basis points for the second quarter of 2009. In addition, the Federal Deposit Insurance Corporation has required all insured institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. As part of this prepayment, the Federal Deposit Insurance Corporation assumed a 5% annual growth in the assessment base and applied a 3 basis point increase in assessment rates effective January 1, 2011.

In February 2011, the Federal Deposit Insurance Corporation published a final rule under the Dodd-Frank Act to reform the deposit insurance assessment system. The rule redefines the assessment base used for calculating deposit insurance assessments effective April 1, 2011. Under the new rule, assessments will be based on an institution’s average consolidated total assets minus average tangible equity as opposed to total deposits. Since the new base will be much larger than the current base, the Federal Deposit Insurance Corporation also lowered assessment rates so that the total amount of revenue collected from the industry will not be significantly altered. The new rule is expected to benefit smaller financial institutions, which typically rely more on deposits for funding, and shift more of the burden for supporting the insurance fund to larger institutions, which have greater access to non-deposit sources of funding.

Federal Home Loan Bank System. Asheville Savings Bank is a member of the Federal Home Loan Bank System, which consists twelve regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Asheville Savings Bank, as a member of the Federal Home Loan Bank of Atlanta, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. At March 31, 2011, Asheville Savings Bank complied with this requirement with an investment in Federal Home Loan Bank of Atlanta stock of $4.0 million.

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The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts in the late 1980s and to contribute funds for affordable housing programs. These requirements, or general results of operations, could reduce or eliminate the dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future Federal Home Loan Bank advances increased, our net interest income would likely also be reduced.

Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by Federal Deposit Insurance Corporation regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the Community Reinvestment Act. The Community Reinvestment Act requires the Federal Deposit Insurance Corporation, in connection with its examination of a savings association, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.

The Community Reinvestment Act requires public disclosure of an institution’s rating and requires the Federal Deposit Insurance Corporation to provide a written evaluation of an association’s Community Reinvestment Act performance utilizing a four-tiered descriptive rating system.

Asheville Savings Bank received a “satisfactory” rating as a result of its most recent Community Reinvestment Act assessment.

Other Regulations

Interest and other charges collected or contracted for by Asheville Savings Bank are subject to state usury laws and federal laws concerning interest rates. Asheville Savings Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

• Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

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The operations of Asheville Savings Bank also are subject to the:

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

• Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

• Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT Act”), which significantly expands the responsibilities of financial institutions, including savings and loan associations, in preventing the use of the U.S. financial system to fund terrorist activities. Among other provisions, it requires financial institutions operating in the United States to develop new anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations; and

• The Gramm-Leach-Bliley Act places limitations on the sharing of consumer financial information with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of personal financial information with unaffiliated third parties.

Federal Reserve System

The Federal Reserve Board regulations require savings institutions to maintain noninterest earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal (“NOW”) and regular checking accounts). The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $58.8 million; a 10% reserve ratio is applied above $58.8 million. The first $10.7 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The amounts are adjusted annually. Asheville Savings Bank complies with the foregoing requirements.

Holding Company Regulation

Upon consummation of the conversion, ASB Bancorp, Inc. will be subject to examination, regulation and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Federal Reserve Board. As a result, prior Federal Reserve Board approval would be required for ASB Bancorp, Inc. to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. In addition to the approval of the Federal Reserve Board, before any bank acquisition can be completed, prior approval may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be acquired.

A bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal

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Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association.

The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.

Upon consummation of the conversion, ASB Bancorp, Inc. will also be subject to the Federal Reserve Board’s capital adequacy guidelines for bank holding companies (on a consolidated basis) substantially similar to those of the Federal Deposit Insurance Corporation for Asheville Savings Bank

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. The Federal Reserve Board has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of ASB Bancorp, Inc. to pay dividends or otherwise engage in capital distributions.

Under the Federal Deposit Insurance Act, depository institutions are liable to the Federal Deposit Insurance Corporation for losses suffered or anticipated by the Federal Deposit Insurance Corporation in connection with the default of a commonly controlled depository institution or any assistance provided by the Federal Deposit Insurance Corporation to such an institution in danger of default. This law would have potential applicability if ASB Bancorp, Inc. ever held as a separate subsidiary a depository institution in addition to Asheville Savings Bank

ASB Bancorp, Inc. and Asheville Savings Bank will be affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of ASB Bancorp, Inc. or Asheville Savings Bank

The status of ASB Bancorp, Inc. as a registered bank holding company under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

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Federal Securities Laws

ASB Bancorp, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued in the offering. Upon completion of the offering, ASB Bancorp, Inc.’s common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. ASB Bancorp, Inc. will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended.

The registration, under the Securities Act of 1933, as amended, of the shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of ASB Bancorp, Inc. may be resold without registration. Shares purchased by an affiliate of ASB Bancorp, Inc. will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933, as amended. If ASB Bancorp, Inc. meets the current public information requirements of Rule 144, each affiliate of ASB Bancorp, Inc. that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of ASB Bancorp, Inc. or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, ASB Bancorp, Inc. may permit affiliates to have their shares registered for sale under the Securities Act of 1933, as amended.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act of 2002, ASB Bancorp, Inc.’s principal executive officer and principal financial and accounting officer each will be required to certify that ASB Bancorp, Inc.’s quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act of 2002 have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the board of directors about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls. ASB Bancorp, Inc. will be subject to further reporting and audit requirements beginning with the year ending December 31, 2011 under the requirements of the Sarbanes-Oxley Act. ASB Bancorp, Inc. will prepare policies, procedures and systems designed to comply with these regulations to ensure compliance with these regulations.

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FEDERAL AND STATE TAXATION

Federal Income Taxation

General. We report our income on a fiscal year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns have not been audited during the last five years. For its 2010 fiscal year, Asheville Savings Bank’s maximum federal income tax rate was 34%.

ASB Bancorp, Inc. and Asheville Savings Bank will enter into a tax allocation agreement. Because ASB Bancorp, Inc. will own 100% of the issued and outstanding capital stock of Asheville Savings Bank after the completion of the conversion, ASB Bancorp, Inc. and Asheville Savings Bank will be members of an affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code, of which group ASB Bancorp, Inc. will be the common parent corporation. As a result of this affiliation, Asheville Savings Bank may be included in the filing of a consolidated federal income tax return with ASB Bancorp, Inc. and, if a decision to file a consolidated tax return is made, the parties agree to compensate each other for their individual share of the consolidated tax liability and/or any tax benefits provided by them in the filing of the consolidated federal income tax return.

Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and require savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves.

Distributions. If Asheville Savings Bank makes “non-dividend distributions” to ASB Bancorp, Inc., the distributions will be considered to have been made from Asheville Savings Bank’s unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend distributions,” and then from Asheville Savings Bank’s supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in Asheville Savings Bank’s taxable income. Non-dividend distributions include distributions in excess of Asheville Savings Bank’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Asheville Savings Bank’s current or accumulated earnings and profits will not be so included in Asheville Savings Bank’s taxable income.

The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Asheville Savings Bank makes a non-dividend distribution to ASB Bancorp, Inc., approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. Asheville Savings Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

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State Taxation

North Carolina. North Carolina imposes corporate income and franchise taxes. North Carolina’s corporate income tax is 6.9% of the portion of a corporation’s net income allocable to the state. If a corporation in North Carolina does business in North Carolina and in one or more other states, North Carolina taxes a fraction of the corporation’s income based on the amount of sales, payroll and property it maintains within North Carolina. North Carolina franchise tax is levied on business corporations at the rate of $1.50 per $1,000 of the largest of the following three alternate bases: (i) the amount of the corporation’s capital stock, surplus and undivided profits apportionable to the state; (ii) 55% of the appraised value of corporation’s property in the state subject to local taxation; or (iii) the book value of the corporation’s real and tangible personal property in the state less any outstanding debt that was created to acquire or improve real property in the state.

Any cash dividends, in excess of a certain exempt amount, that would be paid with respect to ASB Bancorp, Inc. common stock to a shareholder (including a partnership and certain other entities) who is a resident of North Carolina will be subject to the North Carolina income tax. Any distribution by a corporation from earnings according to percentage ownership is considered a dividend, and the definition of a dividend for North Carolina income tax purposes may not be the same as the definition of a dividend for federal income tax purposes. A corporate distribution may be treated as a dividend for North Carolina income tax purposes if it is paid from funds that exceed the corporation’s earned surplus and profits under certain circumstances.

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THE CONVERSION AND STOCK OFFERING

Asheville Savings Bank’s board of directors has approved the plan of conversion. The Federal Deposit Insurance Corporation has provided its non-objection to, and the North Carolina Commissioner of Banks has conditionally approved, the plan of conversion, but such non-objection and conditional approval does not constitute a recommendation or endorsement of the plan of conversion by either agency.

General

On March 15, 2011, the board of directors of Asheville Savings Bank unanimously adopted the plan of conversion according to which Asheville Savings Bank will convert from a North Carolina mutual savings bank to a North Carolina stock savings bank and become a wholly owned subsidiary of ASB Bancorp, Inc., a newly formed North Carolina corporation. On May 17, 2011, the board of directors of ASB Bancorp, Inc. unanimously adopted the plan of conversion. ASB Bancorp, Inc. will offer 100% of its common stock to qualifying depositors of Asheville Savings Bank in a subscription offering and, if necessary, to members of the general public through a community offering and/or a syndicate of registered broker-dealers. The completion of the offering depends on market conditions and other factors beyond our control. We can give no assurance as to the length of time that will be required to complete the sale of the common stock. If we experience delays, significant changes may occur in the appraisal of Asheville Savings Bank, which would require a change in the offering range. A change in the offering range would result in a change in the net proceeds realized by ASB Bancorp, Inc. from the sale of the common stock. If the offering is terminated, Asheville Savings Bank would be required to charge all offering expenses against current income. The Federal Deposit Insurance Corporation has provided its non-objection to, and the North Carolina Commissioner of Banks has conditionally approved, the plan of conversion, subject to the fulfillment of certain conditions.

The following is a brief summary of the pertinent aspects of the conversion. A copy of the plan of conversion is available from Asheville Savings Bank upon request and is available for inspection at the offices of Asheville Savings Bank and at the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The plan of conversion is also filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Reasons for the Conversion

The primary reasons for the conversion and related stock offering are to:

• enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through traditional funding and lending activities;

• support future branching activities and/or the acquisition of financial institutions or financial services companies;

• enhance Asheville Savings Bank’s ability to compete in its primary market area by offering new products and services;

• increase our capital to meet anticipated industry-wide increases in regulatory capital requirements; and

• implement equity compensation plans to retain and attract qualified directors, officers and staff to enhance our current incentive-based programs.

As a stock holding company, ASB Bancorp, Inc. will have greater flexibility than Asheville Savings Bank now has in structuring mergers and acquisitions, including the consideration paid in a transaction. Our current mutual savings bank structure, by its nature, limits our ability to offer any common stock as consideration in a merger or acquisition. Our new stock holding company structure will enhance our ability to compete with other bidders when acquisition opportunities arise by better enabling us to offer stock or cash consideration, or a combination of the two. We currently do not have any agreement or understanding as to any specific acquisition.

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Effects of Conversion to Stock Form

General. Each depositor in a mutual savings bank has both a deposit account in the institution and a pro rata ownership interest in the net worth of the institution based upon the balance in his or her account. However, this ownership interest is tied to the depositor’s account and has no value separate from such deposit account. Furthermore, this ownership interest may only be realized in the unlikely event that the institution is liquidated. In such event, the depositors of record at that time, as owners, would be able to share in any residual surplus and reserves after payment of other claims, including claims of depositors to the amounts of their deposits. Any depositor who opens a deposit account obtains a pro rata ownership interest in the net worth of the institution without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the account but nothing for his or her ownership interest in the net worth of the institution, which is lost to the extent that the balance in the account is reduced.

When a mutual savings bank converts to stock form, depositors lose all rights to the net worth of the mutual savings bank, except the right to claim a pro rata share of funds representing the liquidation account established in connection with the conversion. Additionally, permanent nonwithdrawable capital stock is created and offered to depositors which represents the ownership of the institution’s net worth. The common stock of ASB Bancorp, Inc. is separate and apart from deposit accounts and cannot be and is not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Certificates are issued to evidence ownership of the permanent stock. The stock certificates are transferable, and therefore the stock may be sold or traded if a purchaser is available with no effect on any deposit account the seller may hold in the institution.

No assets of ASB Bancorp, Inc. will be distributed in connection with the conversion other than the payment of those expenses incurred in connection with the conversion.

Continuity. While the conversion is being accomplished, the normal business of Asheville Savings Bank will continue without interruption, including being regulated by the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation. After the conversion, Asheville Savings Bank will continue to provide services for depositors and borrowers under current policies by its present management and staff.

The directors of Asheville Savings Bank at the time of the conversion will serve as directors of Asheville Savings Bank after the conversion. The initial directors of ASB Bancorp, Inc. are composed of the individuals who serve on the board of directors of Asheville Savings Bank. All officers of Asheville Savings Bank at the time of conversion will retain their positions after the conversion.

Deposit Accounts and Loans. Asheville Savings Bank’s deposit accounts, account balances and existing Federal Deposit Insurance Corporation insurance coverage of deposit accounts will not be affected by the conversion. Furthermore, the conversion will not affect the loan accounts, loan balances or obligations of borrowers under their individual contractual arrangements with Asheville Savings Bank.

Effect on Voting Rights. Voting rights in Asheville Savings Bank, as a mutual savings bank, belong to its depositor and borrower members. After the conversion, depositors and borrowers will no longer have voting rights in Asheville Savings Bank and, therefore, will no longer be able to elect directors of Asheville Savings Bank or control its affairs. Instead, ASB Bancorp, Inc., as the sole shareholder of Asheville Savings Bank, will possess all voting rights in Asheville Savings Bank. The holders of the common stock of ASB Bancorp, Inc. will possess all voting rights in ASB Bancorp, Inc. Depositors and borrowers of Asheville Savings Bank will not have voting rights after the conversion except to the extent that they become shareholders of ASB Bancorp, Inc. by purchasing common stock.

Liquidation Account. In the unlikely event of a complete liquidation of Asheville Savings Bank before the conversion, each depositor in Asheville Savings Bank would receive a pro rata share of any assets of Asheville Savings Bank remaining after payment of claims of all creditors, including the claims of all depositors up to the withdrawal value of their accounts. Each depositor would receive a pro rata share of the remaining assets in the same proportion as the value of his or her deposit account to the total value of all deposit accounts in Asheville Savings Bank at the time of liquidation.

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After the conversion, holders of withdrawable deposits in Asheville Savings Bank, including certificates of deposit, will not be entitled to share in any residual assets upon liquidation of Asheville Savings Bank. However, under applicable regulations, Asheville Savings Bank will, at the time of the conversion, establish a liquidation account in an amount equal to its total equity as of the date of the latest statement of financial condition contained in the final prospectus relating to the conversion.

Asheville Savings Bank will maintain the liquidation account after the conversion for the benefit of eligible account holders and supplemental eligible account holders who retain their savings accounts in Asheville Savings Bank. Each eligible account holder and supplemental account holder will, with respect to each deposit account held, have a related inchoate interest in a sub-account portion of the liquidation account balance.

The initial sub-account balance for a savings account held by an eligible account holder or a supplemental eligible account holder will be determined by multiplying the opening balance in the liquidation account by a fraction of which the numerator is the amount of the holder’s “qualifying deposit” in the deposit account and the denominator is the total amount of the “qualifying deposits” of all eligible or supplemental eligible account holders. The initial subaccount balance will not be increased, but it will be decreased as provided below.

If the deposit balance in any deposit account of an eligible account holder or supplemental eligible account holder at the close of business on any annual closing day of Asheville Savings Bank (which is December 31) after                      or                     , is less than the lesser of the deposit balance in a deposit account at the close of business on any other annual closing date after                      or                     , or the amount of the “qualifying deposit” in a savings account on                      or                     , then the subaccount balance for a savings account will be adjusted by reducing the subaccount balance in an amount proportionate to the reduction in the savings balance. Once reduced, the subaccount balance will not be subsequently increased, notwithstanding any increase in the savings balance of the related savings account. If any savings account is closed, the related subaccount balance will be reduced to zero.

Upon a complete liquidation of Asheville Savings Bank, each eligible account holder and supplemental account holder will be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current adjusted subaccount balance(s) for deposit account(s) held by the holder before any liquidation distribution may be made to shareholders. No merger, consolidation, bulk purchase of assets with assumptions of savings accounts and other liabilities or similar transactions with another federally insured institution in which Asheville Savings Bank is not the surviving institution will be considered to be a complete liquidation. In any of these transactions, the liquidation account will be assumed by the surviving institution.

In the unlikely event Asheville Savings Bank is liquidated after the conversion, depositors will be entitled to full payment of their deposit accounts before any payment is made to ASB Bancorp, Inc. as sole shareholder of Asheville Savings Bank. There are no plans to liquidate either Asheville Savings Bank or ASB Bancorp, Inc. in the future.

Material Income Tax Consequences

In connection with the conversion, we have received an opinion of counsel with respect to federal tax laws that no gain or loss will be recognized by account holders receiving subscription rights, except to the extent, if any, that subscription rights are deemed to have fair market value on the date such rights are issued. We believe that the tax opinion summarized below addresses all material federal income tax consequences that are generally applicable to persons receiving subscription rights.

Kilpatrick Townsend & Stockton LLP has issued an opinion to us that, for federal income tax purposes:

• the conversion of Asheville Savings Bank from the mutual to the stock form of organization will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code, and no gain or loss will be recognized by account holders and no gain or loss will be recognized by Asheville Savings Bank by reason of such conversion;

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• no gain or loss will be recognized by ASB Bancorp, Inc. upon the sale of shares of common stock in the offering;

• it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of ASB Bancorp, Inc. to be issued to eligible account holders, supplemental eligible account holders and other members is zero and, accordingly, that no income will be realized by eligible account holders, supplemental eligible account holders and other members upon the issuance to them of the subscription rights or upon the exercise of the subscription rights; and

• it is more likely than not that the tax basis to the holders of shares of common stock purchased in the stock offering pursuant to the exercise of the subscription rights will be the amount paid therefore, and that the holding period for such shares of common stock will begin on the date of completion of the stock offering.

The statements set forth in the third and fourth bullet points above are based on the position that the subscription rights do not have any market value at the time of distribution or at the time they are exercised. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. According to our counsel, the Internal Revenue Service will not issue rulings on whether subscription rights have a market value. Counsel has also advised us that they are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights have a market value. Counsel also noted that the subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase our common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock.

Unlike a private letter ruling issued by the Internal Revenue Service, an opinion of counsel is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached in the opinion. If there is a disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.

Asheville Savings Bank also has received an opinion from Kilpatrick Townsend & Stockton LLP, that, assuming the conversion does not result in any federal income tax liability to Asheville Savings Bank, its account holders, or ASB Bancorp, Inc., implementation of the plan of conversion will not result in any North Carolina income tax liability to those entities or persons.

The opinions of Kilpatrick Townsend & Stockton LLP are filed as exhibits to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Subscription Offering and Subscription Rights

Under the plan of conversion, we have granted rights to subscribe for ASB Bancorp, Inc. common stock to the following persons in the following order of priority:

• Persons with deposits in Asheville Savings Bank with balances aggregating $50 or more (“qualifying deposits”) as of the close of business on February 28, 2010 (“eligible account holders”). For this purpose, deposit accounts include all savings, time and demand accounts.

• Our employee stock ownership plan.

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• Persons with qualifying deposits in Asheville Savings Bank as of the close of business on                      (“supplemental eligible account holders”) other than our officers and directors and their associates.

• Depositors of Asheville Savings Bank as of the close of business on                     , who are neither eligible nor supplemental eligible account holders, and borrowers of Asheville Savings Bank as of                      whose borrowings still exist as of the close of business on                      (collectively, “other members”).

Unlike our employee stock ownership plan, the Asheville Savings Bank 401(k) Plan has not been granted priority subscription rights under the plan of conversion. Accordingly, a 401(k) plan participant who elects to purchase shares in the offering through self-directed purchases within the 401(k) plan will receive the same subscription priority, and be subject to the same purchase limitations, as if the participant had elected to purchase shares using funds outside the 401(k) plan. See “Executive Compensation—Benefit Plans—401(k) Plan.”

The amount of common stock that any person may purchase will depend on the availability of the common stock after satisfaction of all subscriptions having priority rights in the subscription offering and to the maximum and minimum purchase limitations set forth in the plan of conversion. See “— Limitations on Purchases of Shares.”

We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.

Category 1: Eligible Account Holders. Subject to the purchase limitations as described below under “— Limitations on Purchases of Shares,” each eligible account holder has the right to subscribe for up to the greater of:

• $300,000 of common stock (which equals 30,000 shares);

• one-tenth of 1% of the total offering of common stock; or

• 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders.

If there are insufficient shares to satisfy all subscriptions by eligible account holders, shares first will be allocated so as to permit each subscribing eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible account holders whose subscriptions remain unfilled. Unless waived by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, subscription rights of eligible account holders who are also executive officers or directors of Asheville Savings Bank or their associates will be subordinated to the subscription rights of other eligible account holders to the extent attributable to increased deposits in Asheville Savings Bank in the one year period preceding                     .

To ensure a proper allocation of stock, each eligible account holder must list on his or her stock order form all deposit accounts in which such eligible account holder had an ownership interest at February 28, 2010. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

Category 2: Tax-Qualified Employee Benefit Plans. Our tax-qualified employee benefit plans (other than our 401(k) plan) have the right to purchase up to 10% of the shares of common stock sold in the offering. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase a number of

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shares equal to 8% of the shares sold in the offering. Subscriptions by the employee stock ownership plan will not be aggregated with shares of common stock purchased by any other participants in the offering, including subscriptions by our officers and directors, for the purpose of applying the purchase limitations in the plan of conversion. If eligible account holders subscribe for all of the shares being sold, no shares will be available for our tax-qualified employee benefit plans. However, if we increase the number of shares offered above the maximum of the offering range, the employee stock ownership plan will have a first priority right to purchase any shares exceeding that amount up to 10% of the common stock issued in the offering. If the plan’s subscription is not filled in its entirety, the employee stock ownership plan may purchase shares in the open market or may purchase shares directly from us with the approval of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks.

Category 3: Supplemental Eligible Account Holders. Subject to the purchase limitations as described below under “— Limitations on Purchases of Shares,” each supplemental eligible account holder has the right to subscribe for up to the greater of:

• $300,000 of common stock (which equals 30,000 shares);

• one-tenth of 1% of the total offering of common stock; or

• 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the supplemental eligible account holder and the denominator is the total amount of qualifying deposits of all supplemental eligible account holders.

If eligible account holders and the employee stock ownership plan subscribe for all of the shares being sold, no shares will be available for supplemental eligible account holders. If shares are available for supplemental eligible account holders but there are insufficient shares to satisfy all subscriptions by supplemental eligible account holders, shares first will be allocated so as to permit each subscribing supplemental eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing supplemental eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining supplemental eligible account holders whose subscriptions remain unfilled.

To ensure a proper allocation of stock, each supplemental eligible account holder must list on his or her stock order form all deposit accounts in which such supplemental eligible account holder had an ownership interest at                     . Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

Category 4: Other Members. Subject to the purchase limitations as described below under “— Limitations on Purchases of Shares,” each other member has the right to purchase up to the greater of $300,000 of common stock (which equals 30,000 shares) or one-tenth of 1% of the total offering of common stock. If eligible account holders, the employee stock ownership plan and supplemental eligible account holders subscribe for all of the shares being sold, no shares will be available for other members. If shares are available for other members but there are not sufficient shares to satisfy all subscriptions by other members, shares first will be allocated so as to permit each subscribing other member, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing other members in the proportion that each other member’s subscription bears to the total subscriptions of all such subscribing other members whose subscriptions remain unfilled.

To ensure a proper allocation of stock, each other member must list on his or her stock order form all deposit accounts and/or loans in which such other member had an ownership interest at                     . Failure to list an account or providing incorrect information could result in the loss of all or part of a subscriber’s stock allocation.

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Expiration Date for the Subscription Offering. The subscription offering, and all subscription rights under the plan of conversion, will terminate at 12:00 noon, Eastern time, on                     , 2011. We will not accept orders for common stock in the subscription offering received after that time. We will make reasonable attempts to provide a prospectus and related offering materials to holders of subscription rights; however, all subscription rights will expire on the expiration date whether or not we have been able to locate each person entitled to subscription rights.

Federal regulations require that we complete the sale of common stock within 45 days after the close of the subscription offering. If the sale of the common stock is not completed within that period, all funds received will be returned promptly with interest at our statement savings rate and all withdrawal authorizations will be canceled unless we receive approval of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks to extend the time for completing the offering. If regulatory approval of an extension of the time period has been granted, we will notify all subscribers of the extension and of the duration of any extension that has been granted, and subscribers will have the right to modify or rescind their purchase orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be returned promptly with interest, or withdrawal authorizations will be canceled. No single extension can exceed 90 days.

Persons in Non-Qualified States. We will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock under the plan of conversion reside. However, we are not required to offer stock in the subscription offering to any person who resides in a foreign country or who resides in a state of the United States in which (1) only a small number of persons otherwise eligible to subscribe for shares of common stock reside; (2) the granting of subscription rights or the offer or sale of shares to such person would require that we or our officers or directors register as a broker, dealer, salesman or selling agent under the securities laws of the state, or register or otherwise qualify the subscription rights or common stock for sale or qualify as a foreign corporation or file a consent to service of process; or (3) we determine that compliance with that state’s securities laws would be impracticable for reasons of cost or otherwise.

Restrictions on Transfer of Subscription Rights and Shares. Subscription rights are nontransferable. You may not transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of your subscription rights issued under the plan of conversion or the shares of common stock to be issued upon exercise of your subscription rights. Your subscription rights may be exercised only by you and only for your own account. If you exercise your subscription rights, you will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding regarding the sale or transfer of such shares. Federal regulations also prohibit any person from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or shares of common stock before the completion of the offering.

If you sell or otherwise transfer your rights to subscribe for common stock in the subscription offering or subscribe for common stock on behalf of another person, you may forfeit those rights and face possible further sanctions and penalties imposed by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks or another agency of the U.S. Government. We will pursue any and all legal and equitable remedies if we become aware of the transfer of subscription rights and will not honor orders known by us to involve the transfer of such rights.

Community Offering

To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, we may offer shares in a community offering to the following persons in the following order of priority:

• First priority, to natural persons and trusts of natural persons who are residents of Buncombe, Madison, McDowell, Henderson and Transylvania Counties in North Carolina; and

• Second priority, to other persons to whom we deliver a prospectus.

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We will consider persons to be residents of the above listed counties if they occupy a dwelling in the county and have established an ongoing physical presence in the county that is not merely transitory in nature. We may utilize depositor or loan records or other evidence provided to us to make a determination as to whether a person is a resident of such counties. In all cases, the determination of residence status will be made by us in our sole discretion.

Purchasers in the community offering are eligible to purchase up to $300,000 of common stock (which equals 30,000 shares). If shares are available for preferred subscribers in the community offering but there are insufficient shares to satisfy all orders, the available shares will be allocated first to each preferred subscriber whose order we accept in an amount equal to the lesser of 100 shares or the number of shares ordered by each such subscriber, if possible. After that, unallocated shares will be allocated among the remaining preferred subscribers whose orders remain unsatisfied in the same proportion that the unfilled order of each such subscriber bears to the total unfilled orders of all such subscribers. If, after filling the orders of preferred subscribers in the community offering, shares are available for other subscribers in the community offering but there are insufficient shares to satisfy all orders, shares will be allocated in the same manner as for preferred subscribers.

The community offering, if held, may commence concurrently with, during or after the subscription offering and will terminate no later than 45 days after the close of the subscription offering unless extended by us, with approval of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. If we receive regulatory approval for an extension, all subscribers will be notified of the extension and of the duration of any extension that has been granted, and will have the right to confirm, increase, decrease or rescind their orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be promptly returned with interest.

The opportunity to subscribe for shares of common stock in the community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.

Syndicated Community Offering or Underwritten Public Offering

The plan of conversion provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by Keefe, Bruyette & Woods, Inc., acting as our agent. In such capacity, Keefe, Bruyette & Woods, Inc. may form a syndicate of other brokers-dealers who are member firms of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Alternatively, we may sell any remaining shares in an underwritten public offering. Neither Keefe, Bruyette & Woods, Inc. nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, Keefe, Bruyette & Woods, Inc. has agreed to use its best efforts in the sale of shares in any syndicated community offering. We have not selected any particular broker-dealers to participate in a syndicated community offering and will not do so until before the commencement of the syndicated community offering. The syndicated community offering would terminate no later than 45 days after the expiration of the subscription offering, unless extended by us, with approval of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. See “— Community Offering” above for a discussion of rights of subscribers if an extension is granted.

The opportunity to subscribe for shares of common stock in the syndicated community offering or underwritten public offering is subject to our right in our sole discretion to accept or reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.

Common stock sold in the syndicated community offering also will be sold at the $10.00 per share purchase price. Purchasers in the syndicated community offering are eligible to purchase up to $300,000 of common stock (which equals 30,000 shares). Orders for common stock in the syndicated community offering will be filled first to a maximum of 2% of the total number of shares sold in the offering and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all orders have been filled. However, no fractional shares will be issued. We may begin the syndicated community offering or underwritten public offering at any time following the commencement of the subscription offering.

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Selected dealers, if any, will send confirmations of the orders to customers on the next business day after the order date. Selected dealers will debit the accounts of their customers on the settlement date, which date will be three business days from the order date. Customers who authorize selected dealers to debit their brokerage accounts are required to have the funds for payment in their account on but not before the settlement date. On the settlement date, selected dealers will deposit funds to the account established at Asheville Savings Bank for each selected dealer. Each customer’s funds forwarded to one of these accounts, along with all other accounts held in the same title, will be insured by the Federal Deposit Insurance Corporation in accordance with applicable regulations. After payment has been received by us from selected dealers, funds will earn interest at Asheville Savings Bank’s regular savings rate until the completion or termination of the offering. Funds will be promptly returned, with interest, if the syndicated community offering is not completed. Keefe, Bruyette & Woods, Inc. shall also have the right, in its sole discretion, to permit investors to submit irrevocable orders together with legally binding commitments for payment for shares for which they subscribe at any time before the closing of the offering.

If we are unable to find purchasers from the general public for all unsubscribed shares, we will make other purchase arrangements, if feasible. Other purchase arrangements must be approved by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks and may provide for purchases for investment purposes by directors, officers, their associates and other persons in excess of the limitations provided in the plan of conversion and in excess of the proposed director and executive officer purchases discussed earlier, although no such purchases are currently intended. If other purchase arrangements cannot be made, we may: terminate the stock offering and promptly return all funds; promptly return all funds, set a new offering range and give all subscribers the opportunity to place a new order for shares of ASB Bancorp, Inc. common stock; or take such other actions as may be permitted by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks and the Securities and Exchange Commission.

Limitations on Purchases of Shares

In addition to the purchase limitations described above under “Subscription Offering and Subscription Rights,” “— Community Offering” and “Syndicated Community Offering or Underwritten Public Offering,” the plan of conversion provides for the following purchase limitations:

• Except for our employee stock ownership plan, no person may purchase in the aggregate more than $300,000 of the common stock, or 30,000 shares sold in the offering, subject to increase as described below. In addition, no person, either alone or together with associates of or persons acting in concert with such person, may purchase more than $500,000 of the common stock, or 50,000 shares sold in the offering.

• Our tax-qualified employee benefit plans (other than our 401(k) plan) are entitled to purchase up to 10.0% of the shares sold in the conversion. As a tax- qualified employee benefit plan, our employee stock ownership plan intends to purchase 8.0% of the shares sold in the offering.

• Each subscriber must subscribe for a minimum of 25 shares.

• Our directors and executive officers, together with their associates, may purchase in the aggregate up to     % of the common stock sold in the offering.

We may, in our sole discretion, increase the individual or aggregate purchase limitation to up to 5% of the shares of common stock sold in the offering. We do not intend to increase the maximum purchase limitation unless market conditions warrant. If we decide to increase the purchase limitations, persons who subscribed for the maximum number of shares of common stock will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority subscription rights. We, in our discretion, also may give other large subscribers the right to increase their subscriptions.

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If we increase the maximum purchase limitation to 5% of the shares of common stock sold in the offering, we may further increase the maximum purchase limitation to 9.99%, provided that orders for common stock exceeding 5% of the shares of common stock sold in the offering may not exceed in the aggregate 10% of the total shares of common stock sold in the offering.

The plan of conversion defines “acting in concert” to mean knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not by an express agreement or understanding; or a combination or pooling of voting or other interests in the securities of an issuer for a common purpose under any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon, among other things, joint account relationships or the fact that persons share a common address (whether or not related by blood or marriage) or may have filed joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies. For purposes of the plan of conversion, our directors are not deemed to be acting in concert solely by reason of their Board membership.

The plan of conversion defines “associate,” with respect to a particular person, to mean:

• a corporation or organization other than ASB Bancorp, Inc. or Asheville Savings Bank or a majority-owned subsidiary of ASB Bancorp, Inc. or Asheville Savings Bank of which a person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities of such corporation or organization;

• a trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as a trustee or a fiduciary; and

• any person who is related by blood or marriage to such person and who lives in the same home as such person or who is a director or senior officer of ASB Bancorp, Inc. or Asheville Savings Bank or any of their subsidiaries.

For example, a corporation of which a person serves as an officer would be an associate of that person and, therefore, all shares purchased by the corporation would be included with the number of shares that the person could purchase individually under the aggregate purchase limitation described above. We have the right in our sole discretion to reject any order submitted by a person whose representations we believe to be false or who we otherwise believe, either alone or acting in concert with others, is violating or circumventing, or intends to violate or circumvent, the terms and conditions of the plan of conversion. Directors and officers are not treated as associates of each other solely by virtue of holding such positions. We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.”

Marketing Arrangements

We have retained Keefe, Bruyette & Woods, Inc. as financial advisors to consult with and advise and assist us, on a best efforts basis, in the distribution of shares in the offering. Keefe, Bruyette & Woods, Inc. is a broker-dealer registered with the Securities and Exchange Commission and a member of the FINRA. Keefe, Bruyette & Woods, Inc. will assist us in the conversion by acting as marketing advisor with respect to the subscription offering and will represent us as placement agent on a best efforts basis in the sale of the common stock in the community offering, if held. The services that Keefe, Bruyette & Woods, Inc. will provide include, but are not limited to:

• training our employees who will perform ministerial functions in the subscription offering and community offering regarding the mechanics and regulatory requirements of the stock offering process;

• managing the stock information center by assisting interested stock subscribers and by keeping records of all stock orders;

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• preparing marketing materials; and

• assisting in the solicitation of proxies from Asheville Savings Bank’s members for use at the special meeting.

We have also engaged Keefe, Bruyette & Woods, Inc. to act as our conversion agent in connection with the stock offering. In its role as conversion agent, Keefe, Bruyette & Woods, Inc. will assist us in the stock offering as follows:

• develop a master file and consolidation of accounts;

• generate address lists for the mailing of proxy solicitation and stock offering materials;

• provide software for the operation of the stock information center; and

• subscription order processing and stock allocation services.

For its conversion agent services, Keefe, Bruyette & Woods, Inc. will be paid a fee of $40,000. For its financial advisory services, Keefe, Bruyette & Woods, Inc. will receive a success fee equal to 1.00% of the aggregate dollar amount of the common stock sold in the subscription and community offerings to persons other than the employee stock ownership plan and directors, officers and employees of Asheville Savings Bank or their immediate families. We have paid Keefe, Bruyette & Woods, Inc. a management fee of $40,000 that will be applied against the success fee. We will reimburse Keefe, Bruyette & Woods, Inc. for its expenses, not to exceed $25,000, associated with its marketing effort; provided, however, that Keefe, Bruyette & Woods, Inc. will be entitled to an additional expense reimbursement not to exceed $25,000 in the event of a resolicitation or material delay in the offering. In addition, Keefe, Bruyette & Woods, Inc. will be reimbursed for fees and expenses of its counsel not to exceed $75,000. If there is a syndicated community offering, the total fees paid to Keefe, Bruyette & Woods, Inc. and other FINRA member firms in the syndicated community offering will not exceed 6.0% of the aggregate dollar amount of the common stock sold in the syndicated community offering.

Keefe, Bruyette & Woods, Inc. has not prepared any report or opinion constituting a recommendation or advice to us or to persons who subscribe for stock, nor has it prepared an opinion as to the fairness to us of the purchase price or the terms of the stock to be sold. Keefe, Bruyette & Woods, Inc. expresses no opinion as to the prices at which common stock to be issued may trade. Keefe, Bruyette & Woods, Inc. and selected dealers participating in the syndicated community offering may receive a commission in the syndicated community offering in a maximum amount to be agreed upon by us to reflect market requirements at the time of the allocation of shares in the syndicated community offering.

We have also agreed to indemnify Keefe, Bruyette & Woods, Inc. against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933 and the performance of Keefe, Bruyette & Woods, Inc. of its services in connection with the conversion.

Description of Sales Activities

ASB Bancorp, Inc. will offer the common stock in the subscription offering and community offering by the distribution of this prospectus and through activities conducted at the stock information center. The stock information center is expected to operate during normal business hours throughout the subscription offering and any community offering. It is expected that at any particular time one or more Keefe, Bruyette & Woods, Inc. employees will be working at the stock information center. Employees of Keefe, Bruyette & Woods, Inc. will be responsible for responding to questions regarding the conversion and the offering and processing stock orders.

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Sales of common stock will be made by registered representatives affiliated with Keefe, Bruyette & Woods, Inc. or by the selected dealers managed by Keefe, Bruyette & Woods, Inc. Asheville Savings Bank’s officers and employees may participate in the offering in clerical capacities, providing administrative support in effecting sales transactions or, when permitted by state securities laws, answering questions of a mechanical nature relating to the proper execution of the order form. Asheville Savings Bank’s officers may answer questions regarding our business when permitted by state securities laws. Other questions of prospective purchasers, including questions as to the advisability or nature of the investment, will be directed to registered representatives. Asheville Savings Bank’s officers and employees have been instructed not to solicit offers to purchase common stock or provide advice regarding the purchase of common stock.

No officer, director or employee of Asheville Savings Bank will be compensated, directly or indirectly, for any activities in connection with the offer or sale of common stock in the offering.

None of Asheville Savings Bank’s personnel participating in the offering is registered or licensed as a broker or dealer or an agent of a broker or dealer. Asheville Savings Bank’s personnel will assist in the above-described sales activities under an exemption from registration as a broker or dealer provided by Rule 3a4-l promulgated under the Securities Exchange Act of 1934. Rule 3a4-l generally provides that an “associated person of an issuer” of securities will not be deemed a broker solely by reason of participation in the sale of securities of the issuer if the associated person meets certain conditions. These conditions include, but are not limited to, that the associated person participating in the sale of an issuer’s securities not be compensated in connection with the offering at the time of participation, that the person not be associated with a broker or dealer and that the person observe certain limitations on his or her participation in the sale of securities. For purposes of this exemption, “associated person of an issuer” is defined to include any person who is a director, officer or employee of the issuer or a company that controls, is controlled by or is under common control with the issuer.

Procedure for Purchasing Shares in the Subscription and Community Offerings

Use of Order Forms. To purchase shares in the subscription offering, a properly completed and executed order form must be received (not postmarked) by us at the address printed at the top of the stock order form or at our stock information center, by 12:00 noon, Eastern time, on                     . Your order form must be accompanied by full payment for all of the shares subscribed for or include appropriate authorization in the space provided on the order form for withdrawal of full payment from a deposit account with Asheville Savings Bank. To purchase shares in the community offering, you must deliver a properly completed and executed order form to us, accompanied by the required payment for each share subscribed for, before the community offering terminates, which may be on, or at any time after, the end of the subscription offering. Our interpretation of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final.

To ensure that your stock purchase eligibility and priority are properly identified, you must list all accounts on the order form, giving all names in each account and the account number. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest. Failure to list all of your accounts may result in fewer shares being allocated to you than if all of your accounts were listed.

We need not accept order forms that are received after the expiration of the subscription offering or community offering, as the case may be, or that are executed defectively or that are received without full payment or without appropriate withdrawal instructions. In addition, we are not obligated to accept orders submitted on photocopied or facsimilied stock order forms. We have the right to waive or permit the correction of incomplete or improperly executed order forms, but do not represent that we will do so. Under the plan of conversion, our interpretation of the terms and conditions of the plan of conversion and of the order form will be final. Once received, an executed order form may not be modified, amended or rescinded without our consent unless the offering has not been completed within 45 days after the end of the subscription offering.

A regulatorily mandated certification form is incorporated into the stock order and certification form. We will not accept order forms where the certification form is not executed. By executing and returning the stock order and certification form, you will be certifying that you received this prospectus and acknowledging that the common stock is not a deposit account and is not insured or guaranteed by the federal government. You also will be acknowledging that you received disclosure concerning the risks involved in this offering. The certification form could be used as support to show that you understand the nature of this investment.

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To ensure that each purchaser in the subscription and community offering receives a prospectus at least 48 hours before the end of the subscription and community offering, as required by Rule 15c2-8 under the Securities Exchange Act of 1934, as amended, no prospectus will be mailed any later than five days before that date or hand delivered any later than two days before that date. Execution of the order form will confirm receipt or delivery under Rule 15c2-8. Order forms will be distributed only when preceded or accompanied by a prospectus.

Payment for Shares. Payment for subscriptions may be made by check, bank draft or money order, or by authorization of withdrawal from savings or certificate of deposit accounts maintained with Asheville Savings Bank. Funds received before the completion of the offering will be maintained in a segregated account at Asheville Savings Bank. All checks, bank drafts and money orders must be made payable to ASB Bancorp, Inc. in compliance with Securities and Exchange Commission Rule 15c2-4. However, we will not maintain more than one escrow account. All subscriptions received will bear interest at Asheville Savings Bank’s statement savings rate, which is currently 0.31% per annum. Subscribers’ funds will be transmitted to the segregated account no later than noon of the next business day where they will be invested in investments that are permissible under Securities and Exchange Commission Rule 15c2-4. Appropriate means by which withdrawals may be authorized are provided on the order form. No wire transfers or third party checks will be accepted. Interest will be paid on payments made by check, bank draft or money order at our statement savings rate from the date payment is received at the stock information center until the completion or termination of the offering. Payment in cash will not be accepted unless the cash is converted into a bank check or money order. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the offering, but a hold will be placed on the funds, making them unavailable to the depositor until completion or termination of the offering. When the offering is completed, the funds received in the offering will be used to purchase the shares of common stock ordered. The shares of common stock issued in the offering cannot and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. If the offering is not consummated for any reason, all funds submitted will be promptly refunded with interest as described above.

If a subscriber authorizes us to withdraw the amount of the purchase price from his or her deposit account, we will do so as of the completion of the offering, though the account must contain the full amount necessary for payment at the time the subscription order is received. We will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time funds are actually transferred under the authorization, the certificate will be canceled at the time of the withdrawal, without penalty, and the remaining balance will earn interest at our statement savings rate.

The employee stock ownership plan will not be required to pay for the shares subscribed for at the time it subscribes, but will pay for shares of common stock subscribed for upon the completion of the offering; provided that there is in force from the time of its subscription until the completion of the offering a loan commitment from an unrelated financial institution or from us to lend to the employee stock ownership plan, at that time, the aggregate purchase price of the shares for which it subscribed.

We may, in our sole discretion, permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for such shares of common stock for which they subscribe in the community offering at any time before the 48 hours before the completion of the offering. This payment may be made by wire transfer.

Our individual retirement accounts (“IRAs”) do not permit investment in common stock. A depositor interested in using his or her IRA funds to purchase common stock must do so through a self-directed IRA. Since we do not offer those accounts, we will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee offering a self-directed IRA program with the agreement that the funds will be used to purchase our common stock in the offering. There will be no early withdrawal or Internal Revenue Service interest penalties for such transfers. The new trustee would hold the common stock in a self-directed account in the same manner as we now hold the depositor’s IRA funds. An annual administrative fee may be payable to the new trustee. Depositors interested in using funds in an IRA with us to purchase common stock should contact the conversion center as soon as possible for further information. In addition, federal laws and regulations require that officers, directors and 10% shareholders who use self-directed IRA funds to purchase shares of common stock in the subscription offering, make purchases for the exclusive benefit of IRAs.

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How We Determined the Offering Range and the $10.00 Per Share Purchase Price

Federal regulations require that the aggregate purchase price of the securities sold in connection with the offering be based upon our estimated pro forma value, as determined by an independent appraisal. We have retained Feldman Financial Advisors, Inc., which is experienced in the evaluation and appraisal of business entities, to prepare the independent appraisal. Feldman Financial will receive fees totaling $50,000 for its appraisal services, plus $10,000 for each appraisal valuation update other than the required final valuation update at closing, and a maximum of $3,500 for reimbursement of out-of-pocket expenses. We have agreed to indemnify Feldman Financial and its employees and affiliates for certain costs and expenses, including reasonable legal fees arising out of, related to, or based upon the offering and due to any misstatement or untrue statement or intentional omission by Asheville Savings Bank.

Feldman Financial prepared the appraisal taking into account the pro forma impact of the offering. For its analysis, Feldman Financial undertook substantial investigations to learn about our business and operations. We supplied financial information, including annual financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, Feldman Financial reviewed our conversion application as filed with the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks and our registration statement as filed with the Securities and Exchange Commission. Furthermore, Feldman Financial visited our facilities and had discussions with our management. Feldman Financial did not perform a detailed individual analysis of the separate components of our assets and liabilities. We did not impose any limitations on Feldman Financial in connection with its appraisal.

In connection with its appraisal, Feldman Financial reviewed the following factors, among others:

• our present and projected operating results and financial condition;

• the economic and demographic conditions of our primary market area;

• pertinent historical financial and other information relating to Asheville Savings Bank;

• a comparative evaluation of our operating and financial statistics with those of other thrift institutions;

• the proposed price per share;

• the aggregate size of the offering of common stock;

• the impact of the conversion on our capital position and earnings potential; and

• the trading market for securities of comparable institutions and general conditions in the market for such securities.

Consistent with Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks appraisal guidelines, Feldman Financial’s analysis utilized three selected valuation procedures, the price/tangible book method, the price/core earnings method, and the price/assets method, all of which are described in its report. Feldman Financial’s appraisal report is filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.” Feldman Financial placed the greatest emphasis on the price/core earnings and price/tangible book methods in estimating pro forma market value. Feldman Financial compared the pro forma price/tangible book and price/core earnings ratios for ASB Bancorp, Inc. to the same ratios for a peer group of comparable companies. The peer group included companies with:

• average assets of $756.5 million;

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• average non-performing assets of 3.32% of total assets;

• average net loans of 68.3% of total assets;

• average equity of 10.46% of total assets; and

• average core income of 0.24% of average assets.

On the basis of the analysis in its report, Feldman Financial has advised us that, in its opinion, as of May 9, 2011, our estimated pro forma market value was within the valuation range of $53.6 million and $72.5 million with a midpoint of $63.0 million.

The following table presents a summary of selected pricing ratios for ASB Bancorp, Inc., for the peer group companies and for all publicly traded thrifts. Compared to the average pricing ratios of the peer group, ASB Bancorp, Inc.’s pro forma pricing ratios at the maximum of the offering range indicated discount of 18.69% on a price-to-book value basis.

	Price to  Core Earnings Multiple (1)		Price to Book Value  Ratio (2)			Price to Tangible Book Value Ratio (2)
ASB Bancorp, Inc. (pro forma):
Minimum		N.M.		49.3	%		49.3	%
Midpoint		N.M.		53.9			53.9
Maximum		N.M.		57.9			57.9
Maximum, as adjusted		N.M.		62.0			62.0
Peer Group:
Average		22.5x		66.6			68.8
Median		19.0		67.2			72.5
All publicly-traded thrift:
Average		24.7		80.8			87.2
Median		17.1		82.3			85.1

N.M. means not meaningful.

(1) Ratios are based on earnings for the twelve months ended March 31, 2011, and share prices as of May 9, 2011.

(2) Ratios are based on book value as of March 31, 2011, and share prices as of May 9, 2011.

The pro forma information presented under “Pro Forma Data” reflects an estimated expense for the equity incentive plan that may be adopted by ASB Bancorp, Inc. and the resulting effect on the pro forma price-to-earnings multiples for ASB Bancorp, Inc.

Our board of directors reviewed Feldman Financial’s appraisal report, including the methodology and the assumptions used by Feldman Financial, and determined that the valuation range was reasonable and adequate. Assuming that the shares are sold at $10.00 per share in the conversion, the estimated number of shares would be between 5,355,000 at the minimum of the valuation range and 7,245,000 at the maximum of the valuation range, with a midpoint of 6,300,000. The purchase price of $10.00 per share was determined by us, taking into account, among other factors, the requirement under Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock and desired liquidity in the common stock after the offering.

Since the outcome of the offering relates in large measure to market conditions at the time of sale, it is not possible for us to determine the exact number of shares that we will issue at this time. The offering range may be amended, with the approval of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, if necessitated by developments following the date of the appraisal in, among other things, market conditions, our financial condition or operating results, regulatory guidelines or national or local economic conditions.

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If, upon completion of the subscription offering, at least the minimum number of shares are subscribed for, Feldman Financial, after taking into account factors similar to those involved in its prior appraisal, will determine its estimate of our pro forma market value as of the close of the subscription offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, Feldman Financial determines that our pro forma market value has increased, we may sell up to 8,331,750 shares without any further notice to you.

No shares will be sold unless Feldman Financial confirms that, to the best of its knowledge and judgment, nothing of a material nature has occurred that would cause it to conclude that the actual total purchase price of the shares on an aggregate basis was materially incompatible with its appraisal. If, however, the facts do not justify that statement, we may either: terminate the stock offering and promptly return all funds; set a new offering range, notify all subscribers and give them the opportunity to place a new order for shares of ASB Bancorp, Inc. common stock; or take such other actions as may be permitted by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. If the offering is terminated all subscriptions will be cancelled and subscription funds will be returned promptly with interest, and holds on funds authorized for withdrawal from deposit accounts will be released or reduced. If Feldman Financial establishes a new valuation range, it must be approved by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks.

In formulating its appraisal, Feldman Financial relied upon the truthfulness, accuracy and completeness of all documents we furnished to it. Feldman Financial also considered financial and other information from regulatory agencies, other financial institutions, and other public sources, as appropriate. While Feldman Financial believes this information to be reliable, Feldman Financial does not guarantee the accuracy or completeness of the information and did not independently verify the consolidated financial statements and other data provided by us nor independently value our assets or liabilities. The appraisal is not intended to be, and must not be interpreted as, a recommendation of any-kind as to the advisability of purchasing shares of common stock. Moreover, because the appraisal must be based on many factors that change periodically, there is no assurance that purchasers of shares in the offering will be able to sell shares after the offering at prices at or above the purchase price.

Copies of the appraisal report of Feldman Financial, including any amendments to the report, and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at our main office and the other locations specified under “Where You Can Find More Information.”

Delivery of Certificates

Certificates representing the common stock sold in the offering will be mailed by our transfer agent to the persons whose subscriptions or orders are filled at the addresses of such persons appearing on the stock order form as soon as practicable following completion of the offering. We will hold certificates returned as undeliverable until claimed by the persons legally entitled to the certificates or otherwise disposed of in accordance with applicable law. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock may have commenced.

Restrictions on Repurchase of Stock

Under current Federal Deposit Insurance Corporation regulations, we may not for a period of one year from the date of the completion of the offering repurchase any of our common stock from any person, except (1) in an offer made to all shareholders to repurchase the common stock on a pro rata basis, approved by the Federal Deposit Insurance Corporation, (2) the repurchase of qualifying shares of a director, or (3) repurchases to fund restricted stock plans or tax-qualified employee stock benefit plans. Where extraordinary circumstances exist, the Federal Deposit Insurance Corporation may approve the open market repurchase of up to 5% of our common stock during the first year following the offering. To receive such approval, we must establish compelling and valid business purposes for the repurchase to the satisfaction of the Federal Deposit Insurance Corporation. Furthermore, repurchases of any common stock are prohibited if they would cause Asheville Savings Bank’s regulatory capital to be reduced below the amount required under the regulatory capital requirements imposed by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks.

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Restrictions on Transfer of Shares After the Conversion Applicable to Officers and Directors

Common stock purchased in the offering will be freely transferable, except for shares purchased by our directors and executive officers.

Shares of common stock purchased by our directors and executive officers may not be sold for a period of one year following the offering, except upon the death of the shareholder or unless approved by the Federal Deposit Insurance Corporation. Shares purchased by these persons in the open market after the offering will be free of this restriction. Shares of common stock issued to directors and executive officers will bear a legend giving appropriate notice of the restriction and, in addition, we will give appropriate instructions to our transfer agent with respect to the restriction on transfers. Any shares issued to directors and executive officers as a stock dividend, stock split or otherwise with respect to restricted common stock will be similarly restricted.

Persons affiliated with us, including our directors and executive officers, received subscription rights based only on their deposits with Asheville Savings Bank as account holders. Any purchases made by persons affiliated with us for the explicit purpose of meeting the minimum of the offering must be made for investment purposes only, and not with a view towards redistribution. Furthermore, as set forth above, federal regulations restrict sales of common stock purchased in the offering by directors and executive officers for a period of one year following the offering.

Purchases of outstanding shares of our common stock by directors, officers, or any person who becomes an executive officer or director after adoption of the plan of conversion, and their associates, during the three-year period following the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Federal Deposit Insurance Corporation. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to the purchase of stock under stock benefit plans.

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the common stock to be issued in the offering. This registration does not cover the resale of the shares. Shares of common stock purchased by persons who are not affiliates of us may be resold without registration. Shares purchased by an affiliate of us will have resale restrictions under Rule 144 of the Securities Act. If we meet the current public information requirements of Rule 144, each affiliate of ours who complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares or the average weekly volume of trading in the shares during the preceding four calendar weeks. We may make future provision to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances.

Interpretation, Amendment and Termination

To the extent permitted by law, all interpretations by us of the plan of conversion will be final; however, such interpretations have no binding effect on the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The plan of conversion provides that, if deemed necessary or desirable, we may substantively amend the plan of conversion as a result of comments from regulatory authorities or otherwise.

Completion of the offering requires the sale of all shares of the common stock within 90 days following approval of the plan of conversion by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks, unless an extension is granted by the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. If this condition is not satisfied, the plan of conversion will be terminated and we will continue our business as a federal mutual savings bank. We may terminate the plan of conversion at any time.

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RESTRICTIONS ON THE ACQUISITION OF

ASB BANCORP, INC. AND ASHEVILLE SAVINGS BANK

General

Asheville Savings Bank’s plan of conversion provides for the conversion of Asheville Savings Bank from the mutual to the stock form of organization and, as part of the conversion, the adoption of a new amended and restated articles of incorporation and stock bylaws by Asheville Savings Bank’s members. The plan of conversion also provides for the concurrent formation of a holding company. As described below and elsewhere in this document, certain provisions in ASB Bancorp, Inc.’s articles of incorporation and bylaws may have anti-takeover effects. In addition, provisions in Asheville Savings Bank’s amended and restated articles of incorporation and stock bylaws may also have anti-takeover effects. Finally, North Carolina corporate law and regulatory restrictions may make it difficult for persons or companies to acquire control of either ASB Bancorp, Inc. or Asheville Savings Bank.

Anti-takeover Provisions in ASB Bancorp, Inc.’s Articles of Incorporation and Bylaws

ASB Bancorp, Inc.’s articles of incorporation and bylaws contain provisions that could make more difficult an acquisition of ASB Bancorp, Inc. by means of a tender offer, proxy contest or otherwise. Some provisions will also render the removal of the incumbent board of directors or management of ASB Bancorp, Inc. more difficult. These provisions may have the effect of deterring a future takeover attempt that is not approved by the directors of ASB Bancorp, Inc., but which ASB Bancorp, Inc. shareholders may deem to be in their best interests or in which shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders who might desire to participate in such a transaction may not have the opportunity to do so. The following description of these provisions is only a summary and does not provide all of the information contained in ASB Bancorp, Inc.’s articles of incorporation and bylaws. See “Where You Can Find More Information” for information on where to obtain a copy of these documents.

Business Combinations with Interested Shareholders. The articles of incorporation of ASB Bancorp, Inc. require the approval of the holders of at least 80% of ASB Bancorp, Inc.’s outstanding shares of voting stock entitled to vote to approve certain “business combinations” with an “interested shareholder.” This supermajority voting requirement will not apply in cases where the proposed transaction has been approved by a majority of those members of ASB Bancorp, Inc.’s board of directors who are unaffiliated with the interested shareholder and who were directors before the time when the interested shareholder became an interested shareholder or if the proposed transaction meets certain conditions that are designed to afford the shareholders a fair price in consideration for their shares. In each such case, where shareholder approval is required, the approval of only a majority of the outstanding shares of voting stock is sufficient.

Under ASB Bancorp, Inc.’s articles of incorporation, the term “interested shareholder” includes any individual, group acting in concert, corporation, partnership, association or other entity (other than ASB Bancorp, Inc. or its subsidiary) who or which (i) is the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of voting stock of ASB Bancorp, Inc.; (ii) is an affiliate of ASB Bancorp, Inc. and at any time within the two-year period immediately before the date in question was the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of voting stock of ASB Bancorp, Inc.; or (iii) is an assignee of or has otherwise succeeded to any shares of the outstanding shares of voting stock of ASB Bancorp, Inc. which were at any time within the two-year period immediately before the date in question beneficially owned by any interested shareholder, if such assignment or succession shall have occurred in the ordinary course of a transaction or series of transactions not involving a public offering within the meanings of the Securities Act of 1933, as amended.

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A “business combination” includes, but is not limited to:

• any merger or consolidation of ASB Bancorp, Inc. or any of its subsidiaries with (i) any interested shareholder or (ii) any corporation (whether or not itself is an interested shareholder) which is, or after such merger or consolidation would be, an affiliate of an interested shareholder;

• any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with any interested shareholder, or affiliate of an interested shareholder, of 25% or more of the assets of ASB Bancorp, Inc. or combined assets of ASB Bancorp, Inc. and its subsidiaries;

• the issuance or transfer by ASB Bancorp, Inc. or any of its subsidiaries of any securities of ASB Bancorp, Inc. or any of its subsidiaries to any interested shareholder or any affiliate of any interested shareholder in exchange for cash, securities or other property having an aggregate fair market value equaling or exceeding 25% of the combined fair market value of the outstanding common stock of ASB Bancorp, Inc., except for any issuance or transfer pursuant to an employee benefit plan of ASB Bancorp, Inc. or any of its subsidiaries;

• the adoption of any plan for the liquidation or dissolution of ASB Bancorp, Inc. proposed by or on behalf of any interested shareholder or any affiliate or associate of such interested shareholder; or

• any reclassification of securities, or recapitalization for ASB Bancorp, Inc., or any merger or consolidation of ASB Bancorp, Inc. with any of its subsidiaries or any other transaction (whether or not into or otherwise involving an interested shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of ASB Bancorp, Inc. or any of its subsidiaries which is directly or indirectly owned by any interested shareholder or any affiliate of any interested shareholder.

This provision is designed to afford anti-takeover protection by encouraging potential acquirors to negotiate with the board of directors and discouraging non-negotiated takeover attempts. It also discourages “creeping tender offer” takeovers, whereby an acquiror accumulates stock over time, building to a controlling position, and then makes a tender offer for the remaining shares often at a reduced price. Under North Carolina law, absent this provision, business combinations, including mergers, share exchanges, and sales of substantially all of the assets of ASB Bancorp, Inc. must generally be approved by the vote of the holders of a majority of the outstanding shares of common stock of ASB Bancorp, Inc. and any other affected class of stock. The supermajority vote requirement to approve a business combination may have the effect of foreclosing a business combination which a majority of shareholders deem desirable by placing the power to prevent a transaction in the hands of a minority of ASB Bancorp, Inc.’s shareholders.

Limitation on Voting Rights. The articles of incorporation of ASB Bancorp, Inc. provide that in no event shall any person, who directly or indirectly beneficially owns in excess of 10% of the then-outstanding shares of common stock as of the record date for the determination of shareholders entitled or permitted to vote on any matter (the “10% limit”), be entitled or permitted to any vote in respect of the shares held in excess of the 10% limit. Beneficial ownership is determined pursuant to the federal securities laws and includes, but is not limited to, shares as to which any person and his or her affiliates (1) have the right to acquire upon the exercise of conversion rights, exchange rights, warrants or options and (2) have or share investment or voting power, but shall not be deemed the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of shareholders, and that are not otherwise beneficially, or deemed by ASB Bancorp, Inc. to be beneficially, owned by such person and his or her affiliates.

The foregoing restriction does not apply to:

• any underwriter or member of an underwriting or selling group involving a public sale or resale of securities of ASB Bancorp, Inc. or any subsidiary; provided, however, that upon completion of the sale of such securities, no such underwriter or member of such selling group is a beneficial owner of more than 10% of any class of equity security of ASB Bancorp, Inc.;

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• any proxy granted to one or more disinterested directors by a shareholder of ASB Bancorp, Inc.;

• any employee benefit plans of ASB Bancorp, Inc. or any subsidiary; and

• any transaction approved in advance by a majority of such disinterested directors.

This provision is designed to afford anti-takeover protection by discouraging shareholders from acquiring more than 10% of ASB Bancorp, Inc.’s outstanding common stock and, for those shareholders who do acquire more than the 10% limit, by restricting their ability to influence the outcome of a shareholder vote. Absent this provision, under North Carolina law a shareholder would generally be permitted to vote all of the shares of ASB Bancorp, Inc. common stock he or she owns, regardless of whether such holdings exceed 10% of ASB Bancorp, Inc.’s outstanding common stock. The limitation on voting rights included in ASB Bancorp, Inc.’s articles of incorporation may have the effect of preventing greater than 10% shareholders from voting all of their shares in favor of a proposed transaction or a nominee for director that the board of directors of ASB Bancorp, Inc. may oppose.

Evaluation of Offers. The articles of incorporation of ASB Bancorp, Inc. provides that its board of directors, when evaluating a transaction that would or may involve a change in control of ASB Bancorp, Inc. (including a tender or exchange offer, merger or consolidation or sale of all or substantially all of the assets of ASB Bancorp, Inc.), may, in connection with the exercise of its judgment in determining what is in the best interest of ASB Bancorp, Inc. and its shareholders, give consideration to the following factors:

• the social and economic effects of the transaction on ASB Bancorp, Inc., its subsidiaries, employees, depositors, loan and other customers and creditors and the other elements of the communities in which ASB Bancorp, Inc. and its subsidiaries operate or are located;

• the business and financial condition and earnings prospects of the acquiring person or entity, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition and other likely financial obligations of the acquiring person or entity, and the possible effect of such conditions upon ASB Bancorp, Inc. and its subsidiaries and the other elements of the communities in which ASB Bancorp, Inc. and its subsidiaries operate or are located; and

• the competence, experience and integrity of the acquiring person or entity and its or their management.

This provision is designed to afford anti-takeover protection by providing the board of directors of ASB Bancorp, Inc. the latitude to consider additional factors, aside from the price of a proposed merger or other business combination, in determining whether the transaction is in the best interests of ASB Bancorp, Inc. and its shareholders. By having these standards in the articles of incorporation of ASB Bancorp, Inc., the board of directors may be in a stronger position to oppose such a transaction if the Board concludes that the transaction would not be in the best interest of ASB Bancorp, Inc., even if the price offered is significantly greater than the then market price of any equity security of ASB Bancorp, Inc.

Classified Board of Directors. The articles of incorporation and bylaws of ASB Bancorp, Inc. require that the board of directors be divided into three classes as nearly equal in number as possible and that the members of each class be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually. This provision is designed to afford anti-takeover protection by making it more difficult and time consuming for a shareholder group to fully change the composition of the board of directors because the provision prevents shareholders from effecting a change in the composition of the entire board of directors at a single annual meeting of shareholders.

Director Vacancies. The articles of incorporation and bylaws of ASB Bancorp, Inc. provide that any vacancy occurring in the board of directors, however caused, may be filled by an affirmative vote of the majority of the directors then in office, whether or not a quorum is present, and any director so chosen shall hold office only until the next annual meeting of shareholders at which directors are elected. This provision is designed to afford anti-takeover protection by preventing shareholders from filling board vacancies with their own nominees.

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Qualification of Directors. The bylaws of ASB Bancorp, Inc. provide that to be eligible for election, re-election or appointment to the board of directors a person must:

(1) be no older than 70 years of age; and

(2) not have been: (i) under indictment for, or have ever been convicted of, a criminal offense involving dishonesty or breach of trust and for which the penalty for such offense could be imprisonment for more than one year; (ii) a person who a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal; or (iii) found by either a regulatory agency whose decision is final and not subject to appeal or by a court to have (a) breached a fiduciary duty involving personal profit or (b) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency.

In addition, the bylaws of ASB Bancorp, Inc. also provide that a majority of the directors of ASB Bancorp, Inc. must reside, work or maintain a place of business in the State of North Carolina.

These provisions are designed to afford anti-takeover protection through perpetuating the terms of incumbent directors by preventing some individuals from serving as a director.

Removal of Directors. The articles of incorporation of ASB Bancorp, Inc. provides that any director may be removed by shareholders only for cause upon the affirmative vote of the holders of not less than a majority of the votes cast at a meeting of the shareholders called for that purpose, except as otherwise required by law. Absent this provision, under North Carolina law, a director may be removed with or without cause by a a majority of the votes cast at a meeting of the shareholders called for that purpose. The requirement that directors may only be removed for cause is designed to afford anti-takeover protection by perpetuating the terms of incumbent directors by making it more difficult for shareholders to remove directors and replace them with their own nominees.

Cumulative Voting. The articles of incorporation of ASB Bancorp, Inc. does not provide for cumulative voting for any purpose. The absence of cumulative voting may afford anti-takeover protection by preventing a shareholder from casting a number of votes equal to the number of shares owned multiplied by the number of board seats up for election all for or against a single nominee for election as director. As a result, the absence of cumulative voting may make it more difficult for shareholders to elect nominees opposed by the board of directors of ASB Bancorp, Inc.

Special Meetings of Shareholders. The articles of incorporation of ASB Bancorp, Inc. contain a provision pursuant to which special meetings of the shareholders of ASB Bancorp, Inc. may only be called by the board of directors pursuant to a resolution adopted by a majority of the total number of directors which ASB Bancorp, Inc. would have if there were no vacancies on the board of directors. This provision is designed to afford anti-takeover provision by ensuring that only the board of directors of ASB Bancorp, Inc. may call a special meeting of shareholders to consider a proposed merger or other business combination. As a result, a majority of ASB Bancorp, Inc.’s shareholders would be prohibited from calling a special meeting of shareholders to vote on a proposed transaction that is opposed by the board of directors.

Advance Notice Provisions for Shareholder Nominations and Proposals. ASB Bancorp, Inc.’s bylaws establish an advance notice procedure for shareholders to nominate directors or bring other business before an annual meeting of shareholders of ASB Bancorp, Inc. A person may not be nominated for election as a director unless that person is nominated by or at the direction of the ASB Bancorp, Inc. board of directors or by a shareholder who has given appropriate notice to ASB Bancorp, Inc. before the meeting. Similarly, a shareholder may not bring business before an annual meeting unless the shareholder has given ASB Bancorp, Inc. appropriate notice of its intention to bring that business before the meeting. ASB Bancorp, Inc.’s secretary must receive notice of the nomination or proposal not less than 90 days before the annual meeting; provided, however, that if less than

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100 days’ notice of prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder who desires to raise new business must provide certain information to ASB Bancorp, Inc. concerning the nature of the new business, the shareholder and the shareholder’s interest in the business matter. Similarly, a shareholder wishing to nominate any person for election as a director must provide ASB Bancorp, Inc. with certain information concerning the nominee and the proposing shareholder.

Advance notice of nominations or proposed business by shareholders gives ASB Bancorp, Inc.’s board of directors time to consider the qualifications of the proposed nominees, the merits of the proposals and, to the extent deemed necessary or desirable by the board of directors, to inform shareholders and make recommendations about those matters.

Authorized Shares and Preferred Stock. The articles of incorporation of ASB Bancorp, Inc. authorize the issuance of sixty million (60,000,000) shares of commons stock and ten million (10,000,000) shares of preferred stock. The shares of common stock and preferred stock were authorized in an amount greater than that to be issued in the conversion to provide the board of directors of ASB Bancorp, Inc. with the flexibility to effect, among other transactions, capital raising transactions, stock dividends and stock splits. However, these additional authorized shares may also be issued by the board of directors, without shareholder approval and consistent with its fiduciary duties, to deter future attempts to gain control of ASB Bancorp, Inc. by making a potential change in control transaction more expensive to consummate. The articles of incorporation of ASB Bancorp, Inc. also authorize ASB Bancorp, Inc.’s board of directors to, without shareholder approval, establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates, and liquidation preferences. Although ASB Bancorp, Inc.’s board of directors has no intention at the present time of doing so, it could issue a series of preferred stock that could, depending on its terms, impede a merger, tender offer or other takeover attempt by making such a transaction more expensive to consummate. ASB Bancorp, Inc.’s board of directors will make any determination to issue shares with those terms based on its judgment as to the best interests of ASB Bancorp, Inc. and its shareholders.

Amendment of Governing Instruments. The articles of incorporation of ASB Bancorp, Inc. generally may be amended by the holders of a majority of the shares entitled to vote; provided, however, that any amendment of Articles VII (Repurchase of Shares), IX (Removal of Directors), X (Elimination of Directors’ Liability), XI (Indemnification), XII (Limitations on Voting Common Stock), XIII (Approval of Business Combinations), XIV (Evaluations of Business Combinations), XV (Special Meeting of Shareholders), XVII (Amendment of Bylaws) and XVIII (Amendment of Articles of Incorporation) of the articles of incorporation must be approved by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote, except that the board of directors may amend the articles of incorporation without any action by the shareholders to increase or decrease the aggregate number of shares of capital stock. The bylaws of ASB Bancorp, Inc. may be amended by the majority vote of the board of directors or by the affirmative vote of the holders of at least 80% of the outstanding shares of ASB Bancorp, Inc. capital stock entitled to vote. These supermajority voting provisions are designed to afford anti-takeover protection by making it more difficult for shareholders to amend or eliminate the sections of ASB Bancorp, Inc.’s articles of incorporation or bylaws that are designed to provide enhanced safeguards against takeover threats. Absent these supermajority voting requirements, under North Carolina law, these sections of the articles of incorporation and bylaws may generally be amended by a majority of the holders of ASB Bancorp, Inc.’s common stock.

Restrictions in North Carolina Corporate Law

North Carolina law contains certain provisions, described below, which may be applicable to ASB Bancorp, Inc. upon consummation of the conversion.

North Carolina Control Share Acquisitions. The North Carolina Control Share Acquisition Act, in general, provides that shares of ASB Bancorp, Inc.’s voting stock acquired in a “control share acquisition” will have no voting rights unless those rights are granted by resolution adopted by the holders of at least a majority of ASB Bancorp, Inc.’s outstanding shares entitled to vote in the election of directors, excluding shares held by the person who has acquired or proposes to acquire the control shares and excluding shares held by officers or directors of ASB

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Bancorp, Inc. who also employees of ASB Bancorp, Inc. “Control Shares” are defined under North Carolina law as shares acquired by any person which, when added to any other shares already owned by that person, would entitle the person (except for the application of the Control Share Acquisition Act) to voting power in the election of our directors equal to or greater than (1) one-fifth of all voting power, (2) one-third of all voting power, or (3) a majority of all voting power. “Control share acquisition” is defined under North Carolina law, subject to certain exceptions, as the acquisition by a person of beneficial ownership of control shares. Among others, exceptions to the definition include a purchase of shares directly from ASB Bancorp, Inc., and an acquisition pursuant to the laws of descent and distribution or in a transaction pursuant to an agreement to which ASB Bancorp, Inc. is a party.

North Carolina Shareholder Protection Act. The North Carolina Shareholder Protection Act generally provides that, unless the transaction satisfies certain minimum fair price (as compared to market price, earnings per share and the price paid for shares by the acquiror) and procedural requirements, the affirmative vote of the holders of 95% of the voting shares of a corporation is necessary to adopt or authorize a business combination with any other entity, if that entity is the beneficial owner, directly or indirectly, of more than 20% of the voting shares of the corporation. The Shareholder Protection Act applies to all North Carolina corporations that have not expressly opted out of its provisions in their articles of incorporation or bylaws. ASB Bancorp, Inc. has opted out of the provisions of the North Carolina Shareholder Protection Act in its bylaws.

Restrictions in Asheville Savings Bank’s Articles of Incorporation and Bylaws

Although the board of directors of Asheville Savings Bank is not aware of any effort that might be made to obtain control of Asheville Savings Bank after its conversion to the stock form of ownership, the board of directors believes it is appropriate to adopt certain provisions permitted that may have the effect of deterring a future takeover attempt that is not approved by Asheville Savings Bank’s board of directors. The following description of these provisions is only a summary and does not provide all of the information contained in Asheville Savings Bank’s amended and restated articles of incorporation and bylaws.

Board of Directors.

Classified Board. Asheville Savings Bank’s board of directors is divided into three classes as nearly as equal in number as possible. The shareholders elect one class of directors each year for a term of three years. The classified board makes it more difficult and time consuming for a shareholder group to fully use its voting power to gain control of the board of directors without the consent of the incumbent board of directors of Asheville Savings Bank.

Filling of Vacancies; Removal. The articles of incorporation of Asheville Savings Bank provide that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, may be filled by a vote of a majority of the remaining directors although less than a quorum of the board of directors then in office. A person elected to fill a vacancy on the board of directors will serve until the next election of directors by the shareholders. Asheville Savings Bank’s articles of incorporation provide that a director may be removed from the board of directors before the expiration of his or her term only for cause and only upon the vote of the holders of at least a majority of the outstanding shares of voting stock. These provisions make it more difficult for shareholders to remove directors and replace them with their own nominees.

Elimination of Cumulative Voting. The articles of incorporation of Asheville Savings Bank do not provide for cumulative voting with respect to the election of directors. The elimination of cumulative voting makes it more difficult for a shareholder group to elect a director nominee.

Authorized but Unissued Shares of Capital Stock. Following the conversion, Asheville Savings Bank will have authorized but unissued shares of common and preferred stock. Asheville Savings Bank’s amended and restated articles of incorporation authorize the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates, and liquidation preferences. Such shares of common and preferred stock could be issued by the board of directors to render more difficult or to discourage an attempt to obtain control of Asheville Savings Bank by means of a merger, tender offer, proxy contest or otherwise.

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Regulatory Restrictions

Federal Change in Bank Control Act. Federal law provides that no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire control of a bank holding company unless the Federal Reserve Board has been given 60 days prior written notice. For this purpose, the term “control” means the acquisition of the ownership, control or holding of the power to vote 25% or more of any class of a bank holding company’s voting stock, and the term “person” includes an individual, corporation, partnership, and various other entities. In addition, a person is presumed to acquire control if the person acquires the ownership, control or holding of the power to vote of 10% or more of any class of the holding company’s voting stock if specified factors are present, such as having a class of securities registered under Section 12 of the Securities Exchange Act of 1934, which will be the case with ASB Bancorp, Inc.

Accordingly, the filing of a notice with the Federal Reserve Board would be required before any person could acquire 10% or more of the common stock of ASB Bancorp, Inc., unless the individual files a rebuttal of control that is accepted by the Federal Reserve Board. The statute and underlying regulations authorize the Federal Reserve Board to disapprove a proposed acquisition on certain specified grounds.

Federal Bank Holding Company Act. Federal law provides that no company may acquire control of a bank directly or indirectly without the prior approval of the Federal Reserve Board. Any company that acquires control of a bank becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board. Pursuant to federal regulations, the term “company” is defined to include banks, corporations, partnerships, associations, and certain trusts and other entities, and “control” of a bank is deemed to exist if a company has voting control, directly or indirectly of at least 25% of any class of a bank’s voting stock, and may be found to exist if a company controls in any manner the election of a majority of the directors of the bank or has the power to exercise a controlling influence over the management or policies of the bank. In addition, a bank holding company must obtain Federal Reserve Board approval prior to acquiring voting control of more than 5% of any class of voting stock of a bank or another bank holding company. An acquisition of control of a bank that requires the prior approval of the Federal Reserve Board under the Bank Holding Company Act is not subject to the notice requirements of the Change in Bank Control Act.

Accordingly, the prior approval of the Federal Reserve Board under the Bank Holding Company Act would be required:

• before any bank holding company could acquire 5% or more of the common stock of ASB Bancorp, Inc.; and

• before any other company could acquire 25% or more of the common stock of ASB Bancorp, Inc.

Restrictions applicable to the operations of bank holding companies may also deter companies from seeking to obtain control of ASB Bancorp, Inc. See “Regulation and Supervision.”

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DESCRIPTION OF ASB BANCORP, INC. CAPITAL STOCK

The common stock of ASB Bancorp, Inc. will represent nonwithdrawable capital, will not be an account of any type, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency.

General

ASB Bancorp, Inc. is authorized to issue sixty million (60,000,000) shares of common stock having a par value of $0.01 per share and ten million (10,000,000) shares of preferred stock having a par value of $0.01 per share. Each share of ASB Bancorp, Inc.’s common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. Upon payment of the purchase price for the common stock, as required by the plan of conversion, all stock will be duly authorized, fully paid and nonassessable. ASB Bancorp, Inc. will not issue any shares of preferred stock in the conversion.

Common Stock

Dividends. ASB Bancorp, Inc. can pay dividends on its common stock if, after giving effect to the distribution, it would be able to pay its indebtedness as the indebtedness comes due in the usual course of business and its total assets exceed the sum of its liabilities and the amount needed, if ASB Bancorp, Inc. were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference upon dissolution. The holders of common stock of ASB Bancorp, Inc. will be entitled to receive and share equally in dividends as may be declared by the board of directors of ASB Bancorp, Inc. out of funds legally available for dividends. If ASB Bancorp, Inc. issues preferred stock, the holders of the preferred stock may have a priority over the holders of the common stock with respect to dividends. See “Our Dividend Policy” and “Regulation and Supervision.”

Voting Rights. After the conversion, the holders of common stock of ASB Bancorp, Inc. will possess exclusive voting rights in ASB Bancorp, Inc. They will elect ASB Bancorp, Inc.’s board of directors and act on other matters as are required to be presented to them under North Carolina law or as are otherwise presented to them by the board of directors. Except as discussed under “Restrictions on the Acquisition of ASB Bancorp, Inc. and Asheville Savings Bank—Restrictions in ASB Bancorp, Inc.’s Articles of Incorporation and Bylaws—Limitations on Voting Rights,” each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If ASB Bancorp, Inc. issues preferred stock, holders of ASB Bancorp, Inc. preferred stock may also possess voting rights.

Liquidation. If there is any liquidation, dissolution or winding up of Asheville Savings Bank, ASB Bancorp, Inc., as the sole holder of Asheville Savings Bank’s capital stock, would be entitled to receive all of Asheville Savings Bank’s assets available for distribution after payment or provision for payment of all debts and liabilities of Asheville Savings Bank, including all deposit accounts and accrued interest. Upon liquidation, dissolution or winding up of ASB Bancorp, Inc., the holders of its common stock would be entitled to receive all of the assets of ASB Bancorp, Inc. available for distribution after payment or provision for payment of all its debts and liabilities. If ASB Bancorp, Inc. issues preferred stock, the preferred stock holders may have a priority over the holders of the common stock upon liquidation or dissolution.

Preemptive Rights; Redemption. Holders of the common stock of ASB Bancorp, Inc. will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock cannot be redeemed.

Preferred Stock

ASB Bancorp, Inc. will not issue any preferred stock in the conversion and it has no current plans to issue any preferred stock after the conversion. Preferred stock may be issued with designations, powers, preferences and rights as the board of directors may from time to time determine. The board of directors can, without shareholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

134

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock will be                     ,             ,             .

REGISTRATION REQUIREMENTS

We have registered our common stock with the Securities and Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934, as amended, and will not deregister our common stock for a period of at least three years following the offering. As a result of registration, the proxy and tender offer rules, insider trading reporting and restrictions, annual and periodic reporting and other requirements of that statute will apply.

LEGAL AND TAX OPINIONS

The legality of our common stock has been passed upon for us by Kilpatrick Townsend & Stockton LLP, Washington, D.C. The federal and state tax consequences of the conversion have been opined upon by Kilpatrick Stockton LLP. Kilpatrick Townsend & Stockton LLP has consented to the references to its opinions in this prospectus. Certain legal matters will be passed upon for Keefe, Bruyette & Woods, Inc. by Luse Gorman Pomerenk & Schick, P.C., Washington, D.C.

EXPERTS

The consolidated financial statements of Asheville Savings Bank, S.S.B. and subsidiary as of December 31, 2010 and 2009, and for each year in the three year period ended December 31, 2010 included in this prospectus and in the registration statement have been audited by Dixon Hughes Goodman LLP, an independent registered public accounting firm, as stated in its report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion), and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

Feldman Financial, Inc. has consented to the summary in this prospectus of its report to us setting forth its opinion as to our estimated pro forma market value and to the use of its name and statements with respect to it appearing in this prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, that registers the common stock offered in the stock offering. This prospectus forms a part of the registration statement. The registration statement, including the exhibits, contains additional relevant information about us and our common stock. The rules and regulations of the Securities and Exchange Commission allow us to omit certain information included in the registration statement from this prospectus. You may read and copy the registration statement at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the Securities and Exchange Commission’s public reference rooms. The registration statement also is available to the public from commercial document retrieval services and at the Internet World Wide Website maintained by the Securities and Exchange Commission at http://www.sec.gov.

135

Asheville Savings Bank has filed an application for approval of the plan of conversion with the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. This prospectus omits certain information contained in the application. The application may be inspected, without charge, at the offices of the North Carolina Commissioner of Banks, 316 W. Edenton Street, Raleigh, North Carolina and at the offices of the Regional Director of the Federal Deposit Insurance Corporation, 10 Tenth Street, NW, Suite 800, Atlanta, Georgia.

A copy of the plan of conversion and Asheville Savings Bank’s amended and restated articles of incorporation and bylaws are available without charge from Asheville Savings Bank.

The appraisal report of Feldman Financial, Inc. has been filed as an exhibit to our registration statement and to our application to the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. Portions of the appraisal report were filed electronically with the Securities and Exchange Commission and are available on its website as described above. The entire appraisal report is available at the public reference room of the Securities and Exchange Commission and the offices of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks as described above.

136

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

OF ASHEVILLE SAVINGS BANK

	Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010 and 2009		F-2
Consolidated Statements of Income (Loss) for the Three Months Ended March  31, 2011 and 2010 (unaudited) and the Years Ended December 31, 2010, 2009 and 2008		F-3
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March  31, 2011 and 2010 (unaudited) and the Years Ended December 31, 2010, 2009 and 2008		F-4
Consolidated Statements of Changes in Equity for the Three Months Ended March  31, 2011 (unaudited) and the Years Ended December 31, 2010, 2009 and 2008		F-5
Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2011 and 2010 (unaudited) and the Years Ended December 31, 2010, 2009 and 2008		F-6
Notes to Consolidated Financial Statements		F-8

****

All schedules are omitted as the required information either is not applicable or is included in the financial statements or related notes. Separate financial statements for ASB Bancorp, Inc. have not been included in this prospectus because ASB Bancorp, Inc., which has engaged only in organizational activities to date, has no significant assets, contingent or other liabilities, revenues or expenses.

137

[LETTERHEAD OF DIXON HUGHES GOODMAN LLP]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Asheville Savings Bank, S.S.B.

Asheville, North Carolina

We have audited the accompanying consolidated balance sheets of Asheville Savings Bank, S.S.B. and Subsidiary (the “Bank”) as of December 31, 2010 and 2009, and the related consolidated statements of income (loss), comprehensive income (loss), changes in equity and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Bank is not required to have, nor were we engaged to perform, an audit of the Bank’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Asheville Savings Bank, S.S.B. and Subsidiary as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

/s/ Dixon Hughes Goodman LLP

Asheville, North Carolina

May 26, 2011

F-1

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

March 31, 2011 (Unaudited) and December 31, 2010 and 2009

	(Unaudited) March 31,			December 31,
(in thousands)	2011			2010			2009
Assets
Cash and due from banks	$	8,399		$	7,836		$	10,316
Interest-bearing deposits with banks		18,037			16,398			12,860
Total cash and cash equivalents		26,436			24,234			23,176
Securities available for sale (amortized cost of $199,629 at March 31, 2011 (unaudited), $176,193 at December 31, 2010 and $89,665 at December 31, 2009)		198,596			175,445			90,057
Securities held to maturity (fair value of $5,997 at March 31, 2011 (unaudited), $6,198 at December 31, 2010 and $7,184 at December 31, 2009)		5,720			5,948			6,958
Investments held at cost		3,970			3,970			3,993
Loans held for sale		1,263			8,386			3,890
Loans receivable (net of deferred loan fees of $427 at March 31, 2011 (unaudited), $431 at December 31, 2010 and $502 at December 31, 2009)		484,729			500,003			597,601
Allowance for loan losses		(12,632	)		(12,676	)		(8,994	)
Loans receivable, net		472,097			487,327			588,607
Premises and equipment, net		14,624			14,844			14,980
Foreclosed real estate (net of loss reserves of $1,341 at March 31, 2011 (unaudited), $1,299 at December 31, 2010 and $0 at December 31, 2009)		10,506			10,650			3,699
Deferred income tax assets, net of liabilities		6,475			6,641			2,246
Other assets		11,022			12,520			11,701
Total assets	$	750,709		$	749,965		$	749,307
Liabilities and Equity
Liabilities
Noninterest-bearing deposits	$	45,039		$	44,996		$	37,715
Interest-bearing deposits		571,547			574,761			570,823
Total deposits		616,586			619,757			608,538
Overnight and short-term borrowings		1,404			1,008			1,694
Federal Home Loan Bank advances		60,000			60,000			60,000
Accounts payable and other liabilities		9,424			6,319			5,426
Total liabilities		687,414			687,084			675,658
Commitments and contingencies (Note 13)
Equity
Retained income		67,106			66,521			75,979
Accumulated other comprehensive loss, net of tax		(3,811	)		(3,640	)		(2,330	)
Total equity		63,295			62,881			73,649
Total liabilities and equity	$	750,709		$	749,965		$	749,307

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

F-2

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

	(Unaudited) Three Months  Ended March 31,				Years Ended December 31,
(in thousands)	2011		2010		2010			2009			2008
Interest and dividend income
Loans, including fees	$	6,193	$	7,728	$	28,522		$	32,690		$	33,661
Securities		1,170		934		4,219			2,905			2,163
Other earning assets		19		16		74			59			859
Total interest and dividend income		7,382		8,678		32,815			35,654			36,683
Interest expense
Deposits		1,706		2,454		9,024			12,340			14,378
Overnight and short-term borrowings		2		1		3			15			205
Federal Home Loan Bank advances		596		596		2,417			2,417			2,162
Total interest expense		2,304		3,051		11,444			14,772			16,745
Net interest income		5,078		5,627		21,371			20,882			19,938
Provision for loan losses		657		1,859		22,419			4,655			3,049
Net interest income (loss) after provision for loan losses		4,421		3,768		(1,048	)		16,227			16,889
Noninterest income
Mortgage banking income		367		210		1,419			1,433			557
Deposit and other service charge income		846		942		3,688			3,612			3,281
Income from debit card services		295		262		1,176			998			901
Gain on sale of investment securities		—		486		798			539			—
Other noninterest income		172		158		602			584			547
Total noninterest income		1,680		2,058		7,683			7,166			5,286
Noninterest expenses
Salaries and employee benefits		2,530		2,584		9,652			10,374			9,458
Occupancy expense, net		753		761		3,099			3,018			2,656
Foreclosed property expenses		91		19		2,014			(20	)		—
Data processing fees		418		352		1,511			1,557			1,349
Federal deposit insurance premiums		254		253		1,037			1,414			73
Advertising		139		242		805			834			1,025
Professional and outside services		238		158		778			652			601
Other noninterest expenses		809		785		3,271			3,242			3,199
Total noninterest expenses		5,232		5,154		22,167			21,071			18,361
Income (loss) before income tax provision		869		672		(15,532	)		2,322			3,814
Income tax provision (benefit)		284		242		(6,074	)		791			1,382
Net income (loss)	$	585	$	430	$	(9,458	)	$	1,531		$	2,432

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

F-3

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

	(Unaudited) Three Months  Ended March 31,						Years Ended December 31,
(in thousands)	2011			2010			2010			2009			2008
Comprehensive Income
Net income (loss)	$	585		$	430		$	(9,458	)	$	1,531		$	2,432
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale:
Reclassification of securities gains recognized in net income		—			(486	)		(798	)		(539	)		—
Deferred income tax benefit		—			194			319			216			—
Gains (losses) arising during the period		(285	)		509			(342	)		362			320
Deferred income tax benefit (expense)		114			(203	)		138			(146	)		(128	)
Unrealized holding gains (losses) adjustment, net of tax		(171	)		14			(683	)		(107	)		192
Defined Benefit Pension Plans:
Net periodic pension cost		—			—			(455	)		(1,143	)		(371	)
Net pension gain (loss)		—			—			(564	)		4,575			(5,432	)
Deferred income tax benefit (expense)		—			(1	)		392			(1,128	)		2,042
Defined benefit pension plan adjustment, net of tax		—			(1	)		(627	)		2,304			(3,761	)
Total other comprehensive income (loss)		(171	)		13			(1,310	)		2,197			(3,569	)
Comprehensive income (loss)	$	414		$	443		$	(10,768	)	$	3,728		$	(1,137	)

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

F-4

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended March 31, 2011 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

	(Unaudited) March 31,			December 31,
(in thousands)	2011			2010			2009			2008
Retained Income
At beginning of period	$	66,521		$	75,979		$	74,448		$	72,016
Net income (loss)		585			(9,458	)		1,531			2,432
At end of period		67,106			66,521			75,979			74,448
Accumulated Other Comprehensive Loss, Net Of Tax
At beginning of period		(3,640	)		(2,330	)		(4,527	)		(958	)
Change in unrealized gain on available for sale securities, net of tax		(171	)		(683	)		(107	)		192
Defined benefit pension plans, net of tax		—			(627	)		2,304			(3,761	)
At end of period		(3,811	)		(3,640	)		(2,330	)		(4,527	)
Total Equity	$	63,295		$	62,881		$	73,649		$	69,921

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

F-5

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

	(Unaudited) Three Months Ended March 31,						Years Ended December 31,
(in thousands)	2011			2010			2010			2009			2008
Operating Activities
Net income (loss)	$	585		$	430		$	(9,458	)	$	1,531		$	2,432
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		657			1,859			22,419			4,655			3,049
Provision for loss on foreclosed properties		79			10			1,780			—			—
Depreciation		311			309			1,231			1,261			1,103
Gain on sale of fixed and other assets		—			—			—			(1	)		(99	)
Loss (gain) on sale of foreclosed real estate		(3	)		4			69			(57	)		—
Deferred income tax expense (benefit)		280			(1	)		(3,546	)		(565	)		124
Net accretion of discounts on securities		351			111			833			241			70
Gain on sale of securities		—			(486	)		(798	)		(539	)		—
Net amortization of premiums and deferred fees on loans		(24	)		(33	)		(134	)		(185	)		(148	)
Mortgage loans originated for sale		(17,978	)		(16,000	)		(100,181	)		(115,886	)		(49,876	)
Proceeds from sale of mortgage loans		25,468			15,958			97,103			116,353			50,053
Gain on sale of mortgage loans		(367	)		(210	)		(1,418	)		(1,431	)		(555	)
Net change in other assets and liabilities		4,603			2,544			(945	)		(3,993	)		(3,229	)
Net cash provided by operating activities		13,962			4,495			6,955			1,384			2,924
Investing Activities
Securities available for sale:
Purchases		(32,123	)		(27,418	)		(178,988	)		(87,893	)		(20,416	)
Proceeds from sales		—			2,000			18,908			16,923			—
Proceeds from maturities and/or calls		1,000			1,458			51,104			7,000			4,779
Securities held to maturity:
Purchases		—			—			—			(3,512	)		—
Proceeds from maturities and/or calls		—			—			—			13			4,003
Principal repayments on mortgage-backed and asset-backed securities		7,564			3,999			23,423			13,380			6,931
Redemption (purchase) of FHLB stock		—			—			23			1,027			(1,695	)
Net decrease (increase) in loans receivable		14,397			11,880			66,548			(8,154	)		(76,785	)
Foreclosed real estate:
Capital expenses		(18	)		(63	)		(72	)		(273	)		—
Net proceeds from sales		286			346			3,719			1,671			—
Purchases of premises and equipment		(91	)		(95	)		(1,095	)		(1,151	)		(2,110	)
Net proceeds from sales of fixed and other assets		—			—			—			5			105
Purchases of other assets		—			—			—			—			(150	)
Net cash used in investing activities		(8,985	)		(7,893	)		(16,430	)		(60,964	)		(85,338	)

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

F-6

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

	(Unaudited) Three Months Ended March 31,						Years Ended December 31,
(in thousands)	2011			2010			2010			2009			2008
Financing Activities
Net increase (decrease) in deposits	$	(3,171	)	$	8,930		$	11,219		$	72,898		$	30,350
Net proceeds from (repayments of) Federal Home Loan Bank advances		—			—			—			(26,000	)		51,284
Net proceeds from (repayments of) repurchase agreements		396			(202	)		(686	)		(3,526	)		(14,625	)
Net cash provided by (used in) financing activities		(2,775	)		8,728			10,533			43,372			67,009
Increase (decrease) in cash and cash equivalents		2,202			5,330			1,058			(16,208	)		(15,405	)
Cash and Cash Equivalents:
Beginning of period		24,234			23,176			23,176			39,384			54,789
End of period	$	26,436		$	28,506		$	24,234		$	23,176		$	39,384
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits, advances and other borrowings	$	2,371		$	3,044		$	11,503		$	14,905		$	16,782
Income taxes		(987	)		357			5,828			685			1,632
Non-cash transactions:
Transfers from loans to foreclosed real estate		200			688			12,585			2,968			6,272
Loans to finance the purchase of foreclosed properties		—			—			138			4,200			—
Change in unrealized gain on securities available for sale		(285	)		23			(1,140	)		(176	)		319
Change in deferred income taxes resulting from other comprehensive income		114			(10	)		849			(1,058	)		1,194
Change in deferred benefit pension plans		—			—			(1,019	)		3,431			5,804

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

F-7

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Asheville Savings Bank, S.S.B. is a North Carolina-chartered mutual savings bank with one subsidiary (described below). The Bank and its subsidiary are collectively referred to hereafter as the “Bank.” 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 of North Carolina. The Bank is regulated by the State of North Carolina Banking Commission (“NCBC”) and the Federal Deposit Insurance Corporation (“FDIC”).

Principles of Consolidation - The consolidated financial statements include the accounts of Appalachian Financial Services, Inc., a wholly owned subsidiary of Asheville Savings Bank, S.S.B. Appalachian Financial Services, Inc.’s principal business activity consists of investment activities. For purposes of the consolidated financial statements, all significant intercompany accounts and transactions have been eliminated. The subsidiary is inactive.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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.

Cash and Cash Equivalents - Cash equivalents include demand and time deposits (with original maturities of 90 days or less) at other financial institutions and federal funds sold.

Investment Securities - The Bank classifies investment securities into three categories. Debt securities that the Bank has the positive intent and ability to hold to maturity are classified as “held to maturity securities” and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as “trading securities” and reported at fair value, with unrealized gains and losses included in earnings. Debt securities not classified as either held to maturity securities or trading securities and equity securities not classified as trading securities are classified as “available for sale securities” and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of equity. The Bank classified no securities as trading securities as of March 31, 2011 (unaudited) and December 31, 2010 and 2009.

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 are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other issues, (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, and (iii) the intent of the Bank 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 Bank will be required to sell the investment prior to a recovery.

F-8

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments Held at Cost - The Bank, as a member of the Federal Home Loan Bank system (the “FHLB”), is required to maintain an investment in capital stock of the FHLB in an amount equal to the greater of 1% of its outstanding home loans or 5% of advances from the FHLB. This investment is carried at cost. Due to the redemption provisions of the FHLB, the Bank estimated that fair value equals cost and that this investment was not impaired at March 31, 2011 (unaudited) and December 31, 2010.

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.

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 the Bank on a “best efforts” basis to buy the loans.

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 loans 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.

F-9

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans 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. 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, 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.

Future material adjustments to the allowance for loan losses may be necessary due to changing economic conditions 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 when loans 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. Under the Bank’s cost recovery method, interest income is subsequently recognized only to the extent cash payments are received in excess of collection of the prinicipal 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.

F-10

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impaired loans on which the Bank has granted concessions that modify the amounts and/or timing of contractual principal and interest payments are considered as restructured and are accounted for as troubled debt restructurings. 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.

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.

Premises and Equipment - Premises and equipment are stated at cost less accumulated depreciation. Major additions and improvements are capitalized, and repairs which do not improve or extend the life of the respective assets are expensed in the period incurred. Gains and losses on dispositions are reflected in current operations.

Depreciation of premises and equipment is provided over the estimated useful lives of the related assets on the straight-line method for financial statement purposes and on a combination of straight-line and accelerated methods for income tax purposes. Estimated lives are 10 to 40 years for buildings, building components and improvements, 5 to 10 years for furniture, fixtures and equipment and 3 years for computers.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Bank estimates the future cash flows expected to result from the use of the asset and its eventual disposition, and recognizes an impairment loss if the expected future cash flows are less than the carrying amount of the asset.

Deferred Loan Fees - The Bank defers loan origination fees, net of certain direct loan origination costs. Such costs and fees for loans held for investment are recognized as an adjustment to yield over the lives of the related loans utilizing a method of amortization that approximates the level-yield method. When a loan is prepaid or sold, the related unamortized net origination fee is included in income. Net deferred fees for loans held for sale are deferred until the loan is sold and included as part of the gain or loss on the sale.

Commitment fees to originate or purchase loans are deferred and, if the commitment is exercised, recognized over the life of the loan as an adjustment of yield. If the commitment expires unexercised, commitment fees are recognized in income upon expiration of the commitment.

F-11

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. The items of other comprehensive income are included in the Consolidated Statements of Comprehensive Income (Loss). The accumulated balance of other comprehensive income is included in the equity section of the Consolidated Balance Sheets. The Bank’s components of accumulated other comprehensive income include unrealized gains and/or losses on investment securities classified as available for sale and certain changes in the Bank’s benefit obligations under its retirement plans.

The components of the Bank’s accumulated other comprehensive loss, net of income taxes, as of March 31, 2011 (unaudited) and December 31, 2010 and 2009, were as follows:

	(Unaudited) March 31,			December 31,
(in thousands)	2011			2010			2009
Unrealized gain (loss) on securities	$	(619	)	$	(448	)	$	235
Benefit plan liability		(3,192	)		(3,192	)		(2,565	)
Accumulated other comprehensive loss, net of tax	$	(3,811	)	$	(3,640	)	$	(2,330	)

Income Taxes - The establishment of provisions for federal and state income taxes is a complex area of accounting, which involves the use of significant judgments and estimates in applying relevant tax statutes. The Bank is subject to audit by federal and state tax authorities, the results of which may produce tax liabilities that differ from the Bank’s tax estimates and provisions. The Bank 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.

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 ended December 31, 2006 through 2010 are currently open to audit under statutes of limitations by the Internal Revenue Service and the North Carolina Department of Revenue.

Reclassifications - Certain amounts in the prior years’ financial statements have been reclassified to conform to the March 31, 2011 presentation. The reclassifications had no effect on net income or equity as previously reported.

F-12

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

New Accounting Standards - In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance impacting FASB ASC Topic 860: Transfers and Servicing (“FASB ASC Topic 860”). The objective of FASB ASC Topic 860 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. FASB ASC Topic 860 is effective for financial asset transfers occurring after December 31, 2009. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial statements.

In January 2010, new guidance was issued by the FASB requiring improved disclosures about fair value measurements. The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels, and the reasons for the transfers, and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). The Bank has applied the new disclosure requirements as of January 1, 2010. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial statements.

In July, 2010 Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Loss (ASU 2010-20). In an effort to provide financial statement users with greater transparency about the allowance for loan and lease losses, ASU 2010-20 requires enhanced disclosures regarding the nature of credit risk inherent in the portfolio and how risk is analyzed and assessed in determining the amount of the allowance. Changes in the allowance will also require disclosure. The end-of-period disclosures were effective for the Bank on December 31, 2010 with the exception of disclosures related to troubled debt restructurings which become effective for interim and annual periods ending after June 15, 2011. The disclosures related to activity during a period are effective during 2011. The provisions of ASU 2010-20 have affected disclosures regarding the allowance for loan and lease losses, but will have no impact on financial condition, results of operations or liquidity.

In January 2011, the FASB issued Disclosures about the Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU 2010-20 (ASU 2011-01). The provisions of ASU 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011. The amendments in ASU 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completes their project clarifying the guidance for determining what constitutes a troubled debt restructuring. As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU had no impact on the Bank’s financial statements.

In April 2011, FASB issued A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (ASU 2011-02), which clarifies when creditors should classify loan modifications as troubled debt restructurings. ASU 2011-02 is effective for interim and annual periods beginning on or after June 15, 2011, and is applied retrospectively to restructurings at the beginning of the year of adoption. The guidance on measuring the impairment of a receivable restructured in a troubled restructuring is effective on a prospective basis. The adoption of the new guidance is not expected to have a significant impact on the Bank’s financial statements.

F-13

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

2. INVESTMENT SECURITIES

Securities Available for Sale - The maturities, amortized cost, unrealized gains, unrealized losses and fair values of securities available for sale at March 31, 2011 (unaudited) and at December 31, 2010 and 2009 are as follows:

Type and Maturity Group (in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2011 (unaudited)
U.S. Government Sponsored Entity (GSE) and agency securities due -
After 1 year but within 5 years	$	39,772	$	139	$	(336	)	$	39,575
After 5 year but within 10 years		22,960		20		(305	)		22,675
Asset-backed securities issued by the Small Business Administration (SBA)		18,360		107		(42	)		18,425
Residential mortgage-backed securities issued by GSE’s		113,375		698		(1,281	)		112,792
State and local government securities due -
After 5 year but within 10 years		1,121		7		—			1,128
After 10 years		3,372		3		(44	)		3,331
Mutual funds		669		1		—			670
Total	$	199,629	$	975	$	(2,008	)	$	198,596
December 31, 2010
U.S. GSE and agency securities due -
After 1 year but within 5 years	$	32,072	$	215	$	(244	)	$	32,043
After 5 year but within 10 years		18,182		44		(227	)		17,999
Asset-backed securities issued by the SBA		15,952		101		(14	)		16,039
Residential mortgage-backed securities issued by GSE’s		105,944		644		(1,178	)		105,410
State and local government securities due -
After 10 years		3,379		—		(92	)		3,287
Mutual funds		664		3		—			667
Total	$	176,193	$	1,007	$	(1,755	)	$	175,445
December 31, 2009
U.S. GSE and agency securities due -
After 1 year but within 5 years	$	11,012	$	53	$	(44	)	$	11,021
After 5 year but within 10 years		14,036		72		(21	)		14,087
Asset-backed securities issued by the SBA		7,417		—		(43	)		7,374
Residential mortgage-backed securities issued by GSE’s		53,463		628		(126	)		53,965
State and local government securities due -
After 5 years but within 10 years		1,026		4		—			1,030
Mutual funds		641		—		(4	)		637
Trust preferred security		2,070		—		(127	)		1,943
Total	$	89,665	$	757	$	(365	)	$	90,057

F-14

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

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 at March 31, 2011 (unaudited) and December 31, 2010 and 2009 are as follows:

Type and Maturity Group	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
(in thousands)
March 31, 2011 (unaudited)
U.S. GSE and agency securities due -
After 5 year but within 10 years	$	1,087	$	64	$	—		$	1,151
Residential mortgage-backed securities issued by GSE’s		2,223		139		—			2,362
State and local government securities due -
After 10 years		2,410		74		—			2,484
Total	$	5,720	$	277	$	—		$	5,997
December 31, 2010
U.S. GSE and agency securities due -
After 5 year but within 10 years	$	1,090	$	79	$	—		$	1,169
Residential mortgage-backed securities issued by GSE’s		2,449		149		—			2,598
State and local government securities due -
After 10 years		2,409		36		(14	)		2,431
Total	$	5,948	$	264	$	(14	)	$	6,198
December 31, 2009
U.S. GSE and agency securities due -
After 5 year but within 10 years	$	1,101	$	—	$	(5	)	$	1,096
Residential mortgage-backed securities issued by GSE’s		3,452		138		—			3,590
State and local government securities due -
After 10 years		2,405		93		—			2,498
Total	$	6,958	$	231	$	(5	)	$	7,184

F-15

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

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 March 31, 2011 (unaudited) and December 31, 2010 and 2009. The total number of securities with unrealized losses at March 31, 2011 and December 31, 2010 and 2009 were 78 (unaudited), 63, and 7, respectively. The unrealized losses relate to debt 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 Bank 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 Bank will collect all contractual cash flows, therefore all impairment is considered to be temporary.

	March 31, 2011 (unaudited)
	Less Than 12 Months					12 Months or More				Total
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses		Fair value		Unrealized losses
Securities Available for Sale
US GSE and agency	$	45,585	$	(641	)	$	—	$	—	$	45,585	$	(641	)
Asset-backed SBA		4,737		(42	)		—		—		4,737		(42	)
Residential mortgage- backed GSE		62,627		(1,281	)		—		—		62,627		(1,281	)
State and local government		2,206		(44	)		—		—		2,206		(44	)
Temporarily impaired securities available for sale		115,155		(2,008	)		—		—		115,155		(2,008	)
Total temporarily impaired securities	$	115,155	$	(2,008	)	$	—	$	—	$	115,155	$	(2,008	)

F-16

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

2. INVESTMENT SECURITIES (Continued)

	December 31, 2010
	Less Than 12 Months					12 Months or More				Total
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses		Fair value		Unrealized losses
Securities Available for Sale
US GSE and agency	$	28,901	$	(471	)	$	—	$	—	$	28,901	$	(471	)
Asset-backed SBA		1,857		(14	)		—		—		1,857		(14	)
Residential mortgage- backed GSE		60,009		(1,178	)		—		—		60,009		(1,178	)
State and local government		3,287		(92	)		—		—		3,287		(92	)
Temporarily impaired securities available for sale		94,054		(1,755	)		—		—		94,054		(1,755	)
Securities Held to Maturity
State and local government		1,453		(14	)		—		—		1,453		(14	)
Temporarily impaired securities held to maturity		1,453		(14	)		—		—		1,453		(14	)
Total temporarily impaired securities	$	95,507	$	(1,769	)	$	—	$	—	$	95,507	$	(1,769	)

F-17

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

2. INVESTMENT SECURITIES (Continued)

	December 31, 2009
	Less Than 12 Months					12 Months or More					Total
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
Securities Available for Sale
US GSE and agency	$	14,006	$	(65	)	$	—	$	—		$	14,006	$	(65	)
Asset-backed SBA		7,341		(43	)		—		—			7,341		(43	)
Residential mortgage- backed GSE		11,681		(126	)		—		—			11,681		(126	)
Mutual funds		637		(4	)		—		—			637		(4	)
Trust preferred		—		—			1,944		(127	)		1,944		(127	)
Temporarily impaired securities available for sale		33,665		(238	)		1,944		(127	)		35,609		(365	)
Securities Held to Maturity
US GSE and agency		1,097		(5	)		—		—			1,097		(5	)
Temporarily impaired securities held to maturity		1,097		(5	)		—		—			1,097		(5	)
Total temporarily impaired securities	$	34,762	$	(243	)	$	1,944	$	(127	)	$	36,706	$	(370	)

Investment securities pledged as collateral follow:

	(Unaudited) March 31,		December 31,
(in thousands)	2011		2010		2009
Pledged to Federal funds purchased lines of credit	$	1,963	$	1,972	$	—
Pledged to Treasury Tax and Loan deposit accounts		1,045		1,054		1,029
Pledged to repurchase agreements for commercial customers		2,426		1,553		1,981

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

	(Unaudited) Three Months Ended March 31,				Years Ended December 31,
(in thousands)	2011		2010		2010		2009		2008
Gross proceeds from sales of securities	$	—	$	2,000	$	18,908	$	16,923	$	—
Gross realized gains from sales of securities		—		486		798		539		—

F-18

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

3. LOANS RECEIVABLE

The Bank’s loans receivable by segment and class follow:

	(Unaudited)
	March 31,			December 31,
(in thousands)	2011			2010			2009
Commercial:
Commercial construction and land development	$	27,830		$	28,473		$	30,158
Commercial mortgage		162,675			164,553			197,239
Commercial and industrial		15,764			17,656			22,794
Total commercial		206,269			210,682			250,191
Non-commercial:
Non-commercial construction and land development		7,864			8,670			15,141
Residential mortgage		177,846			180,439			190,965
Revolving mortgage		52,042			53,432			55,038
Consumer		41,135			47,212			86,768
Total non-commercial		278,887			289,753			347,912
Total loans receivable		485,156			500,435			598,103
Less: Deferred loan fees		(427	)		(432	)		(502	)
Total loans receivable net of deferred loan fees		484,729			500,003			597,601
Less: Allowance for loan losses		(12,632	)		(12,676	)		(8,994	)
Loans receivable, net	$	472,097		$	487,327		$	588,607

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 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.

F-19

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

3. LOANS RECEIVABLE (Continued)

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 customers. 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 1-4 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 result in residential mortgage loan borrowers having 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 often experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can routinely 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.

F-20

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

3. LOANS RECEIVABLE (Continued)

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. 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 or 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 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.

F-21

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

3. LOANS RECEIVABLE (Continued)

The Bank’s loans receivable by segment, class, and grade follow:

(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans
March 31, 2011 (unaudited)
Commercial:
Commercial construction and land development	$	12,365	$	1,565	$	13,897	$	—	$	3	$	27,830
Commercial mortgage		139,005		14,387		9,241		—		42		162,675
Commercial and industrial		13,773		686		1,161		—		144		15,764
Total commercial		165,143		16,638		24,299		—		189		206,269
Non-commercial:
Non-commercial construction and land development		5,508		326		2,027		—		3		7,864
Residential mortgage		164,119		8,698		4,966		—		63		177,846
Revolving mortgage		49,601		1,808		633		—		—		52,042
Consumer		39,091		1,944		100		—		—		41,135
Total non-commercial		258,319		12,776		7,726		—		66		278,887
Total loans receivable	$	423,462	$	29,414	$	32,025	$	—	$	255	$	485,156
December 31, 2010
Commercial:
Commercial construction and land development	$	12,532	$	1,578	$	14,269	$	—	$	94	$	28,473
Commercial mortgage		141,269		17,128		6,043		—		113		164,553
Commercial and industrial		15,542		716		1,398		—		—		17,656
Total commercial		169,343		19,422		21,710		—		207		210,682
Non-commercial:
Non-commercial construction and land development		6,367		—		2,281		—		22		8,670
Residential mortgage		166,007		7,625		6,771		—		36		180,439
Revolving mortgage		50,976		1,712		744		—		—		53,432
Consumer		45,133		1,731		348		—		—		47,212
Total non-commercial		268,483		11,068		10,144		—		58		289,753
Total loans receivable	$	437,826	$	30,490	$	31,854	$	—	$	265	$	500,435

F-22

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

3. LOANS RECEIVABLE (Continued)

The Bank’s loans receivable by segment, class, and delinquency status follow:

	Past Due
(in thousands)	30-89 Days		90 Days or More		Total		Current		Total Loans
March 31, 2011 (unaudited)
Commercial:
Commercial construction and land development	$	—	$	4,744	$	4,744	$	23,086	$	27,830
Commercial mortgage		589		5,319		5,908		156,767		162,675
Commercial and industrial		136		300		436		15,328		15,764
Total commercial		725		10,363		11,088		195,181		206,269
Non-commercial:
Non-commercial construction and land development		—		280		280		7,584		7,864
Residential mortgage		1,301		2,593		3,894		173,952		177,846
Revolving mortgage		491		135		626		51,416		52,042
Consumer		1,268		41		1,309		39,826		41,135
Total non-commercial		3,060		3,049		6,109		272,778		278,887
Total loans receivable	$	3,785	$	13,412	$	17,197	$	467,959	$	485,156
December 31, 2010
Commercial:
Commercial construction and land development	$	462	$	3,451	$	3,913	$	24,560	$	28,473
Commercial mortgage		2,298		3,363		5,661		158,892		164,553
Commercial and industrial		288		290		578		17,078		17,656
Total commercial		3,048		7,104		10,152		200,530		210,682
Non-commercial:
Non-commercial construction and land development		282		553		835		7,835		8,670
Residential mortgage		4,996		2,878		7,874		172,565		180,439
Revolving mortgage		576		191		767		52,665		53,432
Consumer		1,387		94		1,481		45,731		47,212
Total non-commercial		7,241		3,716		10,957		278,796		289,753
Total loans receivable	$	10,289	$	10,820	$	21,109	$	479,326	$	500,435

F-23

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

3. LOANS RECEIVABLE (Continued)

The Bank’s 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 follow:

	(Unaudited) March 31, 2011				December 31, 2010
(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	$	4,744	$	—	$	5,205	$	—
Commercial mortgage		5,319		—		3,810		—
Commercial and industrial		308		—		377		—
Total commercial		10,371		—		9,392		—
Non-commercial:
Non-commercial construction and land development		280		—		553		—
Residential mortgage		3,259		—		3,194		—
Revolving mortgage		239		—		191		—
Consumer		41		—		94		—
Total non-commercial		3,819		—		4,032		—
Total loans receivable	$	14,190	$	—	$	13,424	$	—

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

	(Unaudited)
	March 31,			December 31,
(in thousands)	2011			2010			2009
At beginning of period	$	3,278		$	4,004		$	6,993
New loans		28			278			70
Repayments of loans		(202	)		(1,004	)		(3,059	)
At end of period	$	3,104		$	3,278		$	4,004

F-24

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

4. ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses follows:

	(Unaudited) Three Months  Ended March 31,						Years Ended December 31,
(in thousands)	2011			2010			2010			2009			2008
Balance at beginning of period	$	12,676		$	8,994		$	8,994		$	6,403		$	5,074
Provision for loan losses		657			1,859			22,419			4,655			3,049
Charge-offs		(804	)		(1,817	)		(18,864	)		(2,194	)		(1,893	)
Recoveries		103			38			127			130			173
Balance at end of period	$	12,632		$	9,074		$	12,676		$	8,994		$	6,403

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

	(Unaudited) Three Months Ended  March 31, 2011
(in thousands)	Commercial			Non- Commercial			Total
Balance at beginning of period	$	7,658		$	5,018		$	12,676
Provision for loan losses		117			540			657
Charge-offs		(146	)		(658	)		(804	)
Recoveries		66			37			103
Balance at end of period	$	7,695		$	4,937		$	12,632

F-25

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

4. ALLOWANCE FOR LOAN LOSSES (Continued)

The Bank’s ending balances of loans and the related allowance, by segment and class, follows:

	Allowance for Loan Losses						Total Loans Receivable
(in thousands)	Loans Individually Evaluated for Impairment		Loans Collectively Evaluated		Total		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated		Total
March 31, 2011 (unaudited)
Commercial:
Commercial construction and land development	$	151	$	1,259	$	1,410	$	16,316	$	11,514	$	27,830
Commercial mortgage		831		4,511		5,342		9,388		153,287		162,675
Commercial and industrial		511		423		934		1,291		14,473		15,764
Total commercial		1,493		6,193		7,686		26,995		179,274		206,269
Non-commercial:
Non-commercial construction and land development		639		128		767		2,582		5,282		7,864
Residential mortgage		397		1,784		2,181		5,590		172,256		177,846
Revolving mortgage		—		1,062		1,062		—		52,042		52,042
Consumer		—		927		927		—		41,135		41,135
Total non-commercial		1,036		3,901		4,937		8,172		270,715		278,887
Unallocated		—		—		9		—		—		—
Total loans receivable	$	2,529	$	10,094	$	12,632	$	35,167	$	449,989	$	485,156
December 31, 2010
Commercial:
Commercial construction and land development	$	242	$	990	$	1,232	$	16,765	$	11,708	$	28,473
Commercial mortgage		717		4,769		5,486		6,235		158,318		164,553
Commercial and industrial		366		416		782		1,351		16,305		17,656
Total commercial		1,325		6,175		7,500		24,351		186,331		210,682
Non-commercial:
Non-commercial construction and land development		553		196		749		2,601		6,069		8,670
Residential mortgage		449		1,758		2,207		7,290		173,149		180,439
Revolving mortgage		—		1,021		1,021		—		53,432		53,432
Consumer		—		1,041		1,041		—		47,212		47,212
Total non-commercial		1,002		4,016		5,018		9,891		279,862		289,753
Unallocated						158
Total loans receivable	$	2,327	$	10,191	$	12,676	$	34,242	$	466,193	$	500,435

F-26

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

4. ALLOWANCE FOR LOAN LOSSES (Continued)

The Bank’s impaired loans and the related allowance, by segment and class, follows:

(in thousands)	With a Recorded Allowance		With No Recorded Allowance		Total		Related Recorded Allowance
March 31, 2011 (unaudited)
Commercial:
Commercial construction and land development	$	625	$	15,691	$	16,316	$	151
Commercial mortgage		8,355		1,033		9,388		831
Commercial and industrial		1,291		—		1,291		511
Total commercial		10,271		16,724		26,995		1,493
Non-commercial:
Non-commercial construction and land development		2,467		115		2,582		639
Residential mortgage		2,823		2,767		5,590		397
Total non-commercial		5,290		2,882		8,172		1,036
Total impaired loans	$	15,561	$	19,606	$	35,167	$	2,529
December 31, 2010
Commercial:
Commercial construction and land development	$	3,992	$	12,773	$	16,765	$	242
Commercial mortgage		3,448		2,787		6,235		717
Commercial and industrial		1,000		351		1,351		366
Total commercial		8,440		15,911		24,351		1,325
Non-commercial:
Non-commercial construction and land development		2,601		—		2,601		553
Residential mortgage		3,807		3,483		7,290		449
Total non-commercial		6,408		3,483		9,891		1,002
Total impaired loans	$	14,848	$	19,394	$	34,242	$	2,327
December 31, 2009
Total impaired loans	$	12,615	$	27,116	$	39,731	$	799

F-27

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

4. ALLOWANCE FOR LOAN LOSSES (Continued)

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

	March 31, 2011 (Unaudited)						December 31, 2010
(in thousands)	Average Recorded Investment		Unpaid Principal Balance		Interest Income Recognized		Average Recorded Investment		Unpaid Principal Balance		Interest Income Recognized
Commercial:
Commercial construction and land development	$	16,597	$	20,268	$	63	$	17,171	$	19,115	$	188
Commercial mortgage		8,305		10,992		8		12,674		7,758		56
Commercial and industrial		1,309		1,513		7		1,477		1,709		29
Total commercial		26,211		32,773		78		31,322		28,582		273
Non-commercial:
Non-commercial construction and land development		2,596		2,696		3		1,414		2,696		10
Residential mortgage		6,430		6,255		25		7,967		7,673		86
Revolving mortgage		—		—		—		33		—		—
Consumer		—		—		—		—		—		7
Total non-commercial		9,026		8,951		28		9,414		10,369		103
Total loans receivable	$	35,237	$	41,724	$	106	$	40,736	$	38,951	$	376

(in thousands)	(Unaudited) Three Months Ended March 31,		Years Emded December 31,
	2010		2009		2008
Average recorded investment in impaired loans	$	41,528	$	25,084	$	7,012
Interest income recognized on impaired loans	$	94	$	502	$	—

F-28

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

4. ALLOWANCE FOR LOAN LOSSES (Continued)

The Bank’s loans that were performing under the terms of troubled debt restructurings that were excluded from nonaccruing loans above follow:

(in thousands)	(Unaudited) March 31,		December 31,
	2011		2010		2009
Performing restructured loans included in impaired loans	$	11,575	$	18,246	$	21,216

The Bank services loans for Habitat for Humanity of Western North Carolina as an in kind donation.

The balances of these loans were $11.3 million (unaudited), $11.4 million, and $10.2 million at March 31, 2011 and December 31, 2010 and 2009, respectively.

5. PREMISES AND EQUIPMENT

A summary of Bank premises and equipment, and related depreciation expense, follows:

(in thousands)	(Unaudited) March 31,			December 31,
	2011			2010			2009
Land	$	3,407		$	3,407		$	3,407
Office buildings and improvements		15,712			15,693			14,688
Furniture, fixtures, equipment and auto		8,499			8,431			8,267
Construction in progress		22			18			179
Total		27,640			27,549			26,541
Less - accumulated depreciation		(13,016	)		(12,705	)		(11,561	)
Premises and equipment, net	$	14,624		$	14,844		$	14,980

(in thousands)	(Unaudited) Three Months  Ended March 31,				Years Ended December 31,
	2011		2010		2010		2009		2008
Depreciation expense	$	311	$	309	$	1,231	$	1,261	$	1,103

F-29

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

6. FORECLOSED REAL ESTATE

An analysis of the Bank’s foreclosed properties follows:

(in thousands)	(Unaudited) Three Months Ended March 31,						Years Ended December 31,
	2011			2010			2010			2009			2008
Beginning balance	$	10,650		$	3,699		$	3,699		$	6,272		$	—
Transfers from loans		200			688			12,585			2,968			6,272
Capitalized cost		18			63			72			273			—
Loss provision		(79	)		(10	)		(1,780	)		—			—
Sales of properties, net of gains and losses		(283	)		(350	)		(3,788	)		(1,614	)		—
Sales of properties funded by loans		—			—			(138	)		(4,200	)		—
Ending balance	$	10,506		$	4,090		$	10,650		$	3,699		$	6,272

7. DEPOSIT ACCOUNTS

The Bank’s deposit accounts are summarized as follows:

(in thousands)	(Unaudited) March 31,		December 31,
	2011		2010		2009
Noninterest-bearing demand accounts	$	45,039	$	44,996	$	37,715
NOW accounts		135,347		134,836		125,648
Savings accounts		22,461		21,384		18,973
Money market accounts		133,075		131,138		117,866
Certificate accounts		280,664		287,403		308,336
Total deposits	$	616,586	$	619,757	$	608,538

F-30

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

7. DEPOSIT ACCOUNTS (Continued)

The scheduled maturities of certificate of deposit accounts follow:

(in thousands)	(Unaudited) March 31,		December 31,
	2011		2010		2009
2010	$	—	$	—	$	227,035
2011		131,039		163,775		40,028
2012		110,118		89,894		38,621
2013		30,812		28,424		1,285
2014		4,925		2,087		1,367
2015		3,343		3,223		—
2016		427				—
Total	$	280,664	$	287,403	$	308,336
Additional certificate of deposit information (amounts included in the preceding tables)
Aggregate certificate of deposit accounts of $100,000 or more	$	101,539	$	102,490	$	115,230
Brokered certificate of deposit accounts	$	15,359	$	15,359	$	7,500

Deposit interest expense follows for the periods indicated:

(in thousands)	(Unaudited) Three Months  Ended March 31,				Years Ended December 31,
	2011		2010		2010		2009		2008
NOW accounts	$	314	$	491	$	1,780	$	1,688	$	880
Savings accounts		17		18		70		73		82
Money market accounts		178		280		1,046		1,488		2,226
Certificate accounts		1,197		1,665		6,128		9,091		11,190
Total deposits	$	1,706	$	2,454	$	9,024	$	12,340	$	14,378

F-31

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

8. OVERNIGHT AND SHORT-TERM BORROWINGS

Overnight and short-term borrowings follow:

(in thousands)	(Unaudited) March 31,		December 31,
	2011		2010		2009
Securities sold under agreements to repurchase	$	1,404	$	1,008	$	1,694
Total overnight and short-term borrowings	$	1,404	$	1,008	$	1,694
Total available credit under federal funds borrowing agreements	$	37,000	$	37,000	$	42,000

The Bank has the ability to establish a Federal Funds borrowing arrangement with the Federal Reserve Bank should the Bank decide to pledge qualifying assets to secure any borrowings under the arrangement.

F-32

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

9. ADVANCES FROM THE FEDERAL HOME LOAN BANK

The Bank has established a line of credit borrowing arrangement with the Federal Home Loan Bank (“FHLB”). Available credit under this commitment was $55.3 million at March 31, 2011 (unaudited) and $58.0 million at December 31, 2010. As security for advances, the Bank, under a blanket-floating lien, is required to maintain qualifying mortgages with unpaid principal balances, when discounted at 75% of the unpaid principal balances, equal to at least 100% of its outstanding advances. All stock in the FHLB is also pledged to secure these advances.

Maturities, conversion dates, and interest rates on outstanding FHLB advances follow (dollars in thousands):

Maturity Date	Date Convertible By FHLB to Variable Rate	Interest Rate			(Unaudited) March  31, 2011		December 31,
							2010		2009
March 13, 2017	June 13, 2011 (1)		4.09	%	$	10,000	$	10,000	$	10,000
March 13, 2017	June 13, 2011 (1)		4.20	%		10,000		10,000		10,000
March 20, 2017	June 20, 2011 (1)		3.99	%		10,000		10,000		10,000
June 29, 2017	June 29, 2011 (1)		4.46	%		10,000		10,000		10,000
September 11, 2017	June 13, 2011 (1)		3.45	%		10,000		10,000		10,000
September 17, 2018	September 17, 2013 (2)		3.65	%		10,000		10,000		10,000
Total FHLB advances			3.97	%	$	60,000	$	60,000	$	60,000

(1) FHLB has the option to convert the advance to a variable rate each quarter until maturity.

(2) FHLB has the option to convert the advance to a variable rate only on the date indicated.

If the FHLB exercises its conversion option, the Bank can accept the new terms or repay the advance without any prepayment penalty. These advance agreements also contain penalty provisions for early repayments if current advance rates are lower than the interest rates on the advances being repaid.

The Bank had outstanding irrevocable letters of credit totaling $7 million from the FHLB at March 31, 2011 (unaudited) and December 31, 2010, respectively, used to secure North Carolina public deposits.

F-33

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

10. INCOME TAXES

Components of the income tax provision follows:

(in thousands)	(Unaudited) Three Months  Ended March 31,					Years Ended December 31,
	2011		2010			2010			2009			2008
Current:
Federal	$	3	$	195		$	(2,528	)	$	1,329		$	1,229
State		1		48			—			27			29
Total current expense (benefit)		4		243			(2,528	)		1,356			1,258
Deferred:
Federal		263		(1	)		(2,424	)		(583	)		30
State		17		—			(1,122	)		18			94
Total deferred expense (benefit)		280		(1	)		(3,546	)		(565	)		124
Total income tax provision (benefit)	$	284	$	242		$	(6,074	)	$	791		$	1,382
Increases (decreases) in deferred tax liabilities allocated to other comprehensive income related to:
Unrealized gains (losses) on securities available for sale	$	114	$	(9	)	$	457		$	70		$	(128	)
Qualified and non-qualified pension plan liability adjustments		—		(1	)		392			(1,128	)		2,042
Total	$	114	$	(10	)	$	849		$	(1,058	)	$	1,914

F-34

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

10. INCOME TAXES (Continued)

The approximate tax effects of each type of temporary difference that gave rise to the Bank’s deferred income tax assets and liabilities follows:

	(Unaudited)
	March 31,			December 31,
(in thousands)	2011			2010			2009
Deferred tax assets relating to:
Deferred loan fees	$	165		$	167		$	193
Deferred compensation		543			520			501
Non-accrual interest, book versus tax		257			205			194
Accrued vacation		180			174			162
Allowance for loan losses		4,887			4,904			3,468
Pension liabilities and prepayments		2,003			2,003			1,610
Net operating/net economic loss carry forward		978			1,433			—
Loss reserve on foreclosed real estate		519			503			—
Deferred Gain on Sale of foreclosed real estate		78			78			—
Unrealized loss on securities available for sale		413			299			—
Other		70			67			92
Total deferred tax assets		10,093			10,353			6,220
Deferred tax liabilities relating to:
Original issue discount - loan fees		(580	)		(587	)		(623	)
Property		(552	)		(588	)		(522	)
Pension liabilities and prepayments		(1,607	)		(1,658	)		(1,802	)
FHLB stock		(763	)		(763	)		(761	)
Unrealized gain on securities available for sale		—			—			(157	)
Other		(116	)		(116	)		(109	)
Total deferred tax liabilities		(3,618	)		(3,712	)		(3,974	)
Net recorded deferred tax assets	$	6,475		$	6,641		$	2,246

A significant portion of the recorded deferred tax assets relate to a net operating loss carry forward and a loan loss allowance on which the realization of income tax benefits is dependent on the Bank’s ability to generate future taxable income. Because of this dependency, the Bank’s management considered the need for a valuation allowance, but determined there was sufficient positive evidence to support their conclusion not to record a valuation allowance. The positive evidence that led the Bank’s management to conclude that the income tax benefits of the Bank’s deferred tax assets would be realized included (1) the Bank has a sustained history of generating taxable income and realizing the income tax benefits of its deferred tax assets and income tax credits, (2) the Bank’s management believes that, based on certain improving credit quality indicators, the credit quality issues that gave rise to the net operating loss carry forward and deferred tax asset related to the loan loss allowance were to a large extent limited to 2010, and provisioning is expected to decline in 2011 and 2012 from the 2010 level, (3) the Bank’s management is projecting pretax income in 2011 and 2012, (4) the Bank’s management is aware of one or more strategies that, if implemented, could generate future taxable income, and (5) the net operating loss carry forward does not expire in the near term. The Bank’s Federal and North Carolina loss carry forward periods are 20 years and 15 years, respectively. However, there can be no assurance that the Bank will generate taxable income or that the income tax benefit of all of its net operating loss carry forward and deferred tax asset positions will be realized.

F-35

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

10. INCOME TAXES (Continued)

Income taxes computed by applying the federal statutory income tax rate of 34% to income before income taxes differs from the actual income tax provision because of the following:

	(Unaudited)
	Three Months Ended						Years Ended
	March 31,						December 31,
(in thousands)	2011			2010			2010			2009			2008
Income tax provision at statutory rate	$	295		$	228		$	(5,281	)	$	789		$	1,297
Increase (decrease) in income taxes resulting from:
State taxes, net of federal effect		12			32			(741	)		30			81
Other, net		(23	)		(18	)		(52	)		(28	)		4
Total	$	284		$	242		$	(6,074	)	$	791		$	1,382

Retained income includes approximately $7.2 million representing pre-1988 tax bad debt reserve base year amounts for which no deferred income tax liability has been provided since these reserves are not expected to reverse and may never reverse. Circumstances that would require an accrual of a portion or all of this unrecorded tax liability are a reduction in qualifying loan levels relative to the end of 1987, failure to meet the definition of a bank, dividend payments in excess of accumulated tax earnings and profits, or other distributions, dissolution or liquidation of the Bank’s equity.

11. REGULATORY CAPITAL REQUIREMENTS

Capital Levels - The Bank is a state-chartered mutual savings bank regulated by the FDIC and the NCBC. Regulations require the Bank to maintain a minimum leverage ratio of total capital to total assets of four percent, a minimum ratio of qualifying total capital to risk-weighted assets of eight percent, of which at least four percent must be in the form of core capital, and a North Carolina Savings Bank Capital ratio of total adjusted capital to total adjusted assets of five percent.

Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification also are subject to qualitative judgments by the regulators about components, risk weightings and other factors.

As of December 31, 2010, the most recent regulatory reporting period, the Bank was well capitalized under the current regulatory framework. To be categorized as well capitalized, the Bank must maintain minimum total risk-based capital, Tier I leverage ratio, and Tier I risk adjusted capital as set forth in the table below.

F-36

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

11. REGULATORY CAPITAL REQUIREMENTS (Continued)

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

						Regulatory Requirements
						Minimum for Capital					Minimum to Be
	Actual					Adequacy Purposes					Well Capitalized
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2011
Tier I leverage capital	$	64,241		8.60	%	$	29,871		4.00	%	$	37,339		5.00	%
Tier I risk-based capital		64,241		13.67	%		18,794		4.00	%		28,190		6.00	%
Total risk-based capital		70,207		14.94	%		37,587		8.00	%		46,984		10.00	%
NC Savings Bank capital		76,873		10.24	%		37,541		5.00	%		n/a		n/a
December 31, 2010
Tier I leverage capital	$	63,377		8.33	%	$	30,434		4.00	%	$	38,043		5.00	%
Tier I risk-based capital		63,377		13.04	%		19,434		4.00	%		29,151		6.00	%
Total risk-based capital		69,542		14.31	%		38,868		8.00	%		48,585		10.00	%
NC Savings Bank capital		76,053		10.14	%		37,503		5.00	%		n/a		n/a
December 31, 2009
Tier I leverage capital	$	75,979		10.13	%	$	30,010		4.00	%	$	37,512		5.00	%
Tier I risk-based capital		75,979		13.72	%		22,150		4.00	%		33,225		6.00	%
Total risk-based capital		82,936		14.98	%		44,299		8.00	%		55,374		10.00	%
NC Savings Bank capital		84,973		11.34	%		37,471		5.00	%		n/a		n/a

A reconciliation of GAAP equity and regulatory capital amounts follows:

	(Unaudited)
	March 31,			December 31,
(in thousands)	2011			2010			2009
Total GAAP equity	$	63,295		$	62,881		$	73,649
Less: Accumulated other comprehensive loss, net of tax		(3,811	)		(3,640	)		(2,330	)
Less: Disallowed deferred tax assets		2,865			3,144			—
Tier I capital		64,241			63,377			75,979
Allowable portion of allowance for loan losses		5,966			6,165			6,957
Total risk-based capital		70,207			69,542			82,936
Disallowed portion of allowance for loan losses		6,666			6,511			2,037
NC Savings Bank capital	$	76,873		$	76,053		$	84,973

F-37

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

12. 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.

Effective January 1, 2010, the Board of Directors amended the Bank’s Qualified and Non- qualified pension plans (the Plans) to reduce the projected benefit obligations under the plans for services to be performed in future periods. The changes resulting from the amendments that were applicable to the December 31, 2009 measurement date are included in the tables that follow.

Benefits under the Bank’s Plans were frozen effective December 31, 2009, and no new participants were allowed to enter the Plans after the effective date.

The following tables set forth the status of both the Qualified and the Non-qualified Plans using measurement dates of December 31, 2010 and 2009:

	Non-qualified						Qualified
(in thousands)	2010			2009			2010			2009
Change in Benefit Obligation
Projected benefit obligation at beginning of year	$	1,065		$	1,118		$	15,006		$	15,190
Service cost		5			16			156			620
Interest cost		61			71			906			947
Actuarial gain		88			100			1,481			399
Benefits paid		(67	)		(67	)		(507	)		(487	)
Change in plan provisions		—			(173	)		—			(1,663	)
Projected benefit obligation at end of year	$	1,152		$	1,065		$	17,042		$	15,006
Change in Plan Assets
Fair value of plan assets at beginning of year	$	—		$	—		$	16,563		$	11,946
Actual return on plan assets		—			—			1,223			2,604
Employer contribution		67			67			—			2,500
Benefits paid		(67	)		(67	)		(507	)		(487	)
Fair value of plan assets at end of year	$	—		$	—		$	17,279		$	16,563

F-38

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

12. BENEFIT PLANS (Continued)

	Non-qualified						Qualified
(in thousands)	2010			2009			2010			2009
Net Amount Recognized
Funded status	$	(1,151	)	$	(1,065	)	$	236		$	1,557
Unrecognized net actuarial loss		347			291			5,503			4,618
Unrecognized prior service credit		(57	)		(69	)		(598	)		(664	)
Net amount recognized	$	(861	)	$	(843	)	$	5,141		$	5,511
Amounts Recognized in Balance Sheets
Pension asset (liability)	$	(1,151	)	$	(1,065	)	$	236		$	1,557
Accumulated other comprehensive loss	$	(290	)	$	(222	)	$	(4,905	)	$	(3,954	)

Net periodic benefit cost included the following components for the periods indicated:

	(Unaudited)
	Three Months Ended						Years Ended
	March 31,						December 31,
(in thousands)	2011			2010			2010			2009			2008
Non-Qualified Plan
Components of Net Periodic Benefit Costs
Service cost	$	2		$	2		$	5		$	16		$	9
Interest cost		16			30			61			71			63
Amortization of prior service cost (credit)		(3	)		(5	)		(11	)		66			45
Amortization of net loss		5			15			31			16			13
Net periodic benefit cost	$	20		$	42		$	86		$	169		$	130
Qualified Plan
Components of Net Periodic Benefit Costs
Service cost	$	49		$	37		$	156		$	620		$	538
Interest cost		237			216			906			947			845
Expected return on plan assets		(240	)		(214	)		(896	)		(1,120	)		(1,222	)
Amortization of prior service cost (credit)		(18	)		(16	)		(66	)		125			80
Amortization of net loss		101			65			269			402			—
Net periodic benefit cost	$	129		$	88		$	369		$	974		$	241

F-39

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

12. BENEFIT PLANS (Continued)

	Non-qualified				Qualified
(in thousands)	2010		2009		2010		2009
Additional Information
Accumulated benefit obligation	$	1,151	$	1,065	$	17,042	$	15,006
Increase in minimum liability included in other comprehensive income	$	—	$	—	$	—	$	—

Assumptions used in accounting for the defined benefit plans follow:

	Non-qualified						Qualified
	2010			2009			2010			2009
Weighted Average Assumptions Used to Determine Benefit Obligations at Year-End Discount rate		5.20	%		5.88	%		5.50	%		6.18	%
Rate of compensation increase
2010		6.00	%		3.00	%		6.00	%		3.00	%
Thereafter		6.00	%		6.00	%		6.00	%		6.00	%
Weighted Average Assumptions Used to Determine Net Period Benefit Cost for the Year - Non-Qualified Plan
Discount rate		5.88	%		6.57	%		6.18	%		6.22	%
Expected long-term return on plan assets		n/a			n/a			5.50	%		8.00	%
Rate of compensation increase
2009					3.00	%					3.00	%
2010		3.00	%		3.00	%		3.00	%		3.00	%
Thereafter		6.00	%		6.00	%		6.00	%		6.00	%

	Qualified
	2010			2009
Asset Allocation
Actual Percentage of Plan Assets
Equity securities		0	%		0	%
Debt securities		100	%		100	%
Total		100	%		100	%
Target Allocation
Equity securities		0	%		0	%
Debt securities		100	%		100	%
Total		100	%		100	%

F-40

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

12. BENEFIT PLANS (Continued)

Investment Policy and Strategy – Qualified Plan

The policy, as established by the Pension Committee (“Committee”), is to provide for growth of capital with a moderate level of volatility by investing assets per the target allocations stated above. The assets will be reallocated quarterly to meet the above target allocations. The investment policy will be reviewed on a quarterly basis, under the advisement of a certified investment advisor, to determine if the policy should be changed.

Determination of Expected Long-Term Rate of Return

The expected long-term rate of return for the plan’s total assets is based on the expected return of each of the above categories, weighted based on the median of the target allocation for each class. Equity securities are expected to return 8% to 11% over the long-term, while cash and fixed income is expected to return between 3% and 6%. Based on historical experience, the Committee expects that the Plan’s asset managers will provide a modest (0.25% to 0.75% per annum) premium to their respective market benchmark indices.

Cash Flows

The expected contribution to the Non-qualified Plan for the year ending December 31, 2011 is $68,263. The Bank does not expect to make a Qualified Plan contribution in 2011.

The following benefit payments reflecting expected future service are expected to be paid as follows:

	Non-
	Qualified		Qualified
Fiscal Year Ending December 31,
2011	$	68	$	607
2012		68		632
2013		71		722
2014		71		791
2015		71		832
2016 – 2020		355		4,922

401(k) Plan - Effective October 1, 1996, the Bank adopted an employee savings plan under Section 401(k) of the Internal Revenue Code, and the Plan covers substantially all employees. The Bank’s matching contributions were $46 thousand (unaudited) for the three months ended March 31, 2011 and $178 thousand and $184 thousand for the years ended December 31, 2010 and 2009, respectively. Effective January 1, 2001, the Plan was amended to provide a safe harbor provision and to cease the allowance of after-tax contributions by employees. The safe harbor provision changes the Bank’s matching contribution to equal 100% of the first 3% of each employee’s compensation for the plan year, plus 50% of the employee’s deferral contributions in excess of 3% but not in excess of 5% of the employee’s compensation for the plan year.

F-41

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

12. BENEFIT PLANS (Continued)

Long Term Incentive Plan - Effective January 1, 2003, the Bank adopted a long term incentive plan which is designed to reward directors and selected officers with a potential share in equity increases of the Bank. Under plan provisions, participants are eligible to receive a predetermined percentage of the increase in equity over the vesting period. The vesting period for each grant is three years and the distribution amount is paid to participants as soon as practicable after the end of the vesting period. The Bank had no liability under the plan at March 31, 2011 (unaudited) and December 31, 2010, and recognized no expense for the three months ended March 31, 2011 (unaudited) and the year ended December 31, 2010. The liability under the plan was to $308 thousand at December 31, 2009 and expenses of $120 thousand were provided under the plan for the year then ended.

Deferred Compensation Plan - The Bank has adopted a non-qualified Directors and Officers Deferral Plan (the “D&O Plan”) under which designated executive officers and directors can defer compensation and board/committee meeting fees into the D&O Plan which contains certain investment vehicles approved by the Bank’s Compensation Committee and selected by the D&O Plan’s Participants. All D&O Plan Participants are 100% vested in their account balances at all times. Executive officers must first maximize their participation in the Bank’s qualified 401K Plan and can defer no less than five percent (5%) of compensation. No Participant may defer more than one hundred percent (100%) of fees and compensation. The Bank may, at its discretion, make matching contributions to the D&O Plan but has heretofore not elected to do so. The D&O Plan has been amended to comply with Section 409A of the Internal Revenue Code.

13. 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.

F-42

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

13. 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:

	(Unaudited) March  31, 2011		December 31,
(in thousands)			2010		2009
Financial instruments whose contract amounts represent credit risk:
Commitments to extend or originate credit	$	103,571	$	121,588	$	137,383
Commitments under standby letters of credit		58		58		20
Total	$	103,629	$	121,646	$	137,403

The Bank renegotiated the operating lease for the operations center location to include additional space. This lease commenced May 1, 2007 with an original term of ten years. The lease has four five-year renewal options with predetermined rates per square foot rented. The Bank also renegotiated an operating lease for a parking lot for a three-year term, with no renewal options. A new lease for land in Fletcher, North Carolina commenced on February 1, 2007 with an initial term of 20 years. The lease has renewal options of four consecutive renewal periods of five years each. The monthly payments are subject to adjustment every 60 months based on the increase of the Consumer Price Index.

Future minimum lease payments under these leases are as follows:

	(Unaudited) March  31, 2011		December 31,
(in thousands)			2010		2009
2010	$	—	$	—	$	364
2011		266		355		355
2012		355		355		355
2013		355		355		355
2014		355		355		355
2015		355		355		355
Thereafter		699		699		699
Total	$	2,385	$	2,474	$	2,838

F-43

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

13. COMMITMENTS AND CONTINGENCIES (Continued)

Total rental expense related to operating leases follows:

	(Unaudited) Three Months Ended March 31,				Years Ended December 31,
(in thousands)	2011		2010		2010		2009		2008
Rental expense	$	89	$	92	$	364	$	366	$	366

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 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.

Interest Rate Risk - The Bank’s profitability depends to a large extent on its net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Like most financial institutions, the Bank’s interest income and interest expense are significantly affected by changes in market interest rates and other economic factors beyond its control. The Bank’s interest-earning assets consist primarily of long-term, fixed-rate mortgage loans, adjustable rate mortgage loans and investments that typically adjust more slowly to changes in interest rates than its interest-bearing liabilities, which are primarily term deposits. Accordingly, the Bank’s earnings are usually adversely affected during periods of rising interest rates and positively impacted during periods of declining interest rates. However, based on the results of the Bank’s interest rate risk simulation model, which management believes accurately reflects the extraordinary stress currently existing in the financial markets with respect to potential margin compression resulting from the Bank’s difficulty in reducing its cost of funds further in this competitive pricing environment, the Bank’s earnings may well be adversely affected if interest rates decline further. Such a decline in rates could result from, among other things, the Federal Reserve’s purchase of government securities and/or mortgage-backed securities in an effort to further stimulate the economy. Accordingly, the Bank is currently the beneficiary of a stable rate environment and 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 involved in legal actions in the normal course of business. Management, based on advice of legal counsel, does not expect any significant losses from current litigation.

Investment Commitments - During 2005, the Bank entered into an agreement to invest $1,000,000 as a limited partner in a Small Business Investment Company. The Bank made no additional investments during 2010 and 2009, but invested $800,000 prior to 2009. The Bank has a remaining commitment of approximately $200,000. This investment is recognized at cost and is included in “other assets” on the balance sheet.

F-44

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

14. 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 further down in this note. 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. The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest, Federal Home Loan Bank Stock and demand deposits. The methodologies for other financial assets and financial liabilities are discussed below:

The carrying amount and estimated fair values of financial instruments follows:

	(Unaudited) March  31, 2011				December 31,
					2010				2009
(in thousands)	Carrying amount		Estimated fair value		Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Financial assets:
Cash and cash equivalents	$	26,436	$	26,436	$	24,234	$	24,234	$	23,176	$	23,176
Investment securities
Available for sale		198,596		198,596		175,445		175,445		90,057		90,057
Held to maturity		5,720		5,997		5,948		6,198		6,958		7,184
Investments held at cost		3,970		3,970		3,970		3,970		3,993		3,993
Loans held for sale		1,263		1,263		8,386		8,386		3,890		3,890
Loans receivable, net		472,097		479,510		487,327		491,205		588,607		585,399
Deferred compensation assets		1,401		1,401		1,341		1,341		1,167		1,167
Financial liabilities:
Demand deposits		335,922		335,922		332,354		332,354		300,202		300,202
Time deposits		280,664		282,843		287,403		289,881		308,336		309,275
Advances from Federal Home Loan Bank		60,000		63,232		60,000		64,048		60,000		60,014
Repurchase agreements		1,404		1,393		1,008		999		1,694		1,650
Deferred compensation liabilities		1,401		1,401		1,341		1,341		1,167		1,167

F-45

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

14. FAIR VALUE MEASUREMENTS (Continued)

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 Bank’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Bank’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. Changes in assumptions could significantly affect the estimates. Estimated fair values were determined as follows:

Investment Securities - Fair values are obtained from a pricing service that uses matrix pricing which are based on quoted prices for securities with similar coupons, ratings, and maturities.

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. Additional valuation adjustments are made for credit risk, but do not include adjustments for illiquidity.

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 the Bank on a “best efforts” basis to buy the loans.

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.

Time Deposits and Repurchase Agreements - Fair value of fixed maturity certificates of deposit is estimated using the FHLB Rate Curve for similar remaining maturities.

Advances from Federal Home Loan Bank - 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.

The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2011 (unaudited) and December 31, 2010 and 2009. 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 date of these financial statements and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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:

F-46

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

14. FAIR VALUE MEASUREMENTS (Continued)

Level 1

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, corporate debt securities, and residential mortgage loans held-for-sale.

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, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is 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 the Bank’s investments in mutual funds are determined by quoted prices and are included as recurring Level 1 assets. The fair values of the Bank’s investments in securities issued by U.S. GSE’s, asset-backed securities issued by the SBA, residential mortgage-backed securities issued by U.S. GSE’s, securities issued by state and local governments, and trust preferred securities 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.

F-47

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

14. FAIR VALUE MEASUREMENTS (Continued)

Defined Benefit Plan Assets

The Bank’s Nonqualified Defined Benefit Plan had no plan assets because it was not funded. The assets of the Bank’s Qualified Defined Benefit Plan, which are invested in interest-bearing depository accounts and money market and debt 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 and debt security mutual funds are determined by quoted prices and are included as recurring Level 1 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 the Bank on a “best efforts” basis to buy the loans. As such, the Bank classifies its mortgages held for sale as nonrecurring Level 2 assets.

Loans

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, and 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 were 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 Bank records the impaired loan 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.

Foreclosed Properties

The Bank’s 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. The Bank records its foreclosed properties as nonrecurring Level 3 assets.

F-48

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

14. 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:

							Total Carrying Amount in Statement of Financial Position		Assets/ Liabilities Measured at Fair Value
(in thousands)	Fair Value Measurement Using
Description	Level 1		Level 2		Level 3
March 31, 2011 (Unaudited)
Securities available for sale:
U.S. GSE and agency securities	$	—	$	62,250	$	—	$	62,250	$	62,250
Asset-backed SBA securities		—		18,425		—		18,425		18,425
Residential mortgage-backed securities issued by GSE’s		—		112,792		—		112,792		112,792
State and local government securities		—		4,459		—		4,459		4,459
Mutual funds		670		—		—		670		670
Total	$	670	$	197,926	$	—	$	198,596	$	198,596
Defined benefit plan assets:
Cash and cash equivalents	$	639	$	—	$	—
Money market mutual funds		264		—		—
Debt security mutual funds		16,359		—		—
Total	$	17,262	$	—	$	—
December 31, 2010
Securities available for sale:
U.S. GSE and agency securities	$	—	$	50,042	$	—	$	50,042	$	50,042
Asset-backed SBA securities		—		16,039		—		16,039		16,039
Residential mortgage-backed securities issued by GSE’s		—		105,410		—		105,410		105,410
State and local government securities		—		3,287		—		3,287		3,287
Mutual funds		667		—		—		667		667
Total	$	667	$	174,778	$	—	$	175,445	$	175,445
Defined benefit plan assets:
Cash and cash equivalents	$	148	$	—	$	—
Money market mutual funds		241		—		—
Debt security mutual funds		16,845		—		—
Total	$	17,234	$	—	$	—

F-49

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

14. FAIR VALUE MEASUREMENTS (Continued)

							Total Carrying Amount in Statement of Financial Position		Assets/ Liabilities Measured at Fair Value
(in thousands)	Fair Value Measurement Using
Description	Level 1		Level 2		Level 3
December 31, 2009
Securities available for sale:
U.S. GSE and agency securities	$	—	$	25,108	$	—	$	25,108	$	25,108
Asset-backed SBA securities		—		7,374		—		7,374		7,374
Residential mortgage-backed securities issued by GSE’s		—		53,965		—		53,965		53,965
State and local government securities		—		1,030		—		1,030		1,030
Mutual funds		637		—		—		637		637
Trust preferred securities		—		1,943		—		1,943		1,943
Total	$	637	$	89,420	$	—	$	90,057	$	90,057
Defined benefit plan assets:
Cash and cash equivalents	$	385	$	—	$	—
Money market mutual funds		241		—		—
Debt security mutual funds		15,908		—		—
Total	$	16,534	$	—	$	—

There were no transfers to or from Level 1 and 2 during the three months ended March 31, 2011 (unaudited) or the twelve months ended December 31, 2010 or 2009.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Bank may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. Assets measured at fair value on a nonrecurring basis are included in the table below.

							Total Carrying Amount in Statement of Financial Position		Assets/ Liabilities Measured at Fair Value
(in thousands)	Fair Value Measurement Using
Description	Level 1		Level 2		Level 3
March 31, 2011 (Unaudited)
Loans held for sale	$	—	$	1,263	$	—	$	1,263	$	1,263
Impaired loans		—		—		20,186		20,186		20,186
Foreclosed properties		—		—		10,506		10,506		3,006

F-50

ASHEVILLE SAVINGS BANK, S.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2011 and 2010 (Unaudited)

And Years Ended December 31, 2010, 2009 and 2008

14. FAIR VALUE MEASUREMENTS (Continued)

							Total Carrying Amount in Statement of Financial Position		Assets/ Liabilities Measured at Fair Value
(in thousands)	Fair Value Measurement Using
Description	Level 1		Level 2		Level 3
December 31, 2010
Loans held for sale	$	—	$	8,386	$	—	$	8,386	$	8,386
Impaired loans		—		—		16,103		16,103		16,103
Foreclosed properties		—		—		10,650		10,650		10,650
December 31, 2009
Loans held for sale	$	—	$	3,890	$	—	$	3,890	$	3,890
Impaired loans		—		—		11,817		11,817		11,817
Foreclosed properties		—		—		3,699		3,699		3,699

15. PLAN OF CONVERSION AND CHANGE IN CORPORATE FORM

On March 15, 2011, the Board of Directors of the Bank adopted a plan of conversion (“Plan”). The Plan is subject to the approval of the FDIC, the NCBC, and the Federal Reserve Bank of Richmond, and must be approved by the affirmative vote of at least a majority of the total votes eligible to be cast by the voting members of the Bank at a special meeting. The Plan sets forth that the Bank proposes to convert into a stock savings bank structure with the establishment of a stock holding company, ASB Bancorp, Inc. (the “Company”), as parent of the Bank. The Bank will convert to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to the Company. Pursuant to the Plan, the Bank will determine the total offering value and number of shares of common stock based upon a valuation by an independent appraiser. The stock will be priced at $10.00 per share. The Bank’s Board of Directors will adopt an employee stock ownership plan (ESOP) which will subscribe 8% of the common stock sold in the offering and contributed to the charitable foundation. The Company is being organized as a corporation incorporated under the laws of the State of North Carolina and will own all of the outstanding common stock of the Bank upon completion of the conversion.

The costs of issuing the common stock will be deferred and deducted from the sales proceeds of the offering. If the conversion is unsuccessful, all deferred costs will be charged to operations. The Bank had incurred deferred conversion costs of $30 thousand as of March 31, 2011 (unaudited), and no deferred conversion costs as of December 31, 2010 or 2009. The transaction is subject to approval by regulatory authorities and members of the Bank. At the completion of the conversion to stock form, the Bank will establish a liquidation account in the amount of retained earnings contained in the final prospectus. The liquidation account will be maintained for the benefits of eligible savings account holders who maintain deposit accounts in the Bank after conversion.

The conversion will be accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result (unaudited).

F-51

You should rely only on the information contained in this prospectus. Neither ASB Bancorp, Inc. nor Asheville Savings Bank, S.S.B. has authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered by this prospectus to any person or in any jurisdiction in which an offer or solicitation is not authorized or in which the person making an offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make an offer or solicitation in those jurisdictions. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.

[LOGO]

(Proposed Holding Company for Asheville Savings Bank, S.S.B.)

7,245,000 Shares

(Anticipated Maximum, Subject to Increase)

COMMON STOCK

Prospectus

                    , 2011

Until                     , 2011, all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth our anticipated expenses of the offering:

Securities and Exchange Commission filing fee (1)	$	9,674
North Carolina Commissioner of Banks filing fee		2,500
Financial Industry Regulatory Authority, Inc. filing fee (1)		8,832
Stock market listing fee		125,000
EDGAR, printing, postage and mailing		300,000
Legal fees and expenses		500,000
Accounting fees and expenses		115,000
Appraiser’s fees and expenses		60,000
Securities marketing firm expenses (including legal fees)(1)(2)		140,000
Conversion agent fees and expenses		40,000
Business plan fees and expenses		35,000
Transfer agent and registrar fees and expenses		17,000
Certificate printing		5,000
Miscellaneous		1,994
TOTAL	$	1,360,000

(1) Estimated expenses based on the registration of 8,331,750 shares at $10.00 per share.

(2) In addition, Keefe, Bruyette & Woods, Inc. will receive a fee equal to 1.0% of the aggregate purchase price of shares sold in the subscription and community offering, excluding shares purchased by the employee stock ownership plan and directors, officers and employees of ASB Bancorp, Inc. and members of their immediate families. In addition, Keefe, Bruyette & Woods, Inc., and other selected dealers will receive aggregate fees of up to 6.0% of the aggregate price of shares sold in the syndicated community offering, if any.

Item 14. Indemnification of Directors and Officers.

The Articles of Incorporation of ASB Bancorp, Inc. provide as follows:

ARTICLE XI

Indemnification

In addition to and apart from the indemnification provided for in the North Carolina Business Corporation Ac, the Corporation shall provide indemnification to its directors as follows:

(A) Indemnity. Any person who at any time serves or has served as a director of the Corporation shall have a right to be indemnified by the Corporation to the full extent allowed by applicable law against liability and litigation expense arising out of or connected with such status or activities in such capacity. “Liability and litigation expense” shall include costs and expenses of litigation (including reasonable attorneys fees), judgments, fines and amounts paid in settlement which are actually and reasonably incurred in connection with or as a consequence of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals. In no circumstances, however, shall the Corporation indemnify any such person against any liability or litigation expense incurred on account of activities which were at the time taken known or believed by such person to be clearly in conflict with the best interests of the Corporation.

(B) Determination of Right to Indemnity. Promptly after the final disposition or termination of any matter which involves liability or litigation expense as described in Section A of this Article XI or at such earlier time as it sees fit, the Corporation shall determine whether any person described in Section A of this Article XI is entitled to indemnification thereunder. Such determination shall be limited to the following issues: (i) whether the persons to be indemnified are persons described in Section A of this Article XI, (ii) whether the liability or litigation expense incurred arose out of the status or activities of such persons as described in Section A of this Article XI, (iii) whether the liability was actually incurred and litigation expense was actually and reasonably incurred, and (iv)

II-1

whether the liability and litigation expense were incurred on account of activities which were at the time taken known or believed by such person to be clearly in conflict with the best interests of the Corporation. Such determination shall be made by a majority vote of directors who were not parties to the action, suit or proceeding (or, in connection with “threatened” actions, suits or proceedings, who were not “threatened parties”). If at least two such disinterested directors are not obtainable, or, even if obtainable, if at least half of the number of disinterested directors so direct, such determination shall be made by independent legal counsel in written opinion.

(C) Advance Expenses. Litigation expense incurred by a person described in Section A of this Article XI in connection with a matter described in Section A of this Article XI shall be paid by the Corporation in advance of the final disposition of the matter, if the Corporation receives an undertaking, dated, in writing and signed by the person to be indemnified, to repay all such sums unless such person is ultimately determined as provided in Section B of this Article XI to be entitled to be indemnified by the Corporation. Requests for payments in advance of final disposition or termination shall be submitted in writing to the Corporation unless this requirement is waived by the Corporation. Before the first such payment is made, the Corporation shall have received the written undertaking referred to herein and notice of the request for advance payment shall have been given to the members of the board of directors. Notwithstanding the foregoing, no advance payment shall be made as to any payment or portion of a payment for which the determination is made that the person requesting payment will not be entitled to indemnification. Such determination may be made only by a majority vote of disinterested directors or by independent legal counsel as next provided. If there are not at least two disinterested directors, then notice of all requests for advance payment shall be delivered for review to independent legal counsel for the Corporation. Such counsel shall have the authority to disapprove any advance payment or portion of a payment for which it plainly and unavoidably appears that the person requesting payment will not be entitled to indemnification.

(D) Settlements. The Corporation shall not be obligated to indemnify persons described in Section A of this Article XI for any amounts paid in settlement unless the Corporation consents in writing to the settlement. The Corporation shall not unreasonably withhold its consent to proposed settlements. The Corporation’s consent to a proposed settlement shall not constitute an agreement by the Corporation that any person is entitled to indemnification hereunder; the Corporation shall waive the requirement of this Section for its written consent as fairness and equity may require.

(E) Application for Indemnity or Advances. A person described in Section A of this Article XI may apply to the Corporation in writing for indemnification or to advance expenses. Such application shall be addressed to the secretary, or, in the absence of the secretary, to any officer of the Corporation. The Corporation shall respond in writing to such applications as follows: to a request for indemnity under Section B of this Article XI, within ninety days after receipt of the application; to a request for advance expenses under Section C of this Article XI, within fifteen days after receipt of the application. The right to indemnification or advance expenses provided herein shall be enforceable in any court of competent jurisdiction. A legal action may be commenced if a claim for indemnity or advance expenses is denied in whole or in part, or upon the expiration of the time periods provided above. In any such action, the claimant shall be entitled to prevail upon establishing that he or she is entitled to indemnification or advance expenses but the Corporation shall have the burden of establishing, as a defense, that the liability or expense was incurred on account of activities which were, at the time taken, known or believed by the claimant to be clearly in conflict with the best interests of the Corporation. In any such action, if the claimant establishes the right to indemnification, he or she shall also have the right to be indemnified against the litigation expense (including a reasonable attorney’s fee) of such action.

(F) Incidents of Right of Indemnification. The right of indemnification provided herein shall not be deemed exclusive of any other rights to which any persons seeking indemnity may be entitled apart from the provisions of this Article XI, except there shall be no right to indemnification as to any liability or litigation expense for which such person is entitled to receive payment under any insurance policy other than a directors’ and officers’ liability insurance policy maintained by the Corporation. Such right shall inure to the benefit of the heirs and legal representatives of any persons entitled to such right. Any person who at any time after the adoption of this Article XI serves or has served in any status or capacity described in Section A of this Article XI, shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Any repeal or modification of this Article XI shall not affect any rights or obligations then existing. The right provided herein shall not apply as to persons serving corporations that are hereafter merged into or combined with the Corporation, except after the effective date of such merger or combination and only as to status and activities after such date.

II-2

(G) Savings Clause. If this Article XI or any portion hereof shall be invalidated on any ground by any court or agency of competent jurisdiction, then the Corporation shall nevertheless indemnify each person described in Section A of this Article XI to the full extent permitted by the portion of this Article XI that is not invalidated and also to the full extent (not exceeding the benefits described herein) permitted or required by other applicable law.

Item 15. Recent Sales of Unregistered Securities.

None.

Item 16. Exhibits and Financial Statement Schedules.

The exhibits filed as a part of this Registration Statement are as follows:

(a) List of Exhibits

Exhibit	Description
1.1	Engagement Letter between Asheville Savings Bank, S.S.B. and Keefe, Bruyette & Woods, Inc.
1.2	Draft Agency Agreement*
2.1	Plan of Conversion
3.1	Articles of Incorporation of ASB Bancorp, Inc.
3.2	Bylaws of ASB Bancorp, Inc.
4.1	Specimen Common Stock Certificate of ASB Bancorp, Inc.
5.1	Form of Opinion of Kilpatrick Townsend & Stockton LLP re: Legality of Shares
8.1	Form of Opinion of Kilpatrick Townsend & Stockton LLP re: Federal Tax Matters
8.2	Form of Opinion of Kilpatrick Townsend & Stockton LLP re: State Tax Matters*
10.1	Form of Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan+
10.2	Form of Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan Trust Agreement+*
10.3	Form of Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan Loan Agreement, Pledge Agreement and Promissory Note+
10.4	Asheville Savings Bank, S.S.B. Retirement Savings Plan and Trust and Related Adoption Agreement+*
10.5	Form of Executive Officer Employment Agreement between ASB Bancorp, Inc., and Asheville Savings Bank, S.S.B+
10.6	Asheville Savings Bank, S.S.B. Non-Qualified Defined Benefit Pension Plan, as amended+
10.7	Asheville Savings Bank, S.S.B. Second Amended and Restated Directors’ and Officers’ Deferred Compensation Plan and Trust Agreement+
10.8	Asheville Savings Bank, S.S.B. Amended and Restated Management Incentive Plan+
10.9	Form of Asheville Savings Bank, S.S.B. Change in Control Severance Plan+
10.10	Asheville Savings Bank, S.S.B. Long-Term Incentive Plan+
10.11	Form of ASB Bancorp, Inc. Stock-Based Deferral Plan+*
23.1	Consent of Kilpatrick Townsend & Stockton LLP (included in Exhibits 5.1 and 8.1 filed herewith)
23.2	Consent of Dixon Hughes Goodman LLP
23.3	Consent of Feldman Financial Advisors, Inc.
24.1	Powers of Attorney (included on signature page)
99.1	Appraisal Report of Feldman Financial Advisors, Inc.
99.2	Draft Marketing Materials*
99.3	Form of Subscription Order Form and Instructions*

* To be filed by amendment.

+ Management contract or compensation plan or arrangement.

(b) Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the rules of Regulation S-X.

Item 17. Undertakings.

II-3

The undersigned registrant hereby undertakes:

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

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

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

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

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

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

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

(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

II-4

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

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

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Asheville, State of North Carolina, on May 26, 2011.

ASB BANCORP, INC.
By:	/s/    Suzanne S. DeFerie
	Suzanne S. DeFerie President and Chief Executive Officer and Director

POWER OF ATTORNEY

We, the undersigned directors and officers of ASB Bancorp, Inc. (the “Company”) hereby severally constitute and appoint Suzanne S. DeFerie and Kirby A. Tyndall with full power of substitution, our true and lawful attorneys-in-fact and agents, to do any and all things in our names in the capacities indicated below which said Suzanne S. DeFerie and Kirby A. Tyndall may deem necessary or advisable to enable ASB Bancorp, Inc. to comply with the Securities Act of 1933, as amended, and any rules regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 of ASB Bancorp, Inc., including specifically but not limited to, power and authority to sign for us in our names in the capacities indicated below, the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that said Suzanne S. DeFerie and Kirby A. Tyndall shall lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date
/s/    Suzanne S. DeFerie Suzanne S. DeFerie	President and Chief Executive Officer and Director (principal executive officer)	May 26, 2011
/s/    Kirby A. Tyndall Kirby A. Tyndall	Executive Vice President and Chief Financial Officer (principal financial and accounting officer)	May 26, 2011
/s/    Patricia S. Smith Patricia S. Smith	Chairman of the Board of Directors	May 26, 2011
/s/    John B. Gould John B. Gould	Vice Chairman of the Board of Directors	May 26, 2011
/s/    John B. Dickson John B. Dickson	Director	May 26, 2011

/s/    Leslie D. Green Leslie D. Green	Director	May 26, 2011
/S/    Kenneth E. Hornowski Kenneth E. Hornowski	Director	May 26, 2011
/s/    Stephen P. Miller Stephen P. Miller	Director	May 26, 2011
/s/    Wyatt S. Stevens Wyatt S. Stevens	Director	May 26, 2011

EX-1.1

Exhibit 1.1

February 18, 2011

Asheville Savings Bank, S.S.B.

11 Church Street

Asheville, NC 28802

Attention: Suzanne S. DeFerie

                 President

Ladies and Gentlemen:

This letter confirms the engagement of Keefe, Bruyette & Woods, Inc. (“KBW”) to act as the exclusive financial advisor to Asheville Savings Bank, S.S.B. in connection with the Bank’s proposed conversion from the mutual to stock form of organization pursuant to the Bank’s Plan of Conversion (the “Conversion”), including the offer and sale of certain shares of the common stock (the “Common Stock”) of a holding company (the “Holding Company”) to be formed by the Bank to eligible persons in a Subscription Offering, with any remaining shares offered to the general public in a Direct Community Offering (the Subscription Offering, the Direct Community Offering and any Syndicated Community Offering are collectively referred to herein as the “Offerings”). In addition, KBW will act as Conversion Agent in connection with the Offerings pursuant to the terms of a separate agreement between the Bank and KBW. The Bank and the Holding Company are collectively referred to herein as the “Company” This letter sets forth the terms and conditions of our engagement.

1. Advisory/Offering Services

As the Company’s financial advisor, KBW will provide financial and logistical advice to the Company and will assist the Company’s management, legal counsel, accountants and other advisors in connection with the Conversion and related issues. We anticipate our services will include the following, each as may be necessary and as the Company may reasonably request:

1. Provide advice on the financial and securities market implications of the Plan of Conversion and any related corporate documents, including the Company’s Business Plan;

Keefe, Bruyette & Woods • 10 South Wacker Drive, Suite 3400 • Chicago, IL 60606

312.423.8200 • 800.929.6113 • Fax 312.423.8232

Asheville Savings Bank, S.S.B.

February 18, 2011

Page 2

2. Assist in structuring the Offerings, including developing and assisting in implementing a marketing strategy for the Offerings;

3. Reviewing all offering documents, including the Prospectus, stock order forms, letters, brochures and other related offering materials (it being understood that preparation and filing of such documents will be the responsibility of the Company and its counsel);

4. Assisting the Company in preparing for and scheduling meetings with potential investors and broker-dealers, as necessary;

5. Assist the Company in analyzing proposals from outside vendors retained in connection with the Offerings, including printers, transfer agents and appraisal firms;

6. Assist the Company in the drafting and distribution of press releases as required or appropriate in connection with the Offerings;

7. Meet with the Board of Directors and/or management of the Company to discuss any of the above services; and

8. such other financial advisory and investment banking services in connection with the Offerings as may be agreed upon by KBW and the Company.

2. Due Diligence Review

The Company acknowledges and agrees that KBW’s obligation to perform the services contemplated by this agreement shall be subject to the satisfactory completion of such investigations and inquiries relating to the Company, and its directors, officers, agents and employees, as KBW and their counsel in their sole discretion my deem appropriate under the circumstances. The Company agrees it will make available to KBW all relevant information, whether or not publicly available, which KBW reasonably requests, and will permit KBW to discuss with the board of directors and management the operations and prospects of the Company. KBW will treat all material non-public information as confidential. The Company recognizes and confirms that KBW (a) will use and rely on such information in performing the services contemplated by this agreement without having independently verified the same, and (b) does not assume responsibility for the accuracy or completeness of the information or to conduct any independent verification or any appraisal or physical inspection of properties or assets. KBW will assume that all financial forecasts have been reasonably prepared and reflect the best then currently available estimates and judgments of the Company’s management as to the expected future financial performance of the Company.

3. Regulatory Filings

The Company will cause appropriate Offering documents to be filed with all regulatory agencies including the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”, formerly the NASD), the appropriate federal and/or state bank regulatory agencies. In addition, the Company and KBW agree that the Company’s counsel shall

Asheville Savings Bank, S.S.B.

February 18, 2011

Page 3

serve as counsel with respect to blue sky matters in connection with the Offerings, and that the Company shall cause such counsel to prepare a Blue Sky Memorandum related to the Offerings including KBW’s participation therein and shall furnish KBW a copy thereof addressed to KBW or upon which counsel shall state KBW may rely.

4. Fees

For the services hereunder, the Company shall pay the following fees to KBW at closing unless stated otherwise:

(a) Management Fee: A Management Fee of $40,000 payable in four consecutive monthly installments of $10,000 commencing with the first month following the execution of this engagement letter. Such fees shall be deemed to have been earned when due. Should the Offering be terminated for any reason not attributable to the action or inaction of KBW, KBW shall have earned and be entitled to be paid fees accruing through the stage at which point the termination occurred.

(b) Success Fee: A Success Fee of 1.00% shall be paid based on the aggregate Purchase Price of Common Stock sold in the Subscription Offering excluding shares purchased by the Company’s officers, directors, or employees (or members of their immediate family) plus any ESOP, tax-qualified or stock based compensation plans or similar plan created by the Company for some or all of their directors or employees, or any charitable foundation established by the Company (or any shares contributed to such a foundation). In addition, a Success Fee of 1.00% shall be paid on the aggregate Purchase Price of Common Stock sold in the Direct Community Offering. The Management Fee described in 4(a) will be credited against any Success Fee paid pursuant to this paragraph.

(c) Syndicated Community Offering: If any shares of the Company’s stock remain available after the Subscription Offering and Direct Community Offering, at the request of the Company, KBW will seek to form a syndicate of registered broker- dealers to assist in the sale of such common stock on a best efforts basis, subject to the terms and conditions set forth in a selected dealers agreement to be entered into between the Company and KBW. KBW will endeavor to distribute the common stock among dealers in a fashion which best meets the distribution objectives of the Company and the Plan. KBW will be paid the normal and customary fee for shares of common stock sold in a Syndicated Community Offering not to exceed 6.00% of the aggregate Purchase Price of the shares of common stock sold in the Syndicated Community Offering. From this fee, KBW will pass onto selected broker-dealers, who assist in the syndicated community, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar

Asheville Savings Bank, S.S.B.

February 18, 2011

Page 4

market environment. Fees with respect to purchases affected with the assistance of a broker/dealer other than KBW shall be transmitted by KBW to such broker/dealer. The decision to utilize selected broker-dealers will be made by the Company upon consultation with KBW.

5. Expenses

The Company will bear those expenses of the proposed Offering customarily borne by issuers, including, without limitation, regulatory filing fees, SEC, “Blue Sky,” and FINRA filing and registration fees; the fees of the Company’s accountants, attorneys, appraiser, transfer agent and registrar, printing, mailing and marketing and syndicate expenses associated with the Offering; the fees set forth in Section 4; and fees for “Blue Sky” legal work. If KBW incurs expenses on behalf of Company, the Company will reimburse KBW for such expenses.

KBW shall be reimbursed for its reasonable out-of-pocket expenses related to the Offering, including costs of travel, meals and lodging, photocopying, telephone, facsimile, and couriers not to exceed $25,000. KBW also will be reimbursed for fees and expenses of its counsel not to exceed $75,000. These expenses assume no unusual circumstances or delays, or a re-solicitation in connection with the Offerings. KBW and the Company acknowledge that such expense cap may be increased by mutual consent, including in the event of: (i) a material delay in the Offering which would require an update of the financial information in tabular form to reflect a period later than that set forth in the original filing of the offering document; or (ii) a resolicitation of the Offering. In the event of such a delay or resolicitation, KBW shall be entitled to additional expense reimbursement not to exceed $25,000. The provisions of this paragraph are not intended to apply to or in any way impair or limit the indemnification provisions contained herein.

6. Limitations

The Company acknowledges that all opinions and advice (written or oral) given by KBW to the Company in connection with KBW’s engagement are intended solely for the benefit and use of the Company for the purposes of its evaluation of the proposed Offerings. Unless otherwise expressly stated in an opinion letter issued by KBW or otherwise expressly agreed, no one other than the Company is authorized to rely upon this engagement of KBW or any statements or conduct by KBW. The Company agrees that no such opinion or advice shall be used, reproduced, disseminated, quoted or referred to at any time, in any manner, or for any purpose, nor shall any public references to KBW be made by the Company or any of its representatives without the prior written consent of KBW.

The Company acknowledges and agrees that KBW has been retained to act solely as financial advisor to the Company and not as an advisor to or agent of any other person, and the Company’s engagement of KBW is not intended to confer rights upon any person not a party to this Agreement (including shareholders, employees or creditors of the Company) as against

Asheville Savings Bank, S.S.B.

February 18, 2011

Page 5

KBW or its affiliates, or their respective directors, officers, employees or agents. In such capacity, KBW shall act as an independent contractor, and any duties arising out of its engagement shall be owed solely to the Company. It is understood that KBW’s responsibility to the Company is solely contractual in nature and KBW does not owe the Company, or any other party, any fiduciary duty as a result of this Agreement.

7. Benefit

This letter agreement shall inure to the benefit of the parties hereto and their respective successors, and the obligations and liabilities assumed hereunder by the parties hereto shall be binding upon their respective successors; provided, however, that this letter agreement shall not be assignable by KBW.

8. Confidentiality

KBW acknowledges that a portion of the Information may contain confidential and proprietary business information concerning the Company. KBW agrees that, except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, KBW agrees that it will treat as confidential all material, non-public information relating to the Company obtained in connection with its engagement hereunder (the “Confidential Information); provided, however, that KBW may disclose such Confidential Information to its agents and advisors who are assisting or advising KBW in performing its services hereunder and who have agreed to be bound by the terms and conditions of this paragraph. As used in this paragraph, the term “Confidential Information” shall not include information which (a) is or becomes generally available to the public other than as a result of a disclosure by KBW, (b) was available to KBW on a non-confidential basis prior to its disclosure to KBW by the Company, or (c) becomes available to KBW on a non-confidential basis from a person other than the Company who is not otherwise known to KBW to be bound not to disclose such information pursuant to a contractual, legal or fiduciary obligation.

The Company hereby acknowledges and agrees that the presentation materials and financial models used by KBW in performing its services hereunder have been developed by and are proprietary to KBW. The Company agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior consent from KBW in writing.

9. Indemnification

As KBW will be acting on behalf of the Company in connection with the Offerings, the Company agrees to indemnify and hold harmless KBW and its affiliates, the respective partners, directors, officers, employees and agents of KBW and its affiliates and each other person, if any, controlling KBW or any of its affiliates and each of their successors and assigns (KBW and each

Asheville Savings Bank, S.S.B.

February 18, 2011

Page 6

such person being an “Indemnified Party”) to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise related to or arising out of the Offerings or the engagement of KBW pursuant to, or the performance by KBW of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses (including reasonable legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation, preparing for or defending any such action or claim whether or not in connection with pending or threatened litigation, or any action or proceeding arising therefrom, whether or not KBW is a party; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (a) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Company by KBW expressly for use therein or (b) to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from KBW’s gross negligence or bad faith of KBW.

If the indemnification provided for in the foregoing paragraph is judicially determined to be unavailable (other than in accordance with the terms hereof) to any person otherwise entitled to indemnity in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such person hereunder, the Company shall contribute to the amount paid or payable by such person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and KBW, on the other hand, of the engagement provided for in this Agreement or (ii) if the allocation provided for in clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of the Company and KBW, as well as any other relevant equitable considerations; provided, however, in no event shall KBW’s aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by KBW under this Agreement. For the purposes of this Agreement, the relative benefits to the Company and to KBW of the engagement under this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company in the Conversion and the Offerings that are the subject of the engagement hereunder, whether or not consummated, bears to (b) the fees paid or to be paid to KBW under this Agreement.

10. Definitive Agreement

This letter agreement reflects KBW’s present intention of proceeding to work with the Company on its proposed Offerings. No legal and binding obligation is created on the part of the Company or KBW with respect to the subject matter hereof, except as to (i) the agreement to maintain the confidentiality of Confidential Information set forth in Section 8, (ii) the payment of

Asheville Savings Bank, S.S.B.

February 18, 2011

Page 7

certain fees as set forth in Section 4, (iii) the payment of expenses as set forth in Section 5, (iv) the limitations set forth in Section 6, (v) the indemnification and contribution provisions set forth in Section 9 and (vi) those terms set forth in a mutually agreed upon Agency Agreement between KBW and the Company to be executed prior to commencement of the Offerings, all of which shall constitute the binding obligations of the parties hereto and which shall survive the termination of this letter agreement or the completion of the services furnished hereunder and shall remain operative and in full force and effect.

KBW’s execution of such Agency Agreement shall also be subject to (a) KBW’s satisfaction with Due Diligence Review, (b) preparation of offering materials that are satisfactory to KBW, (c) compliance with all relevant legal and regulatory requirements to the reasonable satisfaction of KBW and its counsel, (d) agreement that the price established by the independent appraiser is reasonable, and (e) market conditions at the time of the proposed Offering.

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. Any right to trial by jury with respect to any claim or action arising out of this agreement or conduct in connection with this engagement is hereby waived by the parties.

Asheville Savings Bank, S.S.B.

February 18, 2011

Page 8

If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning the original copy of this letter to the undersigned.

Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
By:	/s/ Charles E. Sloane
	Charles E. Sloane
	Managing Director
ASHEVILLE SAVINGS BANK, S.S.B.
By:	/s/ Suzanne S. DeFerie	Date:	3/11/11
	Suzanne S. DeFerie
	President

EX-2.1

Exhibit 2.1

ASHEVILLE SAVINGS BANK, S.S.B.

PLAN OF CONVERSION

ADOPTED ON MARCH 15, 2011

TABLE OF CONTENTS

			PAGE
1.	Introduction			1
2.	Definitions			1
3.	General Procedure for the Conversion			4
	(a)	Organization of the Holding Company and the Bank		4
	(b)	Effect on Deposit Accounts and Borrowings		5
	(c)	The Bank		5
	(d)	The Holding Company		5
	(e)	Applications and Regulatory and Member Approval		5
	(f)	Expenses		6
4.	Total Number of Shares and Purchase Price of Common Stock			6
5.	Subscription Rights of Eligible Account Holders (First Priority)			7
6.	Subscription Rights of Tax-Qualified Employee Stock Benefit Plans (Second Priority)			7
7.	Subscription Rights of Supplemental Eligible Account Holders (Third Priority)			8
8.	Subscription Rights of Other Members (Fourth Priority)			8
9.	Community Offering, Syndicated Community Offering, Public Offering and Other Offerings			8
10.	Limitations on Subscriptions and Purchases of Common Stock			10
11.	Timing of Subscription Offering; Manner of Exercising Subscription Rights and Order Forms			11
12.	Payment for Common Stock			12
13.	Account Holders in Nonqualified States or Foreign Countries			13
14.	Requirements Following the Conversion for Registration, Market Making and Stock Exchange Listing			13
15.	Liquidation Account			13
16.	Completion of the Conversion			14
17.	Requirements for Stock Purchases by Directors and Officers Following the Conversion			14
18.	Restrictions on Transfer of Stock			15
19.	Stock Compensation Plans			15
20.	Dividend and Repurchase Restrictions on Stock			15
21.	Amendment or Termination of the Plan			16
22.	Interpretation of the Plan			16

i

1. INTRODUCTION.

For purposes of this section, all capitalized terms have the meanings ascribed to them in Section 2.

This Plan of Conversion provides for the conversion of Asheville Savings Bank, S.S.B. (the “Bank”) from a North Carolina chartered mutual savings bank into a North Carolina chartered stock savings bank. The Plan provides that the Bank will operate as a wholly-owned subsidiary of a stock holding company (the “Holding Company”).

The Board of Directors of the Bank has considered the alternatives available to the Bank with respect to its corporate structure, and has determined that a mutual to stock conversion, as described in this Plan, will be in the best interests of the Bank and its customers. The Conversion will raise capital which will enable the Bank to: (1) support future lending and operational growth, including branching activities and acquisitions of other financial institutions or financial services companies; (2) increase its ability to render services to the communities it serves; (3) compete more effectively with commercial banks and other financial institutions for new business opportunities; and (4) increase its equity capital base and access the capital markets when needed. The Conversion will also enable the Holding Company and the Bank to adopt stock benefit plans that will make the Bank more competitive in providing incentive compensation to management and employees.

The Plan provides that non-transferable subscription rights to purchase the Common Stock of the Holding Company shall be granted to certain Members of the Bank pursuant to the Plan and in accordance with the rules and regulations of the Commissioner and FDIC. The price of the Common Stock to be sold in the Conversion will be based upon an independent appraisal of the Bank and will reflect its estimated pro forma market value, as converted. No change will be made in the board of directors or management of the Bank as a result of the Conversion.

The Plan was adopted by the Bank’s Board of Directors on March 15, 2011. The Plan is subject to the approval of the Commissioner and the non-objection of the FDIC and must be approved by the affirmative vote of at least a majority of the total votes eligible to be cast by the Voting Members at the Special Meeting. The acquisition of the Bank by the Holding Company must be approved by the FRB.

After the Conversion, the Bank will continue to be regulated by the Commissioner, as its chartering authority, and by the FDIC, which insures the Bank’s deposits. In addition, all insured savings deposits will continue to be insured by the FDIC up to the maximum limit provided by law. The Holding Company will be regulated by the FRB.

2. DEFINITIONS.

As used in this Plan, the terms set forth below have the following meaning:

ACTING IN CONCERT means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A Person or company which acts in concert with another Person or company (“other party”) shall also be deemed to be acting in concert with any Person or company who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated and participants or beneficiaries of any such Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert solely as a result of their common interests as participants or beneficiaries. When Persons act together for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is Acting in Concert shall be made solely by the Boards of Directors of the Holding Company and the Bank or Officers delegated by such Boards and may be based on any evidence upon which the Board or such delegatee chooses to rely, including, without limitation, joint account relationships or the fact that such Persons share a common address (whether or not related by blood or marriage) or have filed joint Schedules 13D or Schedules 13G with the SEC with respect to other companies. Directors of the Holding Company and the Bank shall not be deemed to be Acting in Concert solely as a result of their membership on such board or boards.

1

ACTUAL PURCHASE PRICE means the price per share at which the Common Stock is ultimately sold by the Holding Company in the Offerings in accordance with the terms hereof.

AFFILIATE means a Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.

ASSOCIATE of a Person means (i) a corporation or organization (other than the Holding Company, the Bank or a majority-owned subsidiary of the Holding Company or the Bank), if the Person is a senior officer or partner or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization, (ii) a trust or other estate, if the Person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate, provided, however, that such term shall not include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or the Bank in which such Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any person who is related by blood or marriage to such Person and who lives in the same home as the Person or who is a director or senior officer of the Holding Company or the Bank or any of their subsidiaries.

BANK means Asheville Savings Bank, S.S.B.

BANK BENEFIT PLAN(S) includes, but is not limited to, Tax Qualified Employee Stock Benefit Plans and Non-Tax Qualified Employee Stock Benefit Plans.

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

COMMISSIONER means the North Carolina Commissioner of Banking.

COMMON STOCK means the shares of common stock to be issued and sold by the Holding Company in the Offerings and to be contributed to the Foundation, all pursuant to the Plan. The Common Stock will not be insured by the Federal Deposit Insurance Corporation.

COMMUNITY OFFERING means the offering for sale by the Holding Company of any shares of Common Stock not subscribed for in the Subscription Offering to such Persons as may be selected by the Holding Company and the Bank in their sole discretion and to whom a copy of the Prospectus is delivered by or on behalf of the Holding Company.

CONTROL (including the terms “controlling,” “controlled by,” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

CONVERSION means the conversion of the Bank to stock form pursuant to this Plan, and all steps incident thereto.

DEPOSIT ACCOUNT means any withdrawable account as defined in the Rules and Regulations of the Commissioner, including a demand account as defined in the Rules and Regulations of the Commissioner.

ELIGIBLE ACCOUNT HOLDER means any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining Subscription Rights.

ELIGIBILITY RECORD DATE means the date for determining Qualifying Deposits of Eligible Account Holders and is the close of business on February 28, 2010.

ESOP means a Tax Qualified Employee Stock Benefit Plan adopted by the Holding Company or the Bank in connection with the Conversion, the purpose of which shall be to acquire shares of Common Stock.

ESTIMATED PRICE RANGE means the range of the estimated aggregate pro forma market value of the total number of shares of Common Stock to be issued in the Offerings, as determined by the Independent Appraiser in accordance with Section 4 hereof.

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FDIC means the Federal Deposit Insurance Corporation, or any successor thereto.

FRB means the Board of Governors of the Federal Reserve Board System.

HOLDING COMPANY means the stock corporation that will hold all of the outstanding capital stock of the Bank upon completion of the Conversion.

INDEPENDENT APPRAISER means the independent financial consulting firm retained by the Holding Company and the Bank to prepare an appraisal of the estimated pro forma market value of the Common Stock.

INITIAL PURCHASE PRICE means the price per share to be paid initially by Participants for shares of Common Stock subscribed for in the Subscription Offering and by Persons for shares of Common Stock ordered in the Community Offering and/or Syndicated Community Offering.

LOCAL COMMUNITY means Buncombe, Madison, McDowell, Henderson and Transylvania Counties in North Carolina.

MANAGEMENT PERSON means any Officer or director of the Bank or the Holding Company or any Affiliate of the Bank or the Holding Company and any person Acting in Concert with such Officer or director.

MEMBER means any Person qualifying as a member of the Bank in accordance with its mutual charter and bylaws and the laws of the United States.

OFFERINGS mean the offering of Common Stock in the Subscription Offering, the Community Offering, the Syndicated Community Offering or the Public Offering.

OFFICER means the chairman of the board, president, chief executive officer, vice-president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer and any other person performing similar functions with respect to any organization whether incorporated or unincorporated.

ORDER FORM means the form or forms to be provided by the Holding Company, containing all such terms and provisions as set forth in Section 11 hereof, to a Participant or other Person by which Common Stock may be ordered in the Offerings.

OTHER MEMBER means a Voting Member who is not an Eligible Account Holder or a Supplemental Eligible Account Holder.

PARTICIPANT means any Eligible Account Holder, Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder or Other Member, but does not include the Foundation.

PERSON means an individual, a corporation, a partnership, an association, a joint-stock company, a limited liability company, a trust, an unincorporated organization or a government or any political subdivision of a government.

PLAN OF CONVERSION means this Plan of Conversion as adopted by the Board of Directors of the Bank and any amendment hereto approved as provided herein.

PREFERRED SUBSCRIBERS means natural persons and trusts of natural persons residing in the Local Community.

PROSPECTUS means the one or more documents to be used in offering the Common Stock in the Offerings.

PUBLIC OFFERING means an underwritten firm commitment offering to the public through one or more underwriters.

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QUALIFYING DEPOSIT means the aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50.00, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.00.

SEC means the Securities and Exchange Commission, or any successor thereto.

SPECIAL MEETING means the special meeting of members of the Bank called for the purpose of submitting this Plan and the formation of the Foundation to the Members for their approval, including any adjournments or postponements of such meeting.

SUBSCRIPTION OFFERING means the offering of the Common Stock to Participants.

SUBSCRIPTION RIGHTS mean nontransferable rights to subscribe for Common Stock granted to Participants pursuant to the terms of this Plan.

SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER means any Person, except directors and Officers of the Bank or the Holding Company and their Associates (unless the Commissioner and FDIC grant a waiver to permit a director or Officer or Associate to be included), holding a Qualifying Deposit at the close of business on the Supplemental Eligibility Record Date.

SUPPLEMENTAL ELIGIBILITY RECORD DATE, if applicable, means the date for determining Supplemental Eligible Account Holders and shall be required if the Eligibility Record Date is more than 15 months before the date of the approval of the Conversion by the Commissioner and FDIC. If applicable, the Supplemental Eligibility Record Date shall be the last day of the calendar quarter preceding the Commissioner and FDIC approval of the Conversion.

SYNDICATED COMMUNITY OFFERING means the offering for sale by a syndicate of broker-dealers to the general public of shares of Common Stock not purchased in the Subscription Offering and the Community Offering.

TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which is established for the benefit of the employees of the Holding Company and/or the Bank and any Affiliate thereof and which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Code as from time to time in effect. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution stock benefit plan that is not so qualified.

VOTING MEMBER means a Person who, at the close of business on the Voting Record Date, is entitled to vote as a Member of the Bank in accordance with its mutual charter and bylaws.

VOTING RECORD DATE means the date or dates for determining the eligibility of Members to vote at the Special Meeting.

3. GENERAL PROCEDURE FOR THE CONVERSION.

(a) Organization of the Holding Company and the Bank

The Bank will apply to the Commissioner and FDIC to have the Holding Company retain up to 50% of the net proceeds of the Offerings, or such other amount as may be determined by the Board of Directors. The Bank may distribute additional capital to the Holding Company following the Conversion, subject to the Commissioner regulations governing capital distributions.

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(b) Effect on Deposit Accounts and Borrowings

Each deposit account in the Bank on the effective date of the Conversion, will remain a deposit account in the Bank after the Conversion in the same amount and upon the same terms and conditions, and will continue to be federally insured up to the legal maximum by the FDIC in the same manner as each deposit account existed in the Bank immediately before the Conversion. Holders of deposit accounts in the Bank shall not, as such holders, have any voting rights. Upon consummation of the Conversion, all loans and other borrowings from the Bank shall retain the same status with the Bank after the Conversion, as they had with the Bank immediately before the Conversion.

(c) The Bank

Upon completion of the Conversion, the Bank will be authorized to exercise any and all powers, rights and privileges of, and will be subject to all limitations applicable to, capital stock savings banks under North Carolina law. The Conversion will not result in any reduction of the amount of retained earnings and general loss reserves will be accounted for by the Holding Company and the Bank on a consolidated basis in accordance with generally accepted accounting principles. Copies of the proposed North Carolina stock charter and bylaws of the Bank are attached hereto and made a part of this Plan. By their approval of this Plan, the Voting Members shall have approved and adopted the North Carolina stock charter and bylaws of the Bank.

The initial members of the Board of Directors of the Bank upon the completion of the Conversion will be the members of the Board of Directors of the Bank at the time of the adoption of the Plan of Conversion who continue to be directors of the Bank at the time of the closing of the Conversion. Following the Conversion, the Bank will be wholly-owned by the Holding Company. The Holding Company will be wholly-owned by its stockholders who will initially consist of the persons who purchase Common Stock in the Offerings.

(d) The Holding Company

The Holding Company will be authorized to exercise any and all powers, rights and privileges, and will be subject to all limitations applicable to bank holding companies under federal law and regulations. The initial members of the Board of Directors of the Holding Company will be appointed by the Bank. Thereafter, the voting stockholders of the Holding Company will elect approximately one-third of the Holding Company’s directors annually. The total shares of Common Stock authorized under the Holding Company articles of incorporation will exceed the shares of Common Stock to be issued in the Conversion.

(e) Applications and Regulatory and Member Approval

The Bank will take the necessary steps to prepare and file a Notice of Intent to Convert to Stock Form to get the written non-objection of the FDIC of the Conversion and take all steps necessary to prepare and file the Application for Conversion, including the Plan, together with all requisite material, with the Commissioner for approval. Once the Application for Conversion is filed, the Bank will again cause to be published, in accordance with the requirements of applicable regulations of the Commissioner, notice of the filing of the Application for Conversion with the Commissioner, and will post notice of the filing of the Application for Conversion in each office of the Bank.

As soon as practicable after the adoption of the Plan by the Board of Directors of the Bank, the proposed Board of Directors of the Holding Company shall adopt the Plan by at least a two-thirds vote. The proposed Board of Directors of the Holding Company shall cause to be filed with the Commissioner and FDIC and FRB such applications as may be required for approval of the Holding Company’s acquisition of the Bank and file with the SEC a Registration Statement to register the Common Stock under the Securities Act of 1933, as amended. The proposed Board of Directors of the Holding Company shall also register or qualify the Common Stock under any applicable state securities laws, subject to Section 13 hereof.

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Promptly following receipt of requisite approval of the Commissioner and FDIC, the Plan will be submitted to the Voting Members for their consideration and approval at the Special Meeting. The Bank may, at its option, mail to all Voting Members, at their last known address appearing on the records of the Bank, a proxy statement in either long form, or to the extent permitted by applicable laws and regulations, summary form describing the Plan, which will be submitted to a vote of the Voting Members at the Special Meeting. If the Plan is approved by the affirmative vote of a majority of the total number of votes eligible to be cast by Voting Members at the Special Meeting, the Bank shall take all other necessary organizational steps pursuant to applicable laws and regulations to amend its charter and bylaws to authorize the issuance of its capital stock to the Holding Company at the time the Conversion is consummated.

(f) Expenses

The Holding Company and the Bank may retain and pay for the services of financial and other advisors and investment bankers to assist in connection with any or all aspects of the Conversion, including in connection with the Offerings, the payment of fees to brokers for assisting Persons in completing and/or submitting Order Forms. The Bank shall use its best efforts to ensure that all fees, expenses, retainers and similar items shall be reasonable.

4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF COMMON STOCK.

(a) The aggregate price at which shares of Common Stock shall be sold in the Offerings shall be based on a pro forma valuation of the aggregate market value of the Common Stock prepared by the Independent Appraiser. The valuation shall be based on financial information relating to the Holding Company and the Bank, market, financial and economic conditions, a comparison of the Holding Company and the Bank with selected publicly-held financial institutions and holding companies and with comparable financial institutions and holding companies and such other factors as the Independent Appraiser may deem to be important, including, but not limited to, the projected operating results and financial condition of the Holding Company and Bank. The valuation shall be stated in terms of an Estimated Price Range, the maximum of which shall be no more than 15% above the average of the minimum and maximum of such price range and the minimum of which shall be no more than 15% below such average. The valuation shall be updated during the Conversion as market and financial conditions warrant and as may be required by the Commissioner and FDIC.

(b) Based upon the independent valuation, the Boards of Directors of the Holding Company and the Bank shall fix the Initial Purchase Price and the number of shares of Common Stock to be offered in the Offerings. The purchase price per share for the Common Stock shall be a uniform price determined in accordance with applicable Commissioner and FDIC rules and regulations. The Actual Purchase Price and the total number of shares of Common Stock to be issued in the Offerings shall be determined by the Boards of Directors of the Holding Company and the Bank upon conclusion of the Offerings in consultation with the Independent Appraiser and any financial advisor or investment banker retained by the Holding Company in connection with such offering.

(c) Subject to the approval of the Commissioner and FDIC, the Estimated Price Range may be increased or decreased to reflect market, financial and economic conditions before completion of the Conversion or to fill the Order of the Tax-Qualified Employee Stock Benefit Plans, and under such circumstances the Holding Company and the Bank may increase or decrease the total number of shares of Common Stock to be issued in the Conversion to reflect any such change. Notwithstanding anything to the contrary contained in this Plan, no resolicitation of subscribers shall be required and subscribers shall not be permitted to modify or cancel their subscriptions unless the gross proceeds from the sale of the Common Stock in the Offerings are less than the minimum or more than 15% above the maximum of the Estimated Price Range set forth in the Prospectus. In the event of an increase in the total number of shares offered in the Offerings due to an increase in the Estimated Price Range, the priority of share allocation shall be as set forth in this Plan.

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5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY).

(a) Each Eligible Account Holder shall receive, as first priority and without payment, Subscription Rights to purchase up to the greater of (i) $300,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Eligible Account Holders, in each case subject to Sections 10 and 13 hereof.

(b) In the event of an oversubscription for shares of Common Stock pursuant to Section 5(a), available shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any available shares remaining after each subscribing Eligible Account Holder has been allocated the lesser of the number of shares subscribed for or 100 shares shall be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the Qualifying Deposit of each such subscribing Eligible Account Holder bears to the total Qualifying Deposits of all such subscribing Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued.

Subscription Rights of Eligible Account Holders who are also directors or Officers of the Holding Company or the Bank and their Associates shall be subordinated to those of other Eligible Account Holders to the extent that they are attributable to increased deposits during the one-year period preceding the Eligibility Record Date.

6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS (SECOND PRIORITY).

Tax-Qualified Employee Stock Benefit Plans (excluding the Bank’s 401(k) plan) shall receive, without payment, Subscription Rights to purchase in the aggregate up to 10% of the Common Stock sold in the Offerings, including (i) any shares of Common Stock to be issued in the Conversion as a result of an increase in the Estimated Price Range after commencement of the Subscription Offering and before completion of the Offerings; and (ii) any shares of Common Stock contributed to the Foundation. The subscription rights granted to Tax-Qualified Employee Stock Benefit Plans shall be subject to the availability of shares of Common Stock after taking into account the shares of Common Stock purchased by Eligible Account Holders; provided, however, that if the total number of shares of Common Stock is increased to any amount greater than the number of shares representing the maximum of the Estimated Price Range as set forth in the Prospectus (“Maximum Shares”), the ESOP shall have a priority right to purchase any such shares exceeding the Maximum Shares up to an aggregate of 10% of Common Stock sold in the Offerings and contributed to the Foundation. Shares of Common Stock purchased by any individual participant (“Plan Participant”) in a Tax-Qualified Employee Stock Benefit Plan using funds therein pursuant to the exercise of subscription rights granted to such Participant in his individual capacity as an Eligible Account Holder and/or supplemental Eligible Account Holder and/or purchases by such Plan Participant in the Community Offering shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of calculating the maximum amount of Common Stock that Tax-Qualified Employee Stock Benefit Plans may purchase pursuant to the first sentence of this Section 6 if the individual Plan Participant controls or directs the investment authority with respect to such account or subaccount. Consistent with applicable laws and regulations and policies and practices of the Commissioner, FDIC and FRB, the Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent financial institution to exercise such Subscription Rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Bank to fail to meet any applicable regulatory capital requirement. The Tax-Qualified Employee Stock Benefit Plans may fill their orders to purchase Common Stock, in whole or in part, through open market purchases after the closing of the Offerings, subject to approval of the Commissioner, FDIC and FRB.

The Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be an Associate or Affiliate of or Person Acting in Concert with any Management Person.

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7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY).

(a) In the event that the Eligibility Record Date is more than 15 months before the date of Commissioner and FDIC approval of the Plan, then, and only in that event, a Supplemental Eligibility Record Date shall be set and each Supplemental Eligible Account Holder shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $300,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Supplemental Eligible Account Holders, in each case subject to Sections 10 and 13 hereof and the availability of shares of Common Stock for purchase after taking into account the shares of Common Stock purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans through the exercise of Subscription Rights under Sections 5 and 6 hereof.

(b) In the event of an oversubscription for shares of Common Stock pursuant to Section 7(a), available shares shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation (including the number of shares, if any, allocated in accordance with Section 5(a)) equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of their respective Qualifying Deposits bears to the total amount of the Qualifying Deposits of all such subscribing Supplemental Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued.

8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY).

(a) Each Other Member shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $300,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering) and (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, subject to Sections 10 and 13 hereof and the availability of shares of Common Stock for purchase after taking into account the shares of Common Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental Eligible Account Holders, if any, through the exercise of Subscription Rights under Sections 5, 6 and 7 hereof.

(b) If, pursuant to this Section 8, Other Members subscribe for a number of shares of Common Stock in excess of the total number of shares of Common Stock remaining, available shares shall be allocated among subscribing Other Members so as to permit each such Other Member, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Other Members whose subscriptions remain unsatisfied on a pro rata basis in the same proportion as each such Other Member’s subscription bears to the total subscriptions of all such subscribing Other Members, provided that no fractional shares shall be issued.

9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC OFFERING AND OTHER OFFERINGS.

(a) If less than the total number of shares of Common Stock offered by the Holding Company are sold in the Subscription Offering, it is anticipated that all remaining shares of Common Stock shall, if practicable, be sold in a Community Offering. Subject to the requirements set forth herein, the manner in which the Common Stock is sold in the Community Offering shall have as the objective the achievement of the widest possible distribution of such stock.

(b) In the event of a Community Offering, all shares of Common Stock that are not subscribed for in the Subscription Offering shall be offered for sale by means of a direct community marketing program, which may provide for the use of brokers, dealers or investment banking firms experienced in the sale of financial institution securities. Any available shares in excess of those not subscribed for in the Subscription Offering will be available

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for purchase by members of the general public to whom a Prospectus is delivered by the Holding Company or on its behalf, with preference given first to Preferred Subscribers).

(c) A Prospectus and Order Form shall be furnished to such Persons as the Holding Company and the Bank may select in connection with the Community Offering, and each order for Common Stock in the Community Offering shall be subject to the absolute right of the Holding Company and the Bank to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable following completion of the Community Offering. Available shares will be allocated first to each Preferred Subscriber whose order is accepted in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such Preferred Subscriber, if possible. Thereafter, unallocated shares shall be allocated among the Preferred Subscribers whose accepted orders remain unsatisfied in the same proportion that the unfilled order bears to the total unfilled orders of all Preferred Subscribers whose accepted orders remain unsatisfied, provided that no fractional shares shall be issued. If there are any shares remaining after all accepted orders by Preferred Subscribers have been satisfied, such remaining shares shall be allocated to other members of the general public who purchase in the Community Offering, applying the same allocation described above for Preferred Subscribers.

(d) The amount of Common Stock that any Person may purchase in the Community Offering shall not exceed $300,000 of Common Stock, provided, however, that this amount may be increased to up to 5% of the total offering of shares of Common Stock or decreased to less than $300,000, subject to any required regulatory approval but without the further approval of the Members or the resolicitation of subscribers; and provided further that to the extent applicable, and subject to the preferences set forth in Section 9(b) and (c) of this Plan and the limitations on purchases of Common Stock set forth in this Section 9(d) and Section 10 of this Plan, orders for Common Stock in the Community Offering shall first be filled to a maximum of 2% of the total number of shares of Common Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company and the Bank may commence the Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering, and the Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Bank with any required regulatory approval.

(e) Subject to such terms, conditions and procedures as may be determined by the Holding Company and the Bank, all shares of Common Stock not subscribed for in the Subscription Offering or ordered in the Community Offering may be sold by a syndicate of broker-dealers to the general public in a Syndicated Community Offering. Each order for Common Stock in the Syndicated Community Offering shall be subject to the absolute right of the Holding Company and the Bank to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering. The amount of Common Stock that any Person may purchase in the Syndicated Community Offering shall not exceed $300,000 of Common Stock, provided, however, that this amount may be increased to up to 5% of the total offering of shares of Common Stock or decreased to less than $300,000, subject to any required regulatory approval but without the further approval of the Members or the resolicitation of subscribers; and provided further that, to the extent applicable, and subject to the limitations on purchases of Common Stock set forth in this Section 9(e) and Section 10 of this Plan, orders for Common Stock in the Syndicated Community Offering shall first be filled to a maximum of 2% of the total number of shares of Common Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company and the Bank may commence the Syndicated Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering and/or Community Offering, and the Syndicated Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Bank with any required regulatory approval.

(f) The Holding Company and the Bank may sell any shares of Common Stock remaining following the Subscription Offering, Community Offering and/or the Syndicated Community Offering in a Public Offering. The provisions of Section 10 hereof shall not be applicable to the sales to underwriters for purposes of the Public Offering but shall be applicable to sales by the underwriters to the public. The price to be paid by the underwriters in such an offering shall be equal to the Actual Purchase Price less an underwriting discount to be negotiated among such underwriters and the Holding Company and the Bank, subject to any required regulatory approval or consent.

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(g) If for any reason a Syndicated Community Offering or Public Offering of shares of Common Stock not sold in the Subscription Offering and the Community Offering cannot be effected, or if any insignificant residue of shares of Common Stock is not sold in the Subscription Offering, Community Offering or Syndicated Community Offering, the Holding Company and the Bank shall use their best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the Commissioner and FDIC.

10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF COMMON STOCK.

The following limitations shall apply to all purchases of Common Stock in the Offerings:

(a) The maximum amount of Common Stock that may be subscribed for or purchased in all categories of the Offerings by any Person, together with any Associate or group of Persons Acting in Concert, shall not exceed $500,000, except for Tax-Qualified Employee Stock Benefit Plans.

(b) The maximum number of shares of Common Stock which may be purchased in the Conversion by the ESOP shall not exceed 8%, and all Tax-Qualified Employee Stock Benefit Plans shall not exceed 10%, of the total number of shares of Holding Company Common Stock issued in the Conversion, in each instance, including (i) any shares which may be issued in the event of an increase in the maximum Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and before completion of the Offerings, and (ii) any shares of Common Stock contributed to the Foundation; provided, however, that purchases of Common Stock which are made by Plan Participants pursuant to the exercise of Subscription Rights granted to such Plan Participant in his or her individual capacity as a Participant or purchases by a Plan Participant in the Community Offering using the funds thereof held in Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of this Section 10(b).

(c) No Person may purchase fewer than 25 shares of Common Stock in the Offerings, to the extent such shares are available; provided, however, that if the Actual Purchase Price is greater than $20.00 per share, such minimum number of shares shall be adjusted so that the aggregate Actual Purchase Price for such minimum shares will not exceed $500.00.

(d) The maximum amount of Common Stock that directors and officers of the Holding Company or the Bank and their Associates may purchase in the aggregate in the Offerings shall not exceed 25% of the total number of shares of Common Stock sold in the Offerings, including any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and before completion of the Offerings.

(e) For purposes of the foregoing limitations and the determination of Subscription Rights, (i) directors, Officers and employees of the Holding Company, the Bank or their subsidiaries shall not be deemed to be Associates or a group Acting in Concert solely as a result of their capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in Section 10(b) hereof, and (iii) shares purchased by a Tax-Qualified Employee Stock Benefit Plan pursuant to instructions of an individual in an account in such plan in which the individual has the right to direct the investment, including any plan of the Bank qualified under Section 401(k) of the Code, shall be aggregated and included in that individual’s purchases and not attributed to the Tax-Qualified Employee Stock Benefit Plan.

(f) Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the Members, the Holding Company and the Bank may increase or decrease any of the individual or aggregate purchase limitations set forth herein to a percentage which does not exceed 5% of the total offering of shares of Common Stock in the Offerings whether before, during or after the Subscription Offering, Community Offering and/or Syndicated Community Offering. If an individual purchase limitation is increased after commencement of the Subscription Offering or any other offering, the Holding Company and the Bank shall permit any Person who subscribed for the maximum number of shares of Common Stock to purchase an additional number of shares, so that such Person shall be permitted to subscribe for the then maximum number of shares permitted to be subscribed for by such Person, subject to the rights and preferences of any Person who has priority Subscription Rights. If any of the individual or aggregate purchase limitations are decreased after

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commencement of the Subscription Offering or any other offering, the orders of any Person who subscribed for more than the new purchase limitation shall be decreased by the minimum amount necessary so that such Person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such Person. In the event that the maximum purchase limitation is increased to 5% of the shares sold in the Offerings, such limitation may be further increased to 9.99%, provided that orders for Common Stock exceeding 5% of the shares of Common Stock sold in the Offerings shall not exceed in the aggregate 10% of the total shares of Common Stock sold in the Offerings.

(g) The Holding Company and the Bank shall have the right to take all such action as they may, in their sole discretion, deem necessary, appropriate or advisable to monitor and enforce the terms, conditions, limitations and restrictions contained in this Section 10 and elsewhere in this Plan and the terms, conditions and representations contained in the Order Form, including, but not limited to, the absolute right (subject only to any necessary regulatory approvals or concurrences) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Common Stock that they believe might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all persons, and the Holding Company, the Bank and their respective Boards shall be free from any liability to any Person on account of any such action.

11. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING SUBSCRIPTION RIGHTS AND ORDER FORMS.

(a) The Offerings shall be conducted in compliance with the FDIC rules and regulations and the regulations of the Commissioner.

(b) The exact timing of the commencement of the Subscription Offering shall be determined by the Holding Company and the Bank in consultation with the Independent Appraiser and any financial or advisory or investment banking firm retained by them in connection with the Conversion. The Holding Company and the Bank may consider a number of factors, including, but not limited to, their current and projected future earnings, local and national economic conditions, and the prevailing market for stocks in general and stocks of financial institutions in particular. The Holding Company and the Bank shall have the right to withdraw, terminate, suspend, delay, revoke or modify any such Subscription Offering, at any time and from time to time, as they in their sole discretion may determine, without liability to any Person, subject to compliance with applicable securities laws and any necessary regulatory approval or concurrence.

(c) Promptly after the SEC has declared the Registration Statement, which includes the Prospectus, effective and all required regulatory approvals have been obtained, the Holding Company shall, distribute or make available the Prospectus, together with Order Forms for the purchase of Common Stock, to all Participants for the purpose of enabling them to exercise their respective Subscription Rights, subject to Section 13 hereof.

(d) A single Order Form for all Deposit Accounts maintained with the Bank by an Eligible Account Holder and any Supplemental Eligible Account Holder may be furnished, irrespective of the number of Deposit Accounts maintained with the Bank on the Eligibility Record Date and Supplemental Eligibility Record Date, respectively. No person holding a Subscription Right may exceed any otherwise applicable purchase limitation by submitting multiple orders for Common Stock. Multiple orders are subject to adjustment, as appropriate, on a pro rata basis and deposit balances will be divided equally among such orders in allocating shares in the event of an oversubscription.

(e) The recipient of an Order Form shall have no less than 20 days and no more than 45 days from the date of mailing of the Order Form (with the exact termination date to be set forth on the Order Form) to properly complete and execute the Order Form and deliver it to the Holding Company. The Holding Company may extend such period by such amount of time as it determines is appropriate. Failure of any Participant to deliver a properly executed Order Form to the Holding Company, along with full payment (or authorization for full payment by withdrawal) for the shares of Common Stock subscribed for, within the time limits prescribed, shall be deemed a waiver and release by such person of any rights to subscribe for shares of Common Stock. Each Participant shall be required to confirm to the Holding Company by executing an Order Form that such Person has fully complied with all of the terms, conditions, limitations and restrictions in the Plan.

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(f) The Holding Company and the Bank shall have the absolute right, in their sole discretion and without liability to any Participant or other Person, to reject any Order Form, including, but not limited to, any Order Form that is (i) improperly completed or executed; (ii) not timely received; (iii) not accompanied by the proper and full payment (or authorization of withdrawal for full payment) or, in the case of institutional investors in the Community Offering, not accompanied by an irrevocable order together with a legally binding commitment to pay the full amount of the purchase price before 48 hours before the completion of the Offerings; or (iv) submitted by a Person whose representations the Holding Company and the Bank believe to be false or who they otherwise believe, either alone, or Acting in Concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of the Plan. Furthermore, in the event Order Forms (i) are not delivered and are returned to the Holding Company by the United States Postal Service or the Holding Company is unable to locate the addressee, or (ii) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the Subscription Rights of the Person to which such rights have been granted will lapse as though such Person failed to return the contemplated Order Form within the time period specified thereon. The Holding Company and the Bank may, but will not be required to, waive any irregularity on any Order Form or may require the submission of corrected Order Forms or the remittance of full payment for shares of Common Stock by such date as they may specify. The interpretation of the Holding Company and the Bank of the terms and conditions of the Order Forms shall be final and conclusive.

12. PAYMENT FOR COMMON STOCK.

(a) Payment for shares of Common Stock subscribed for by Participants in the Subscription Offering and payment for shares of Common Stock ordered by Persons in the Community Offering shall be equal to the Initial Purchase Price multiplied by the number of shares that are being subscribed for or ordered, respectively. Such payment may be made in cash, if delivered in person, or by check, bank draft or money order at the time the Order Form is delivered to the Holding Company, provided that checks will only be accepted subject to collection. The Holding Company and the Bank, in their sole and absolute discretion, may also elect to receive payment for shares of Common Stock by wire transfer. In addition, the Holding Company may elect to provide Participants and/or other Persons who have a Deposit Account with the Bank the opportunity to pay for shares of Common Stock by authorizing the Bank to withdraw from such Deposit Account an amount equal to the aggregate Initial Purchase Price of such shares. Payment may also be made by a Participant using funds held for such Participant’s benefit by a Bank Benefit Plan to the extent that such plan allows participants or any related trust established for the benefit of such participants to direct that some or all of their individual accounts or sub-accounts be invested in Common Stock. If the Actual Purchase Price is less than the Initial Purchase Price, the Holding Company shall refund the difference to all Participants and other Persons, unless the Holding Company chooses to provide Participants and other Persons the opportunity on the Order Form to elect to have such difference applied to the purchase of additional whole shares of Common Stock. If the Actual Purchase Price is more than the Initial Purchase Price, the Holding Company shall reduce the number of shares of Common Stock ordered by Participants and other Persons and refund any remaining amount that is attributable to a fractional share interest, unless the Holding Company chooses to provide Participants and other Persons the opportunity to increase the Actual Purchase Price submitted by them.

(b) Notwithstanding the above, if the Tax-Qualified Employee Stock Benefit Plans subscribe for shares during the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock subscribed for by such plans at the Actual Purchase Price upon consummation of the Conversion, provided that, in the case of the Employee Stock Ownership Plan, there is in force from the time of its subscription until the consummation of the Offerings, a loan commitment to lend to the Employee Stock Ownership Plan, at such time, the aggregate price of the shares for which it subscribed.

(c) If a Participant or other Person authorizes the Bank to withdraw the amount of the Initial Purchase Price from his or her Deposit Account, the Bank shall have the right to make such withdrawal or to freeze funds equal to the aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding any regulatory provisions regarding penalties for early withdrawals from certificate accounts, the Bank may allow payment by means of withdrawal from certificate accounts without the assessment of such penalties. In the case of an early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if any applicable minimum balance requirement ceases to be met. In such case, the remaining balance will earn interest at the regular passbook rate. However, where any applicable minimum balance is maintained in such certificate account, the rate of return on the balance of the certificate account shall remain the same as before such early

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withdrawal. This waiver of the early withdrawal penalty applies only to withdrawals made in connection with the purchase of Common Stock and is entirely within the discretion of the Holding Company and the Bank.

(d) The subscription funds will be held by the Bank or, in the Bank’s discretion, in an escrow account at an unaffiliated insured financial institution. The Holding Company shall pay interest, at not less than the Bank’s passbook rate, for all amounts paid in cash, by check, bank draft or money order to purchase shares of Common Stock in the Subscription Offering and the Community Offering from the date payment is received until the date the Offerings are completed or terminated.

(e) The Holding Company will not offer or sell any of the Common Stock proposed to be issued to any Person whose purchase would be financed by funds loaned, directly or indirectly, to the Person by the Bank.

(f) Each share of Common Stock shall be non-assessable upon payment in full of the Actual Purchase Price.

13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.

The Holding Company and the Bank shall make reasonable efforts to comply with the securities laws of all jurisdictions in the United States in which Participants reside. However, no Participant will be offered or receive any Common Stock under the Plan if such Participant resides in a foreign country or resides in a jurisdiction of the United States with respect to which any of the following apply: (a) there are few Participants otherwise eligible to subscribe for shares under this Plan who reside in such jurisdiction; (b) the granting of Subscription Rights or the offer or sale of shares of Common Stock to such Participants would require any of the Holding Company or the Bank or their respective directors and Officers, under the laws of such jurisdiction, to register as a broker-dealer, salesman or selling agent or to register or otherwise qualify the Common Stock for sale in such jurisdiction, or any of the Holding Company or the Bank would be required to qualify as a foreign corporation or file a consent to service of process in such jurisdiction; or (c) such registration, qualification or filing in the judgment of the Holding Company and the Bank would be impracticable or unduly burdensome for reasons of cost or otherwise.

14. REQUIREMENTS FOLLOWING THE CONVERSION FOR REGISTRATION, MARKET MAKING AND STOCK EXCHANGE LISTING.

In connection with the Conversion, the Holding Company shall register the Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such stock for a period of three years thereafter. The Holding Company also shall use its best efforts to (i) encourage and assist a market maker to establish and maintain a market for the Common Stock, and (ii) list the Common Stock on a national or regional securities exchange or to have quotations for such stock disseminated on the Nasdaq Stock Market.

15. LIQUIDATION ACCOUNT.

(a) At the time of the Conversion, the Bank shall establish a liquidation account in an amount equal to the Bank’s net worth as reflected in its statement of financial condition contained in the Prospectus used in the Conversion. The function of the liquidation account will be to preserve the rights of certain holders of Deposit Accounts in the Bank who maintain such accounts in the Bank following the Conversion to a priority to distributions in the unlikely event of a liquidation of the Bank subsequent to the Conversion.

(b) The liquidation account shall be maintained for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders, if any, who maintain their Deposit Accounts in the Bank after the Conversion. Each such account holder will, with respect to each Deposit Account held, have a related inchoate interest in a portion of the liquidation account balance, which interest will be referred to in this Section 15 as the “subaccount balance.” All Deposit Accounts having the same social security number will be aggregated for purposes of determining the initial subaccount balance with respect to such Deposit Accounts, except as provided in Section 15(d) hereof.

(c) In the event of a complete liquidation of the Bank subsequent to the Conversion (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be entitled to receive a

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liquidation distribution from the liquidation account in the amount of the then current subaccount balances for Deposit Accounts then held (adjusted as described below) before any liquidation distribution may be made with respect to the capital stock of the Bank. No merger, consolidation, sale of bulk assets or similar combination transaction with another FDIC-insured institution in which the Bank is not the surviving entity shall be considered a complete liquidation for this purpose. In any such transaction, the liquidation account shall be assumed by the surviving entity.

(d) The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be determined by multiplying the opening balance in the liquidation account by a fraction, of which the numerator is the amount of the Qualifying Deposits of such account holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders, if any. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, if any, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Accounts on each such record date. Initial subaccount balances shall not be increased, and shall be subject to downward adjustment as provided below.

(e) If the aggregate deposit balance in the Deposit Account(s) of any Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the close of business on any annual closing date (which date is the Bank’s fiscal year end), commencing on or after the effective date of the Conversion, is less than the lesser of (a) the aggregate deposit balance in such Deposit Account(s) at the close of business on any other annual closing date subsequent to such record dates, or (b) the aggregate deposit balance in such Deposit Account(s) as of the Eligibility Record Date or the Supplemental Eligibility Record Date, if any, the subaccount balance for such Deposit Account(s) shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account(s). The subaccount balance of an Eligible Account Holder or Supplemental Eligible Account Holder, if any, will be reduced to zero if the Account Holder ceases to maintain a Deposit Account at the Bank that has the same social security number as appeared on his Deposit Account(s) at the Eligibility Record Date or, if applicable, the Supplemental Eligibility Record Date.

(f) After the Conversion, the Bank may not pay cash dividends generally on deposit accounts and/or capital stock of the Bank, or repurchase any of the capital stock of the Bank, if such dividend or repurchase would reduce the Bank’s regulatory capital below the aggregate amount of the then current subaccount balances for Deposit Accounts then held; otherwise, the existence of the liquidation account shall not operate to restrict the use or application of any of the net worth accounts of the Bank.

(g) For purposes of this Section 15, a Deposit Account includes a predecessor or successor account which is held by an Account Holder with the same social security number.

16. COMPLETION OF THE CONVERSION.

The effective date of the Conversion shall be the date of the closing of the sale of all shares of Common Stock. The closing of the sale of all shares of Common Stock sold in the Offerings shall occur simultaneously and shall be conditioned upon the prior receipt of all requisite regulatory and other approvals.

17. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION.

For a period of three years following the Conversion, the directors and Officers of the Holding Company and the Bank and their Associates may not purchase Common Stock without the prior written approval of the Commissioner and FDIC except from a broker-dealer registered with the SEC. This prohibition shall not apply, however, to (i) a negotiated transaction involving more than 1% of the outstanding Common Stock, and (ii) purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt of shareholder approval of such plan) even if such Common Stock may be attributable to individual Officers or directors and their

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Associates. The foregoing restriction on purchases of Common Stock shall be in addition to any restrictions that may be imposed by federal and state securities laws.

18. RESTRICTIONS ON TRANSFER OF STOCK.

All shares of Common Stock that are purchased by Persons other than directors and Officers of the Holding Company or the Bank shall be transferable without restriction. Shares of Common Stock purchased by directors and Officers of the Holding Company or the Bank on original issue from the Holding Company (by subscription or otherwise) shall be subject to the restriction that such shares shall not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares following the death of the original purchaser. The shares of Common Stock issued by the Holding Company to such directors and Officers shall bear the following legend giving appropriate notice of such one-year restriction:

“The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate pursuant to applicable regulations of the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation. These shares may not be transferred during such one-year period without a legal opinion of counsel for the Company that said transfer is permissible under the provisions of applicable law and regulation. This restrictive legend shall be deemed null and void after one year from the date of this Certificate.”

In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares issued at a later date as a stock dividend, stock split or otherwise with respect to any such restricted stock shall be subject to the same holding period restrictions as may then be applicable to such restricted stock. The foregoing restriction on transfer shall be in addition to any restrictions on transfer that may be imposed by federal and state securities laws.

19. STOCK COMPENSATION PLANS.

(a) The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including without limitation an ESOP.

(b) Subsequent to the Conversion, the Holding Company and the Bank are authorized to adopt Non-Tax Qualified Employee Stock Benefit Plans, including without limitation, stock option plans and restricted stock plans. In addition, any such plan implemented during the one-year period subsequent to the date of consummation of the Conversion: (i) shall be disclosed in the Prospectus; (ii) in the case of stock option plans and employee recognition or grant plans, shall be submitted for approval by the holders of the Common Stock no earlier than six months following consummation of the Conversion; and (iii) shall comply with all other applicable requirements of the Commissioner and FDIC and FRB.

(c) Existing, as well as any newly-created, Tax-Qualified Employee Stock Benefit Plans may purchase shares of Common Stock in the Offerings, to the extent permitted by the terms of such benefit plans and this Plan.

(d) The Holding Company and the Bank are authorized to enter into employment or severance agreements with their executive officers.

20. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.

The Bank may not declare or pay a cash dividend on its Common Stock if the effect thereof would cause the regulatory capital of the Bank to be reduced below the amount required under applicable rules and regulations of the Commissioner and FDIC.

The Holding Company may declare dividends or make other capital distributions in accordance with the Rules and Regulations of the FRB, the Commissioner and FDIC. Following completion of the Conversion, the Holding Company may repurchase its Common Stock consistent with the Rules and Regulations of the FRB and Commissioner.

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21. AMENDMENT OR TERMINATION OF THE PLAN.

If deemed necessary or desirable by the Boards of Directors of the Holding Company and the Bank, this Plan may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time before the solicitation of proxies from Voting Members to vote on the Plan and at any time thereafter with the concurrence of the Commissioner and FDIC.

Before the Special Meeting, this Plan may be terminated by the Boards of Directors of the Holding Company and the Bank without approval of the Commissioner and FDIC. After the Special Meeting, the Boards of Directors of the Holding Company and the Bank may terminate this Plan only with the concurrence of the Commissioner and FDIC.

This Plan shall terminate if the Conversion is not completed within 24 months from the date that the Plan is approved by the Voting Members at the Special Meeting.

22. INTERPRETATION OF THE PLAN.

All interpretations of this Plan and application of its provisions to particular circumstances by a majority of each of the Board of Directors of the Holding Company and the Board of Directors of the Bank shall be final, subject to the authority of the Commissioner and FDIC.

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EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION

OF

ASB BANCORP, INC.

Pursuant to Section 55-2-02 of the General Statutes of North Carolina, the undersigned does hereby submit these Articles of Incorporation for the purpose of forming a business corporation.

ARTICLE I

Corporate Name

The name of the corporation is ASB Bancorp, Inc. (the “Corporation”).

ARTICLE II

Registered Agent

The street address of the registered office of the Corporation is 11 Church Street, Asheville, North Carolina 28801. The registered office of the Corporation is located in Buncombe County. The name of the initial registered agent of the Corporation at its registered office is Suzanne S. DeFerie.

ARTICLE III

Principal Office

The street address of the principal office of the Corporation is 11 Church Street, Asheville, North Carolina 28801. The principal office of the Corporation is located in Buncombe County.

ARTICLE IV

Purpose and Powers

The Corporation is for profit. The purposes for which the Corporation is organized are to act as a holding company for a financial institution or institutions and to engage in any lawful business for which corporations may be incorporated pursuant to the laws of the State of North Carolina. The Corporation shall have all the powers of a corporation organized under such laws.

ARTICLE V

Capital Stock

The total number of shares of all classes of capital stock which the Corporation has authority to issue is seventy million (70,000,000), of which sixty million (60,000,000) shares shall be common stock, par value $0.01 per share, and of which ten million (10,000,000) shares shall be preferred stock, par value $0.01 per share. The shares may be issued from time to time as authorized by the Board of Directors without the approval of the Corporation’s shareholders except as otherwise provided in this Article V or the rules of a national securities exchange or automated quotation system, if applicable. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value per share. The adequacy of the consideration for the shares shall be determined by the Board of Directors in accordance with the provisions of the North Carolina Business Corporation Act, as amended (the “NCBCA”). In the absence of actual fraud in the transaction, the judgment of the Board of Directors as to the value of such consideration shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be the consideration for their issuance.

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A description of the different classes and series (if any) of the Corporation’s capital stock and a statement of the relative powers, designations, preferences and rights of the shares of each class of and series (if any) of capital stock, and the qualifications, limitations or restrictions thereof, are as follows:

(A) Preferred Stock. The Board of Directors of the Corporation is authorized to amend these Articles of Incorporation, by adoption of articles of amendment effective without shareholder approval, to provide for the issuance of serial preferred stock in series, by filing a certificate pursuant to the applicable law of the State of North Carolina (such certificate being hereinafter referred to as a “Preferred Stock Designation”), and to fix the preferences, limitations and relative rights of each such series, including, but not limited to, determination of any of the following:

(1) the distinctive designation for each series and the number of shares constituting such series;

(2) whether or not shares of such class or series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights;

(3) whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; and whether or not there shall be any sinking fund or purchase account in respect thereof and, if so, the terms thereof;

(4) whether or not and, if so, the rates, amounts, and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of stock, and the status of any such dividends as cumulative, cumulative to a limited extent or non-cumulative, and as participating or non-participating;

(5) the rights of the holders of shares of such class or series upon the liquidation, dissolution, or winding up of the affairs of, or upon any distribution of the assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution, or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class or series of stock;

(6) whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund;

(7) whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;

(8) the price or other consideration for which the shares of such series shall be issued;

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(9) whether the shares of such series that are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock; and

(10) any other designations, preferences, limitations or rights that are now or hereafter permitted by applicable law and are not inconsistent with the provisions of these Articles of Incorporation.

Each share of each series of serial preferred stock shall have the same preferences and relative rights as, and be identical in all respects with, all other shares of the same series.

(B) Common Stock. Subject to all the rights of preferred stock as expressly provided in these Articles of Incorporation, the Corporation’s Bylaws or by the Board of Directors in a resolution or resolutions pursuant to this Article V, the common stock of the Corporation shall exclusively possess all voting power and all such rights and privileges as are afforded to capital stock by North Carolina law in the absence of any express grant of rights and privileges in the Corporation’s Articles of Incorporation, including, but not limited to, the following:

(1) Holders of common stock shall be entitled to one (1) vote for each share held by such holder;

(2) Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends, but only when and as declared by the Board of Directors;

(3) In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preferences over the common stock in any such event the full preferential amounts to which they are respectively entitled, the holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, to receive the remaining assets of the Corporation available for distribution, in cash or in kind; and

(4) Each share of common stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of common stock of the Corporation.

ARTICLE VI

Preemptive Rights

No shareholder of the Corporation shall have, as a matter of right, the preemptive right to purchase or subscribe for shares of any class, now or hereafter authorized, or to purchase or subscribe for securities or other obligations convertible into or exchangeable for such shares or which by warrants or otherwise entitled the holders thereof to subscribe for or purchase any such shares.

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ARTICLE VII

Repurchase of Shares

The Corporation may from time to time, pursuant to authorization by the Board of Directors of the Corporation and without action by the shareholders, purchase or otherwise acquire shares of any class, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness or other securities of the Corporation in such manner, upon such terms, and in such amounts as the Board of Directors shall determine, subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question or as are imposed by law.

ARTICLE VIII

Directors

The business affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute, by these Articles of Incorporation, or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such things as may be exercised or done by the Corporation.

The number of directors of the Corporation shall be no less than five (5) and not more than fifteen (15) (exclusive of directors, if any, to be elected by holders of preferred stock of the Corporation, voting separately as a class), as shall be provided from time to time in or in accordance with the Bylaws.

The directors of the Corporation shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of shareholders, the term of office of the second class to expire at the annual meeting of shareholders one year thereafter and the term of office of the third class to expire at the annual meeting of shareholders two years thereafter with each director to hold office for the term of office of his or her respective class and until his or her successor shall have been elected and qualified. At each annual meeting of shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders after their election with each director to hold office for the term of office of his or her respective class and until his or her successor shall have been duly elected and qualified. Vacancies in the Board of Directors, however caused, and newly created directorships shall be filled only by a vote of at least a majority of the directors then in office, whether or not a quorum, and any director so chosen shall hold office for a term expiring at the next meeting of shareholders at which directors are elected.

Should the number of directors of the Corporation be reduced, the directorship(s) eliminated shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. The Board of Directors shall designate, by the name of the incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Should the number of directors of the Corporation be increased, the additional directorships shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph.

Whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the Board of Directors shall consist of said directors so elected in addition to the number of directors fixed as provided above in this Article VIII. Notwithstanding the foregoing, and except as otherwise may be required by

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law, whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of shareholders.

The names of the initial directors who will serve until their successors are duly elected and qualified are as follows:

First Class – Term Expiring 2012

John B. Dickson

John B. Gould

Dr. Kenneth E. Hornowski

Second Class – Term Expiring 2013

Suzanne S. DeFerie

Leslie D. Green

Wyatt S. Stevens

Third Class – Term Expiring 2014

Patricia S. Smith

Stephen P. Miller

ARTICLE IX

Removal of Directors

Notwithstanding any other provision of these Articles of Incorporation or the Bylaws of the Corporation, no director of the Corporation may be removed at any time unless for cause and upon the affirmative vote of a majority of the votes cast at a meeting of the shareholders called for that purpose, except as otherwise required by law.

ARTICLE X

Elimination of Directors’ Liability

A director of this Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability arising under Section 55-8-33 of the NCBCA; (iii) any transaction from which the director derived an improper personal benefit; or (iv) acts or omissions occurring prior to the date these Articles of Incorporation became effective under North Carolina law. If the NCBCA is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the NCBCA, as so amended.

Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

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ARTICLE XI

Indemnification

In addition to and apart from the indemnification provided for in the NCBCA, the Corporation shall provide indemnification to its directors as follows:

(A) Indemnity. Any person who at any time serves or has served as a director of the Corporation shall have a right to be indemnified by the Corporation to the full extent allowed by applicable law against liability and litigation expense arising out of or connected with such status or activities in such capacity. “Liability and litigation expense” shall include costs and expenses of litigation (including reasonable attorneys fees), judgments, fines and amounts paid in settlement which are actually and reasonably incurred in connection with or as a consequence of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals. In no circumstances, however, shall the Corporation indemnify any such person against any liability or litigation expense incurred on account of activities which were at the time taken known or believed by such person to be clearly in conflict with the best interests of the Corporation.

(B) Determination of Right to Indemnity. Promptly after the final disposition or termination of any matter which involves liability or litigation expense as described in Section A of this Article XI or at such earlier time as it sees fit, the Corporation shall determine whether any person described in Section A of this Article XI is entitled to indemnification thereunder. Such determination shall be limited to the following issues: (i) whether the persons to be indemnified are persons described in Section A of this Article XI, (ii) whether the liability or litigation expense incurred arose out of the status or activities of such persons as described in Section A of this Article XI, (iii) whether the liability was actually incurred and litigation expense was actually and reasonably incurred, and (iv) whether the liability and litigation expense were incurred on account of activities which were at the time taken known or believed by such person to be clearly in conflict with the best interests of the Corporation. Such determination shall be made by a majority vote of directors who were not parties to the action, suit or proceeding (or, in connection with “threatened” actions, suits or proceedings, who were not “threatened parties”). If at least two such disinterested directors are not obtainable, or, even if obtainable, if at least half of the number of disinterested directors so direct, such determination shall be made by independent legal counsel in written opinion.

(C) Advance Expenses. Litigation expense incurred by a person described in Section A of this Article XI in connection with a matter described in Section A of this Article XI shall be paid by the Corporation in advance of the final disposition of the matter, if the Corporation receives an undertaking, dated, in writing and signed by the person to be indemnified, to repay all such sums unless such person is ultimately determined as provided in Section B of this Article XI to be entitled to be indemnified by the Corporation. Requests for payments in advance of final disposition or termination shall be submitted in writing to the Corporation unless this requirement is waived by the Corporation. Before the first such payment is made, the Corporation shall have received the written undertaking referred to herein and notice of the request for advance payment shall have been given to the members of the board of directors. Notwithstanding the foregoing, no advance payment shall be made as to any payment or portion of a payment for which the determination is made that the person requesting payment will not be entitled to indemnification. Such determination may be made only by a majority vote of disinterested directors or by independent legal counsel as next provided. If there are not at least two disinterested directors, then notice of all requests for advance payment shall be delivered for review to independent legal counsel for the Corporation. Such counsel shall have the authority to disapprove any advance payment or portion of a payment for which it plainly and unavoidably appears that the person requesting payment will not be entitled to indemnification.

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(D) Settlements. The Corporation shall not be obligated to indemnify persons described in Section A of this Article XI for any amounts paid in settlement unless the Corporation consents in writing to the settlement. The Corporation shall not unreasonably withhold its consent to proposed settlements. The Corporation’s consent to a proposed settlement shall not constitute an agreement by the Corporation that any person is entitled to indemnification hereunder; the Corporation shall waive the requirement of this Section for its written consent as fairness and equity may require.

(E) Application for Indemnity or Advances. A person described in Section A of this Article XI may apply to the Corporation in writing for indemnification or to advance expenses. Such application shall be addressed to the secretary, or, in the absence of the secretary, to any officer of the Corporation. The Corporation shall respond in writing to such applications as follows: to a request for indemnity under Section B of this Article XI, within ninety days after receipt of the application; to a request for advance expenses under Section C of this Article XI, within fifteen days after receipt of the application. The right to indemnification or advance expenses provided herein shall be enforceable in any court of competent jurisdiction. A legal action may be commenced if a claim for indemnity or advance expenses is denied in whole or in part, or upon the expiration of the time periods provided above. In any such action, the claimant shall be entitled to prevail upon establishing that he or she is entitled to indemnification or advance expenses but the Corporation shall have the burden of establishing, as a defense, that the liability or expense was incurred on account of activities which were, at the time taken, known or believed by the claimant to be clearly in conflict with the best interests of the Corporation. In any such action, if the claimant establishes the right to indemnification, he or she shall also have the right to be indemnified against the litigation expense (including a reasonable attorney’s fee) of such action.

(F) Incidents of Right of Indemnification. The right of indemnification provided herein shall not be deemed exclusive of any other rights to which any persons seeking indemnity may be entitled apart from the provisions of this Article XI, except there shall be no right to indemnification as to any liability or litigation expense for which such person is entitled to receive payment under any insurance policy other than a directors’ and officers’ liability insurance policy maintained by the Corporation. Such right shall inure to the benefit of the heirs and legal representatives of any persons entitled to such right. Any person who at any time after the adoption of this Article XI serves or has served in any status or capacity described in Section A of this Article XI, shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Any repeal or modification of this Article XI shall not affect any rights or obligations then existing. The right provided herein shall not apply as to persons serving corporations that are hereafter merged into or combined with the Corporation, except after the effective date of such merger or combination and only as to status and activities after such date.

(G) Savings Clause. If this Article XI or any portion hereof shall be invalidated on any ground by any court or agency of competent jurisdiction, then the Corporation shall nevertheless indemnify each person described in Section A of this Article XI to the full extent permitted by the portion of this Article XI that is not invalidated and also to the full extent (not exceeding the benefits described herein) permitted or required by other applicable law.

ARTICLE XII

Limitations on Voting Common Stock

(A) Notwithstanding any other provision of these Articles of Incorporation, in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of shareholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of common stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes

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which may be cast by any record owner by virtue of the provisions hereof in respect of common stock beneficially owned by such person beneficially owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all common stock beneficially owned by such person would be entitled to cast, (subject to the provisions of this Article XII) multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of common stock beneficially owned by such person owning shares in excess of the Limit.

(B) Definitions. The following definitions apply to this Article XII:

(1) “Affiliate” shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing of these Articles of Incorporation.

(2) “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of these Articles of Incorporation; provided, however, that a person shall, in any event, also be deemed the “beneficial owner” of any common stock:

(a) which such person or any of its Affiliates beneficially owns, directly or indirectly; or

(b) which such person or any of its Affiliates has: (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in Article XIII of these Articles of Incorporation, or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such Affiliate is otherwise deemed the beneficial owner); or

(c) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that: (i) no director or officer of this Corporation (or any Affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any common stock beneficially owned by any other such director or officer (or any Affiliate thereof); and (ii) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any Affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to beneficially own any common stock held under any such plan. For purposes only of computing the percentage of beneficial ownership of common stock of a person, the outstanding common stock shall include shares deemed owned by such person through application of this

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subsection (c) but shall not include any other shares of common stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding common stock shall include only shares of common stock then outstanding and shall not include any shares of common stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

(3) The “Limit” shall mean 10% of the then-outstanding shares of common stock.

(4) A “person” shall include an individual, a firm, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity.

(C) The Board of Directors shall have the power to construe and apply the provisions of this Article XII and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to: (1) the number of shares of common stock beneficially owned by any person; (2) whether a person is an Affiliate of another; (3) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership; (4) the application of any other definition or operative provision of the section to the given facts; or (5) any other matter relating to the applicability or effect of this Article XII.

(D) The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own shares of common stock in excess of the Limit (or holds of record common stock beneficially owned by any person in excess of the Limit) supply the Corporation with complete information as to: (1) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit; and (2) any other factual matter relating to the applicability or effect of this Article XII as may reasonably be requested of such person.

(E) Except as otherwise provided by law or expressly provided in this Article XII, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Article XII) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the shareholders, and every reference in these Articles of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for shareholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

(F) Any constructions, applications, or determinations made by the Board of Directors pursuant to this Article XII in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its shareholders.

(G) In the event any provision (or portion thereof) of this Article XII shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Article XII shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its shareholders that each such remaining provision (or portion thereof) of this

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Article XII remain, to the fullest extent permitted by law, applicable and enforceable as to all shareholders, including shareholders owning an amount of stock over the Limit, notwithstanding any such finding.

(H) Exclusion for Underwriters, Employee Benefit Plans and Certain Proxies. The restrictions contained in this Article XII shall not apply to: (1) any underwriter or member of an underwriting or selling group involving a public sale or resale of securities of the Corporation or a subsidiary thereof; provided, however, that upon completion of the sale or resale of such securities, no such underwriter or member of such selling group is a beneficial owner of more than 10% of any class of equity security of the Corporation; (2) any proxy granted to one or more Disinterested Directors, as defined in Article XIII of these Articles of Incorporation, by a shareholder of the Corporation; (3) any employee benefit plans of the Corporation or a subsidiary thereof; or (4) any transaction approved in advance by a majority of such Disinterested Directors. In addition, the Disinterested Directors, as defined in Article XIII of these Articles of Incorporation, the officers and employees of the Corporation and its subsidiaries, the directors of subsidiaries of the Corporation, the employee benefit plans of the Corporation and its subsidiaries, entities organized or established by the Corporation or any subsidiary thereof pursuant to the terms of such plans and trustees and fiduciaries with respect to such plans acting in such capacity shall not be deemed to be a group with respect to their beneficial ownership of voting stock of the Corporation solely by virtue of their being directors, officers or employees of the Corporation or a subsidiary thereof or by virtue of the Disinterested Directors, as defined in Article XIII of these Articles of Incorporation, the officers and employees of the Corporation and its subsidiaries and the directors of subsidiaries of the Corporation being fiduciaries or beneficiaries of an employee benefit plan of the Corporation or a subsidiary of the Corporation. Notwithstanding the foregoing, no director, officer or employee of the Corporation or any of its subsidiaries, or group of any of them, shall be exempt from the provisions of this Article XII should any such person or group become a beneficial owner of more than 10% of any class of equity security of the Corporation.

ARTICLE XIII

Approval of Business Combinations

(A) In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in this Article XIII:

(1) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with: (a) any Interested Shareholder (as hereinafter defined); or (b) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or

(2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder, or any Affiliate of any Interested Shareholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or

(3) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in

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exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% of the combined Fair Market Value of the outstanding common stock of the Corporation and its Subsidiaries, except for any issuance or transfer pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or

(4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or

(5) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder;

shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of directors (the “Voting Stock”) (after giving effect to the provisions of Article XII), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles of Incorporation or any Preferred Stock Designation, in any agreement with any national securities exchange or otherwise.

The term “Business Combination” as used in this Article XIII shall mean any transaction which is referred to in any one or more of paragraphs (1) through (5) of Section (A) of this Article XIII.

(B) The provisions of Section (A) of this Article XIII shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote after giving effect to the provisions of Article XII, or such vote (if any), as is required by law or by these Articles of Incorporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the Sshareholders of the Corporation solely in their capacity as shareholders of the Corporation, the condition specified in the following paragraph (1) is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs (1) or (2) are met:

(1) The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined).

(2) All of the following conditions shall have been met:

(a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of common stock in such Business Combination shall at least be equal to the higher of the following:

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(i) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Shareholder or any of its Affiliates for any shares of Common Stock acquired by it: (x) within the two-year period immediately before the first public announcement of the proposal of the Business Combination (the “Announcement Date”); or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; or

(ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such latter date is referred to in this Article XIII as the “Determination Date”), whichever is higher.

(b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than common stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Shareholder has previously acquired any shares of a particular class of Voting Stock):

(i) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Shareholder for any shares of such class of Voting Stock acquired by it: (x) within the two-year period immediately before the Announcement Date; or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; or

(ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or

(iii) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

(c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including common stock) shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such class of Voting Stock. If the Interested Shareholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Shareholder. The price determined in accordance with subparagraph (B)(2) of this Article XIII shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.

(d) After such Interested Shareholder has become an Interested Shareholder and before the consummation of such Business Combination: (i) except as approved by a majority of the Disinterested Directors (as hereinafter defined), there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the common stock as to dividends or liquidation; (ii) there shall have been: (x) no reduction in the annual rate of dividends paid on the common stock (except as necessary to reflect any subdivision of the common stock), except as approved by a majority of the Disinterested Directors; and (y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any

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reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (iii) neither such Interested Shareholder or any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder.

(e) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a Shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided, directly or indirectly, by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, and the rules or regulations thereunder) shall be mailed to shareholders of the Corporation at least thirty (30) days before the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

(C) For the purposes of this Article XIII:

(1) A “Person” shall include an individual, a firm, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity.

(2) “Interested Shareholder” shall mean any person (other than the Corporation or any holding company or Subsidiary thereof) who or which:

(a) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or

(b) is an Affiliate of the Corporation and at any time within the two-year period immediately before the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; or

(c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately before the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.

(3) For purposes of this Article XIII, “beneficial ownership” shall be determined in the manner provided in Article XII hereof.

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(4) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing of these Articles of Incorporation.

(5) “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in Paragraph (2) of this Section (C), the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

(6) “Disinterested Director” means any member of the Board of Directors who is unaffiliated with the Interested Shareholder and was a member of the Board of Directors before the time that the Interested Shareholder became an Interested Shareholder, and any Director who is thereafter chosen to fill any vacancy on the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Shareholder and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

(7) “Fair Market Value” means:

(a) in the case of stock, the highest closing sales price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the National Association of Securities Dealers Automated Quotation System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, Fair Market Value shall be the highest sales price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and

(b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

(8) Reference to “Highest Per Share Price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

(9) In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in Subparagraphs (a) and (b) of paragraph

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(2) of Section (B) of this Article XIII shall include the shares of common stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

(D) A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article XIII, on the basis of information known to them after reasonable inquiry: (1) whether a person is an Interested Shareholder; (2) the number of shares of Voting Stock beneficially owned by any person; (3) whether a person is an Affiliate or Associate of another; and (4) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value equaling or exceeding 25% of the combined Fair Market Value of the Common Stock of the Corporation and its Subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article XIII.

(E) Nothing contained in this Article XIII shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law.

ARTICLE XIV

Evaluation of Business Combinations

In connection with the exercise of its judgment in determining what is in the best interests of the Corporation and of the shareholders of the Corporation, when evaluating any offer of another Person (as defined in Article XIII hereof) to: (A) make a tender or exchange offer for any equity security of the Corporation; (B) merge or consolidate the Corporation with another corporation or entity; or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, the Board of Directors of the Corporation shall, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it deems relevant: (A) the social and economic effects of the transaction on the Corporation, its subsidiaries, employees, depositors, loan and other customers and creditors and the other elements of the communities in which the Corporation and its subsidiaries operate or are located; (B) the business and financial condition and earnings prospects of the acquiring person or entity, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition and other likely financial obligations of the acquiring person or entity, and the possible effect of such conditions upon the Corporation and its subsidiaries and the other elements of the communities in which the Corporation and its subsidiaries operate or are located; and (C) the competence, experience and integrity of the acquiring person or entity and its or their management.

ARTICLE XV

Special Meetings of Shareholders

Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of the shareholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors.

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ARTICLE XVI

Incorporator

The name, address and zip code of the incorporator of the Corporation are Suzanne S. DeFerie, 11 Church Street, Asheville, North Carolina 28801.

ARTICLE XVII

Amendment of Bylaws

To the extent permitted by the NCBCA, the Board of Directors of the Corporation is expressly authorized to repeal, alter, amend or rescind the Bylaws of the Corporation by vote of a majority of the Board of Directors at a legal meeting held in accordance with the Bylaws. Notwithstanding any other provision of these Articles of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the Bylaws shall be repealed, altered, amended or rescinded by the shareholders of the Corporation only by vote of at least 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the shareholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting).

ARTICLE XVIII

Amendment of Articles of Incorporation

The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by law, and all rights conferred on shareholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles VIII, IX, X, XI, XII, XIII, XIV, XV and XVII of these Articles of Incorporation and this Article XVIII may not be repealed, altered, amended or rescinded in any respect unless the same is approved by the affirmative vote of the holders at least 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as a single class) cast at a meeting of the shareholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting); except that such repeal, alteration, amendment or rescission may be made by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as a single class) if the same is first approved by a majority of the Disinterested Directors, as defined in Article XIII of these Articles of Incorporation.

IN WITNESS WHEREOF, I have signed these Articles of Incorporation and acknowledge the same to be my act.

INCORPORATOR:

/s/ Suzanne S. DeFerie

Suzanne S. DeFerie

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EX-3.2

Exhibit 3.2

BYLAWS

OF

ASB BANCORP, INC.

ARTICLE I

Shareholders

SECTION 1. Place of Meetings.

All annual and special meetings of shareholders shall be held at the principal office of ASB Bancorp, Inc. (the “Corporation”) or at such other place within or without the State of North Carolina as the Board of Directors may determine and as designated in the notice of such meeting.

SECTION 2. Annual Meeting.

A meeting of the shareholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the Board of Directors may determine.

SECTION 3. Special Meetings.

Special meetings of the shareholders of the Corporation may be called only by the persons authorized to do so by the Corporation’s Articles of Incorporation (as may be amended from time to time, the “Articles of Incorporation”). Business transacted at any special meeting shall be confined to the purpose or purposes stated in the notice of such meeting.

SECTION 4. Organization.

The Chairman of the Board of the Corporation or, in his or her absence, the President and Chief Executive Officer of the Corporation or, in his or her absence, such person as the Board of Directors may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the shareholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints.

SECTION 5. Conduct of Meetings.

(a) The chairman of any meeting of shareholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as he or she shall determine to be in order. The date and time of the opening and closing of the polls for each matter upon which the shareholders will vote at the meeting shall be announced at the meeting.

(b) At any annual meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors, or (ii) by any shareholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 5. For business to be properly brought before an annual meeting by a shareholder, the business must relate to a proper subject matter for shareholder action and the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety

(90) days before the date of the annual meeting; provided, however, that if less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder’s notice to the Secretary shall set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business, (iii) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such shareholder, (iv) a statement disclosing (A) whether such shareholder is acting with or on behalf of any other person and (B) if applicable, the identity of such person, and (v) any material interest of such shareholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 5. The Chairman of the Board or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 5 and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

At any special meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting in accordance with Article I, Section 3.

(c) Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice shall be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety (90) days before the date of the meeting; provided, however, that if less than one hundred (100) days’ notice or prior disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder’s notice shall set forth (i) as to each person whom such shareholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the shareholder giving the notice (A) the name and address, as they appear on the Corporation’s books, of such shareholder, (B) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such shareholder, and (C) a statement disclosing (1) whether such shareholder or any nominee thereof is acting with or on behalf of any other person and (2) if applicable, the identity of such person.

(d) The various requirements set forth in subsections (b) and (c) of this Section 5 shall apply to all shareholder proposals and nominations, without regard to whether such proposals or nominations are required to be included in the Corporation’s proxy statement or form of proxy.

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SECTION 6. Notice of Meetings; Waiver of Notice.

Not less than ten (10) days nor more than sixty (60) days before the date of every shareholder meeting, written notice stating the place, day and time of the meeting shall be given to each shareholder entitled to vote at such meeting, either by mail to his or her address as it appears on the record books of the Corporation or by presenting it to him or her personally or by leaving it at his or her residence or usual place of business. If mailed, such notice shall be deemed to be delivered when deposited in the mail with postage prepaid.

When any shareholders’ meeting, either annual or special, is adjourned to a different date, time or place, it shall not be necessary to give any notice of the new date, time or place, other than an announcement of the new date, time or place at the meeting at which such adjournment is taken. If a new meeting is adjourned to a date more than one hundred and twenty (120) days after the date fixed for the original meeting, a new record date for the adjourned meeting must be fixed and notice of the adjourned meeting must be given to shareholders as of the new record date.

A shareholder may waive any notice required hereunder, before or after the date and time stated in the notice, provided the waiver is in writing, signed by him or her and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Attendance of a person entitled to notice at a meeting in person or by proxy shall constitute a waiver of notice of such meeting, except when such person attends the meeting for the purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 7. Fixing of Record Date.

For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than seventy (70) days before the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment, except adjournment to a date more than one hundred and twenty (120) days after the date fixed for the original meeting, in which case a new record date shall be set.

SECTION 8. Voting Lists.

A complete list of shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order for each class of stock and showing the address of each such shareholder and the number of shares registered in his or her name, shall be kept on file at the home office of the Corporation. Such list shall be subject to inspection by any shareholder, upon written demand by such shareholder, his or her agent or his or her attorney, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting. If the right to vote at any meeting is challenged, this list shall presumptively determine the identity of the shareholders entitled to vote at the meeting and the number of shares held by him or her.

SECTION 9. Quorum.

At any meeting of shareholders, the holders of a majority of the stock entitled to vote, present in person or by proxy, shall constitute a quorum, unless or except to the extent that the presence of a larger number may be required by law.

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If a quorum fails to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present in person or by proxy may adjourn the meeting to any place, date and time, subject to the notice requirements of Section 6 of this Article I. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

SECTION 10. Proxies.

At all meetings of shareholders, a shareholder may vote in person or by proxy. Proxies solicited on behalf of management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the Board of Directors or by a majority of a committee of the Board of Directors, whose members will be designated from time to time by the Board of Directors, and which committee will have been delegated the power and authority to act on behalf of the Board of Directors. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy.

SECTION 11. Voting.

Unless the Articles of Incorporation provide for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one (1) vote on each matter submitted to a vote at a meeting of shareholders.

Directors shall be elected by a plurality of the votes cast by the shares present in person or present by proxy at the meeting and entitled to vote on the election of directors. There shall be no cumulative voting by shareholders of any class or series in the election of directors of the Corporation. Action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Article of Incorporation or applicable law require a greater number of affirmative votes.

SECTION 12. Voting of Shares in the Name of Two or More Persons.

When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the shareholders of the Corporation, any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. If an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree.

SECTION 13. Voting of Shares by Certain Holders.

Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, trustee, or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into such person’s name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into such receiver’s name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

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A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter, the pledgee shall be entitled to vote the shares so transferred.

Neither shares of its own stock held by the Corporation in its treasury, nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

SECTION 14. Inspectors of Election.

In advance of any meeting of shareholders, the Board of Directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one (1) or three (3). If the Board of Directors so appoints either one (1) or three (3) inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the Chairman of the Board of Directors or the President and Chief Executive Officer may make such appointment at the meeting. If any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors in advance of the meeting or at the meeting by the chairman of the meeting or the President and Chief Executive Officer.

Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders.

SECTION 15. Action Without a Meeting.

Any action required or permitted to be taken by the Corporation’s shareholders at a meeting may be taken without a meeting. If all shareholders consent to taking such action without a meeting, the affirmative vote of the number of shareholders that would be necessary to authorize or take such action at a meeting is the act of the shareholders. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each shareholder in one (1) or more counterparts, indicating each signing shareholder’s vote or abstention on the action, and shall be included in the minutes or filed with the corporate records reflecting the action taken.

SECTION 16. Control Share Acquisitions.

“Control share acquisitions,” as defined in Section 55-9A-01 of the North Carolina Business Corporation Act, as amended (the “NCBCA”), with respect to shares of the Corporation shall be governed by and subject to the provisions of the North Carolina Control Share Acquisition Act, and Sections 55-9A-01 through 55-9A-09 of the NCBCA shall apply to the Corporation.

SECTION 17. Business Combinations.

The Corporation hereby expressly elects not to be governed by the North Carolina Shareholder Protection Act as set forth in Sections 55-9-01 through 55-9-05 of the NCBCA.

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ARTICLE II

Board of Directors

SECTION 1. General Powers.

The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except those conferred on or reserved to the shareholders by statute or by the Articles of Incorporation or these Bylaws. The Board of Directors may adopt such rules and regulations for the conduct of its meetings and the management of the Corporation as it may deem proper, and which are not inconsistent with these Bylaws and with the NCBCA. The Board of Directors shall annually elect a Chairman of the Board from among its members who shall, when present, preside at its meetings.

SECTION 2. Number, Term, and Election.

The Board of Directors shall initially consist of eight (8) members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three (3) years and until their successors are elected or qualified, in accordance with the provisions of the Articles of Incorporation. The number of directors who shall constitute the Board of Directors shall be such number as the Board of Directors shall from time to time have designated by resolution, but in no event shall the number of directors be increased or decreased beyond the range established in the Articles of Incorporation.

SECTION 3. Qualifications.

In addition to the qualification set forth in Section 17 of Article II:

(a) At all times, a majority of the whole Board of Directors must reside, work or maintain a place of business in the State of North Carolina or in any Metropolitan Statistical Area, Primary Metropolitan Statistical Area or Consolidated Metropolitan Statistical Area that includes the location of the principal office of the Corporation.

(b) A person is not qualified to serve as director of the Corporation if he or she: (1) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, or (2) is a person against who a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (3) has been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency.

SECTION 4. Place of Meetings.

All regular and special meetings of the Board of Directors shall be held at the principal office of the Corporation or at such other place within or without the State of North Carolina as the Board of Directors may determine and as designated in the notice of such meeting, if necessary.

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SECTION 5. Regular Meetings.

Regular meetings of the Board of Directors may be held without notice of the date, time, place or purpose of the meeting as the Board of Directors may determine and publicize among the directors.

SECTION 6. Special Meetings.

Special meetings of the Board of Directors may be called by the President and Chief Executive Officer, the Chairman of the Board, or by one-third of the directors. The persons authorized to call special meetings of the Board of Directors may fix any place within or without the State of North Carolina as the place for holding any special meeting of the Board of Directors called by such persons.

SECTION 7. Telephonic Participation.

Members of the Board of Directors, or any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting.

SECTION 8. Notice.

A notice of a regular meeting shall not be required. The Secretary shall give written notice of any special meeting to each director at least two (2) days previous thereto delivered personally or by e-mail, telegram or facsimile or at least five (5) days previous thereto delivered by mail at the address at which the director is most likely to be reached. Notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed or when delivered to the telegraph company if sent by telegram or when transmitted via facsimile to the number provided by the director for such communications if sent by facsimile. Any director may waive notice of any meeting either before or after the holding thereof by written waiver filed with the records of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

SECTION 9. Quorum.

A majority of the number of directors in office immediately before the meeting begins shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 8 of this Article II.

SECTION 10. Manner of Acting.

The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the entire Board of Directors, unless a greater number is prescribed by these Bylaws, the Articles of Incorporation, or the NCBCA.

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SECTION 11. Action Without a Meeting.

Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting. If all directors consent to taking such action without a meeting, the affirmative vote of the number of directors that would be necessary to authorize or take such action at a meeting is the act of the board. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director in one (1) or more counterparts, indicating each signing director’s vote or abstention on the action, and shall be included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.

SECTION 12. Resignation.

Any director may resign at any time by sending a written notice of such resignation to the principal office of the Corporation addressed to the Board of Directors, the Chairman of the Board or the President and Chief Executive Officer. Such resignation shall take effect upon delivery, unless the notice specifies a later effective date.

SECTION 13. Vacancies.

Vacancies in the Board of Directors of the Corporation, however caused, and newly created directorships shall be filled only by a vote of at least a majority of the directors then in office, whether or not a quorum, and any director so chosen shall hold office for a term expiring at the next meeting of shareholders at which directors are elected.

SECTION 14. Removal of Directors.

Any director or the entire Board of Directors may be removed only for cause and then only in accordance with the provisions of the Articles of Incorporation.

SECTION 15. Compensation.

Directors, as such, may receive a stated fee for their services and a reasonable fixed sum, and reasonable expenses of attendance, if any, for actual attendance at each regular or special meeting of the Board of Directors. Members of either standing or special committees may be allowed such compensation as the Board of Directors may determine.

SECTION 16. Presumption of Assent.

A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless the director’s dissent or abstention shall be entered in the minutes of the meeting or unless the director shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who votes in favor of such action.

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SECTION 17. Age Limitation.

No person seventy (70) years of age or older shall be eligible for election, reelection, appointment or reappointment to the Board of Directors. No person shall serve as a director beyond the annual meeting of shareholders immediately following such person becoming seventy (70) years of age. The provisions of this Section 17 do not apply to an advisory or honorary director.

SECTION 18. Honorary and Advisory Directors.

When a director of the Corporation ceases to be eligible to serve as a director in accordance with Section 17 of this Article II or otherwise retires under the retirement policies of the Corporation as established from time to time by the Board of Directors, the director may become an honorary director of the Corporation following retirement upon appointment of the Board of Directors. The Board of Directors may also appoint any individual as an honorary director, director emeritus, or member of the advisory board established by the Board of Directors. Any individual automatically becoming an honorary director or appointed an honorary director, director emeritus, or member of an advisory board as provided by this section may be compensated as provided by the Board of Directors. However, such director may not vote at any meeting of the Board of Directors or be counted in determining a quorum and shall not have any responsibility or be subject to any liability imposed upon a director, or otherwise be deemed a director.

ARTICLE III

Committees of the Board of Directors

The Board of Directors, by a vote of a majority of the Board of Directors then in office, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for these committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that any such committee shall have no power or authority with reference to (i) authorizing or approving distributions, except as in accordance with a formula or method, or within limits, prescribed by the Board of Directors; (ii) approving or proposing to shareholders action that the NCBCA requires be approved by shareholders; (iii) filling vacancies on the Board of Directors or on any committee of the Board; (iv) amending the Corporation’s Articles of Incorporation pursuant to Section 55-10-02 of the North Carolina General Statutes; (v) adopting, amending or repealing these Bylaws or (vi) approving a plan of merger not requiring shareholder approval.

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings. The quorum requirements for each such committee shall be a majority of the members of such committee unless otherwise determined by the Board of Directors by a majority vote of the Board of Directors, and all matters considered by such committees shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

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ARTICLE IV

Officers

SECTION 1. Generally.

(a) The Board of Directors, as soon as may be practicable after the annual meeting of the shareholders, shall choose a President and Chief Executive Officer, a Secretary and a Treasurer and from time to time may choose one or more Vice Presidents or such other officers as it may deem proper. A person may hold more than one office in the Corporation but may not serve concurrently as both President and Secretary of the Corporation.

(b) All officers chosen by the Board of Directors shall have such powers and duties as generally pertain to their respective offices. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or any committee thereof.

SECTION 2. Election and Term of Office.

An officer serves for one (1) year or until his or her successor is elected and qualified. If the Board of Directors in its judgment finds that the best interests of the Corporation will be served, it may remove any officer or agent in accordance with Section 3 of this Article IV.

SECTION 3. Removal.

Any officer may be removed with or without cause by the vote of the majority of the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal shall not affect the contract rights of the Corporation, if any, with the person so removed.

SECTION 4. Vacancies.

A vacancy in any office because of death, resignation, removal, disqualification, or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

SECTION 5. Remuneration.

The Board of Directors shall have the power to fix the salaries and other compensation and remuneration, by employment contract or otherwise, of all officers of the Corporation.

ARTICLE V

Contracts, Loans, Checks and Deposits

SECTION 1. Contracts.

To the extent permitted by applicable law, and except as otherwise prescribed by the Articles of Incorporation or these Bylaws with respect to certificates for shares, the Board of Directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances.

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SECTION 2. Loans.

No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances. The Corporation shall not lend money to, or guarantee the obligation of, any officer or director of the Corporation unless the Board of Directors determines that the loan or guarantee benefits the Corporation and is permissible under applicable laws and regulations and either approves the specific loan or guarantee or a general plan authorizing loans and guarantees.

SECTION 3. Checks, Drafts, Etc.

All checks, drafts or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation shall be signed by one (1) or more officers, employees, or agents of the Corporation in such manner as shall from time to time be determined by resolution of the Board of Directors.

SECTION 4. Deposits.

All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the Board of Directors may select.

ARTICLE VI

Certificates for Shares; Payment and Transfer of Shares

SECTION 1. Certificates for Shares and their Transfer.

Each shareholder shall be entitled to certificates which represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the shareholder and the class of stock and number of shares represented by the certificate and be in such form, not inconsistent with law or with the Articles of Incorporation, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the President and Chief Executive Officer, countersigned by the Secretary, and sealed with the corporate seal or a facsimile thereof. The signature of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the Corporation itself or one (1) of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified.

Any restrictions imposed on the transfer or registration of transfer of shares of the Corporation shall be noted conspicuously on the front or back of each certificate representing such shares.

Notwithstanding the foregoing, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation’s stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation.

SECTION 2. Payment for Shares.

No certificate shall be issued for any share until such share is fully paid.

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SECTION 3. Form of Payment for Shares.

The consideration for the issuance of shares shall be paid in accordance with the provisions of the NCBCA.

SECTION 4. Transfer of Shares.

Unless otherwise provided by a resolution or resolutions of the Board of Directors, transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agent(s) designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 1 of this Article VI, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor, except that in the case of a lost or destroyed certificate a new certificate may be issued upon such terms and indemnity to the Corporation as the Board of Directors may prescribe.

SECTION 5. Stock Ledger.

The Corporation or its transfer agent(s) shall maintain a stock ledger which contains the name and address of each shareholder and the number of shares of stock of each class registered in the name of each shareholder. The stock ledger may be in written form or in any other form which may be converted within a reasonable time into written form for visual inspection. The stock ledger of the Corporation shall be the only evidence as to who are the shareholders entitled to examine the stock ledger, the list required by Section 8 of Article I, or the books of the Corporation, or to vote in person or by proxy at any meeting of shareholders.

SECTION 6. Lost Certificates.

The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or the owner’s legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

ARTICLE VII

Fiscal Year

The fiscal year of the Corporation shall end on the 31st day of December of each year.

ARTICLE VIII

Corporate Seal

The corporate seal of the Corporation may be in such form as the Board of Directors shall prescribe.

12

ARTICLE IX

Amendments

The Bylaws may be altered, amended or repealed, or new Bylaws may be adopted, in the manner set forth in the Articles of Incorporation.

IN WITNESS WHEREOF, these Bylaws are hereby certified as the duly accepted Bylaws of the Corporation on May 17, 2011.

/s/ Marlyn Carroll

Marlyn Carroll

Corporate Secretary

13

EX-4.1

Exhibit 4.1

COMMON STOCK PAR VALUE $0.01 COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP _____________________

ASB BANCORP, INC.

INCORPORATED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA

THIS CERTIFIES THAT

SPECIMEN

is the owner of:

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE, OF

ASB BANCORP, INC.

The shares represented by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Articles of Incorporation of the Corporation and any amendments thereto (copies of which are on file with the Transfer Agent and registrar), to all of which provisions the holder by acceptance hereof, assents.

This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. The shares represented by this certificate are not insured by the Federal Deposit Insurance Corporation or any other government agency.

IN WITNESS THEREOF, ASB Bancorp, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed.

Dated:		[SEAL]
	President and Chief Executive Officer		Corporate Secretary

ASB Bancorp, Inc.

The shares represented by this certificate are subject to a limitation contained in the Articles of Incorporation to the effect that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of common stock (the “Limit”) be entitled or permitted to any vote in respect of shares held in excess of the Limit.

The Board of Directors of the Corporation is authorized by resolution(s), from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the voting powers, designations, preferences and relative, participating, optional, or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The Corporation will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof.

The shares represented by this certificate may not be cumulatively voted on any matter. Pursuant to the Articles of Incorporation, the affirmative vote of the holders of at least 80% of the voting stock of the Corporation, voting together as a single class, shall be required to approve certain business combinations and other transactions and to amend certain provisions of the Articles of Incorporation.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM - as tenants in common	UNIF GIFTS MIN ACT -__________ custodian __________
	(Cust)                          (Minor)
TEN ENT - as tenants by the entireties	under Uniform Gifts to Minors Act
	____________________
	(State)
JT TEN - as joint tenants with right	UNIF TRF MIN ACT -__________ custodian (until age ___)
of survivorship and not as	__________ under Uniform Transfers
tenants in common	to Minors Act ___________________
	(State)

Additional abbreviations may also be used though not in the above list.

For value received, __________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER

    IDENTIFICATION NUMBER OF ASSIGNEE

Please print or typewrite name and address including postal zip code of assignee

_______________________________________________ shares of the common stock represented by the within certificate, and do hereby irrevocably constitute and appoint ____________________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.

DATED
	NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE GUARANTEED:
	THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15

EX-5.1

Exhibit 5.1

Suite 900 607 14th St., NW

Washington DC 20005-2018

t 202 508 5800 f 202 508 5858

                          , 2011 direct dial 202 508 5880 direct fax 202 204 5628 lberesford@kilpatricktownsend.com

Board of Directors

ASB Bancorp, Inc.

11 Church Street

Asheville, North Carolina 28801

Re: Registration Statement on Form S-1

Ladies and Gentlemen:

We have acted as special counsel for ASB Bancorp, Inc., a North Carolina corporation (the “Company”), in connection with the Registration Statement on Form S-1 (the “Registration Statement”) initially filed by the Company on May 26, 2011 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act”), and the regulations promulgated thereunder.

Pursuant to a Plan of Conversion adopted by the Board of Directors of Asheville Savings Bank, S.S.B. (the “Bank”), the Registration Statement relates to the proposed issuance and sale by the Company of up to 8,331,750 shares (the “Offering Shares”) of common stock, $0.01 par value per share, of the Company (the “Common Stock”) in a subscription offering, a community offering and a syndicated community offering (the “Offerings”).

In the preparation of this opinion, we have examined originals or copies identified to our satisfaction of: (i) the Company’s articles of incorporation; (ii) the Company’s bylaws; (iii) the Registration Statement, including the prospectus contained therein and the exhibits thereto; (iv) certain resolutions of the Board of Directors of the Company relating to the issuance of the Common Stock being registered under the Registration Statement; (v) the Plan of Conversion; (vi) the trust agreement for the Bank’s employee stock ownership plan (the “ESOP”) and the form of loan agreement between the Company and the ESOP; and (vii) the form of stock certificate approved by the Board of Directors of the Company to represent shares of the Common Stock. We have also examined originals or copies of such documents, corporate records, certificates of public officials and other instruments, and have conducted such other investigations of law and fact, as we have deemed necessary or advisable for purposes of our opinion.

In our examination, we have relied on the genuineness of all signatures, the authenticity of all documents and instruments submitted to us as originals, and the conformity to the originals of all documents and instruments submitted to us as certified or conformed copies. In addition, we have relied on the accuracy and completeness of all records, documents, instruments and materials made available to us by the Company.

Board of Directors

ASB Bancorp, Inc.

                        , 2011

Page 2

Our opinion is limited to the matters set forth herein, and we express no opinion other than as expressly set forth herein. In rendering the opinions set forth below, we do not express any opinion concerning law other than the laws of the State of North Carolina.

For purposes of this opinion, we have assumed that, prior to the issuance of any shares of Common Stock, (i) the Registration Statement, as finally amended, will have become effective under the Act and (ii) the conversion of the Bank will have become effective.

Based upon and subject to the foregoing, it is our opinion that, upon the due adoption by the Board of Directors of the Company (or authorized committee thereof) of a resolution fixing the number of Offering Shares to be sold in the Offerings, such Offering Shares, when issued and sold in the manner described in the Registration Statement, will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the heading “Legal and Tax Opinions” in the prospectus which is part of the Registration Statement, as such may be amended or supplemented, or incorporated by reference in any Registration Statement covering additional shares of Common Stock to be issued or sold under the Plan of Conversion that is filed pursuant to Rule 462(b) under the Act. In giving such consent, we do not hereby admit that we are experts or are otherwise within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Securities and Exchange Commission thereunder.

Very truly yours, KILPATRICK TOWNSEND & STOCKTON LLP
By:
	Lori M. Beresford, a Partner

EX-8.1

Exhibit 8.1

Suite 900 607 14th St., NW

Washington DC 20005-2018

t 202 508 5800 f 202 508 5858

_________________, 2011 direct dial 202 508 5883
direct fax 202 204 5615 ekracov@kilpatricktownsend.com

Board of Directors

ASB Bancorp, Inc.

Asheville Savings Bank, S.S.B.

11 Church Street

Asheville, North Carolina 28801

Re: Federal Income Tax Opinion Relating to the Conversion of Asheville Savings Bank, S.S.B. from a North Carolina-Chartered Mutual Savings Bank to a North Carolina-Chartered Stock Savings Bank

Ladies and Gentlemen:

You have asked for our opinion regarding the material federal income tax consequences of the proposed conversion of Asheville Savings Bank, S.S.B. from a North Carolina-chartered mutual savings bank to a North Carolina-chartered stock savings bank (the “Converted Bank”) and the acquisition of the Converted Bank’s capital stock by ASB Bancorp, Inc., a North Carolina corporation, pursuant to a plan of conversion initially adopted by the Board of Directors of Asheville Savings Bank, S.S.B. on March 15, 2011 (the “Plan of Conversion”). All capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan of Conversion.

In connection with the opinions expressed below, we have examined and relied upon originals, or copies certified or otherwise identified to our satisfaction, of the Plan of Conversion and of such corporate records of the parties to the conversion as we have deemed appropriate. We have also relied upon, without independent verification, the representations of Asheville Savings Bank, S.S.B. and ASB Bancorp, Inc. contained in their letter to us dated May         , 2011. We have assumed that such representations are true and that the parties to the conversion will act in accordance with the Plan of Conversion. In addition, we have made such investigations of law as we have deemed appropriate to form a basis for the opinions expressed below.

We have assumed that the conversion contemplated by the Plan of Conversion will be consummated in accordance therewith and as described in the prospectus included as part of the Registration Statement on Form S-1 filed by ASB Bancorp, Inc.

Board of Directors

ASB Bancorp, Inc.

Asheville Savings Bank, S.S.B.

                    , 2011

Page 2

In issuing the opinions set forth below, we have referred solely to existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations and similar guidance issued by the Internal Revenue Service (the “IRS”) under the Code. Changes in the tax laws could affect the continued validity of the opinions expressed below. Furthermore, there can be no assurance that the opinions expressed herein would be adopted by the IRS or a court of law. We assume no obligation to revise or supplement this opinion should the present federal income tax laws be changed by any legislation, judicial decisions or otherwise.

Based on and subject to the foregoing, it is our opinion that, for federal income tax purposes, under current law:

1. The conversion of Asheville Savings Bank, S.S.B. from the mutual to the stock form of organization will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105, 1980-1 C.B. 78), and no gain or loss will be recognized by account holders and no gain or loss will be recognized by Asheville Savings Bank, S.S.B. by reason of such conversion.

2. No gain or loss will be recognized by ASB Bancorp, Inc. upon the sale of shares of common stock in the Offering (Section 1032(a) of the Code).

3. No gain or loss will be recognized by account holders of Asheville Savings Bank, S.S.B. upon the issuance to them of accounts in the Converted Bank immediately after the conversion, in the same dollar amounts and on the same terms and conditions as their accounts at Asheville Savings Bank, S.S.B. plus interests in the liquidation account in the Converted Bank (Section 354(a) of the Code).

4. It is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of ASB Bancorp, Inc. to be issued to Eligible Account Holders, Supplemental Eligible Account Holders, and Other is zero (the “Subscription Rights”), and, accordingly, that no income will be realized by Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members upon the issuance to them of Subscription Rights (Section 356(a) of the Code) or upon the exercise of the Subscription Rights (Rev. Rul. 56-572, 1956-2 C.B. 182).

5. It is more likely than not that the tax basis to the holders of shares of common stock purchased in the Offering pursuant to the exercise of Subscription Rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the Offering (Section 1223(5) of the Code).

Board of Directors

ASB Bancorp, Inc.

Asheville Savings Bank, S.S.B.

                    , 2011

Page 3

6. The holding period for shares of common stock purchased in the Community Offering or Syndicated Community Offering will begin on the day after the date of the purchase (Rev. Rul. 70-598, 1970-2 C.B. 168).

The opinions set forth in 4 and 5 above are based on the position that the Subscription Rights do not have any market value at the time of distribution or at the time they are exercised. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. The IRS will not issue rulings on whether subscription rights have a market value. We are unaware of any instance in which the IRS has taken the position that nontransferable subscription rights issued by a converting financial institution have a market value. The subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase ASB Bancorp, Inc. common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock. We believe that it is more likely than not (i.e., that there is a more than a 50% likelihood) that the Subscription Rights have no market value for federal income tax purposes.

Except as set forth above, we express no opinion to any party as to the tax consequences, whether federal, state, local or foreign, of the conversion or of any transaction related thereto or contemplated by the Plan of Conversion. This opinion may not be referred to in any document without our express written consent. We consent to the filing of this opinion as an exhibit to the Application for Conversion filed with the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation and as an exhibit to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, all filed in connection with the conversion, and to reference to our firm and to this opinion in the prospectus included in both the Registration Statement on Form S-1 and the Application for Conversion under the headings “The Conversion and Stock Offering—Material Income Tax Consequences” and “Legal and Tax Opinions.” In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

Very truly yours, KILPATRICK TOWNSEND & STOCKTON LLP
By:
	Eric S. Kracov, a Partner

EX-10.1

Exhibit 10.1

FORM OF

ASHEVILLE SAVINGS BANK, S.S.B.

EMPLOYEE STOCK OWNERSHIP PLAN

Effective January 1, 2011

Form of

Asheville Savings Bank, S.S.B.

Employee Stock Ownership Plan

Certification

I, Suzanne S. DeFerie, President and Chief Executive Officer of Asheville Savings Bank, S.S.B. (the “Bank”), hereby certify that the attached Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan, effective as of January 1, 2011, was adopted at a duly held meeting of the Board of Directors of the Bank.

ATTEST:	Asheville Savings Bank, S.S.B.
	By:
		Suzanne S. DeFerie
Date

Form of

Asheville Savings Bank, S.S.B.

Employee Stock Ownership Plan

Table of Contents

Section 1 - Introduction	4
Section 2 - Definitions	4
Section 3 - Eligibility and Participation	14
Section 4 - Contributions	16
Section 5 - Plan Accounting	18
Section 6 - Vesting	28
Section 7 - Distributions	30
Section 8 - Voting of Company Stock and Tender Offers	39
Section 9 - The Committee and Plan Administration	40
Section 10 - Rules Governing Benefit Claims	44
Section 11 - The Trust	45
Section 12 - Adoption, Amendment and Termination	46
Section 13 - General Provisions	47
Section 14 - Top-Heavy Provisions	49

Asheville Savings Bank, S.S.B.

Employee Stock Ownership Plan

Section 1

Introduction

Section 1.01 Nature of the Plan.

Effective as of January 1, 2011 (the “Effective Date”), Asheville Savings Bank, S.S.B. (the “Bank”) hereby adopts the Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan (the “Plan”). The Plan enables Eligible Employees (as defined in Section 2.01(a) of the Plan) to acquire stock ownership interests in ASB Bancorp, Inc. (the “Company”), the holding company of the Bank. The Bank intends this Plan to be a tax-qualified stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and an employee stock ownership plan within the meaning of Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Sections 409 and 4975(e)(7) of the Code. The Plan is designed to invest primarily in the common stock of the Company, which stock constitutes “qualifying employer securities” within the meaning of Section 407(d)(5) of ERISA and Sections 409(l) and 4975(e)(8) of the Code. Accordingly, the Plan and Trust Agreement (as defined in Section 2.01(mm) of the Plan) shall be interpreted and applied in a manner consistent with the Bank’s intent for it to be a tax-qualified plan designed to invest primarily in qualifying employer securities.

Section 1.02 Employers and Affiliates.

The Bank and each of its Affiliates (as defined in Section 2.01(c) of the Plan) which, with the consent of the Bank, adopt the Plan pursuant to the provisions of Section 12.01 of the Plan are collectively referred to as the “Employers” and individually as an “Employer.” The Plan shall be treated as a single plan with respect to all participating Employers. No Employer is a Subchapter-S corporation as of the Effective Date.

Section 2

Definitions

Section 2.01 Definitions.

In this Plan, whenever the context so indicates, the singular or the plural number and the masculine or feminine gender shall be deemed to include the other, the terms “he,” “his,” and “him,” shall refer to a Participant or Beneficiary, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the capitalized terms shall have the following meanings:

(a) “Account” or “Accounts” mean a Participant’s or Beneficiary’s Company Stock Account and/or his Other Investments Account, as the context so requires.

4

(b) “Acquisition Loan” means a loan (or other extension of credit, including an installment obligation to a “party in interest” (as defined in Section 3(14) of ERISA)) incurred by the Trustee in connection with the purchase of Company Stock.

(c) “Affiliate” means any corporation, trade or business, which, at the time of reference, is together with the Bank, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control, or an affiliated service group, as described in Sections 414(b), 414(c), and 414(m) of the Code, respectively, or any other organization treated as a single employer with the Bank under Section 414(o) of the Code; provided, however, that, where the context so requires, the term “Affiliate” shall be construed to give full effect to the provisions of Sections 409(l)(4) and 415(h) of the Code.

(d) “Bank” means Asheville Savings Bank, S.S.B., Asheville, North Carolina, and any entity which succeeds to the business of Asheville Savings Bank, S.S.B. and which adopts this Plan in accordance with the provisions of Section 12.02 of the Plan or by written agreement assuming the obligations under the Plan.

(e) “Beneficiary” means the person(s) entitled to receive benefits under the Plan following a Participant’s death, pursuant to Section 7.03 of the Plan.

(f) “Break in Service” means any Plan Year, in which an Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee shall be considered employed for his normal hours of paid employment during a Recognized Absence (the Employee shall not be credited with more than 501 Hours of Service to avoid a Break in Service), unless he does not resume his Service at the end of the Recognized Absence. Further, if an Employee is absent for any period (i) by reason of the Employee’s pregnancy, (ii) by reason of the birth of the Employee’s child, (iii) by reason of the placement of a child with the Employee in connection with the Employee’s adoption of the child, or (iv) for purposes of caring for such child for a period beginning immediately after such birth or placement, the Employee shall be credited with the Hours of Service which would normally have been credited but for such absence, up to a maximum of 501 Hours of Service. Hours of Service shall be credited only in the year in which the absence from work begins, if a Participant would be prevented from incurring a one-year Break in Service in such year solely because the period of absence is treated as Hours of Service, or in any other case, in the immediately following year.

(g) “Change in Control” means any one of the following events occurs:

(i) Merger: The Company or the Bank merges into or consolidates with another corporation, or merges another corporation into the Company or the Bank, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company or the Bank immediately before the merger or consolidation;

5

(ii) Acquisition of Significant Share Ownership: The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Exchange Act, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of twenty-five percent (25%) or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns fifty (50%) or more of its outstanding voting securities;

(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s or the Bank’s board of directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Bank’s or the Company’s board of directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board of directors (or first nominated by the board of directors for election by the stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

(iv) Sale of Assets: The Company or the Bank sells to a third party all or substantially all of its assets.

(h) “Code” means the Internal Revenue Code of 1986, as amended.

(i) “Committee” means the individual(s) responsible for the administration of the Plan in accordance with Section 9 of the Plan.

(j) “Company” means ASB Bancorp, Inc. and any entity which succeeds to the business of ASB Bancorp, Inc.

(k) “Company Stock” means shares of the voting common stock or preferred stock, meeting the requirements of Section 409 of the Code and Section 407(d)(5) of ERISA, issued by the Bank or its Affiliates.

(l) “Company Stock Account” means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund invested in Company Stock.

(m) “Compensation” means a Participant’s wages as defined in Section 3401(a) of the Code and all other payments of Compensation and all other payments of compensation by the Employer (in the course of the Employer’s trade or business) for a Plan Year for which Employer is required to furnish the Participant a written statement under Sections 6041(d), 6051(a)(3) and 6052 of the Code. Compensation must be determined without regard to any rules under Section 3401(a) of the Code that limit the remuneration included in wages based on the nature or location of the

6

employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code). Compensation shall also include amounts not currently includible in gross income by reason of the application of Sections 125 (cafeteria plan), 132(f)(4) (qualified transportation fringe), 402(e)(3) (401(k) plan), 402(h)(1)(B)(simplified employee pension plan), 414(h) (employer pickup contributions under a governmental plan), 403(b) (tax sheltered annuity) or 457(b) (eligible deferred compensation plan) of the Code.

A Participant’s Compensation shall not exceed the limit set forth in Section 401(a)(17) of the Code ($245,000 for the Plan Years beginning January 1, 2011). If the Plan Year for which a Participant’s Compensation is measured is less than twelve (12) calendar months, then the amount of Compensation taken into account for such Plan Year shall be the adjusted amount for such Plan Year, as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code, multiplied by a fraction, the numerator of which is the number of months taken into account for such Plan Year and the denominator of which is twelve (12). In determining the dollar limitation hereunder, Compensation received from an Affiliate shall be recognized as Compensation.

(n) “Disability” means a physical or mental impairment, certified by one or more physician(s) designated by the Committee, which prevents him from doing any substantial gainful activity for which he is fitted by education, training or experience, and which is expected to last at least 12 months or to result in death.

(o) “Effective Date” means January 1, 2011.

(p) “Eligible Employee” means any Employee who is not precluded from participating in the Plan by reason of the provisions of Section 3.02 of the Plan.

(q) “Employee” means any individual who is or has been employed or self-employed by an Employer. “Employee” also means an individual employed by a leasing organization who, pursuant to an agreement between an Employer and the leasing organization, has performed services for the Employer and any related persons (within the meaning of Section 414(n)(6) of the Code) on a substantially full-time basis for more than one year, if such services are performed under the primary direction or control of the Employer. However, such a “leased employee” shall not be considered an Employee if (i) he participates in a money purchase pension plan sponsored by the leasing organization which provides for immediate participation, immediate full vesting, and an annual contribution of at least 10 percent of the Employee’s Compensation, and (ii) leased employees do not constitute more than 20 percent of the Employer’s total work force (including leased employees, but excluding Highly Compensated Employees and any other Employees who have not performed services for the Employer on a substantially full-time basis for at least one year).

(r) “Employer” or “Employers” means the Bank and its Affiliates, which adopt the Plan in accordance with the provisions of Section 12.01 of the Plan, and any entity which succeeds to the business of the Bank or its Affiliates and which adopts the Plan in accordance with the provisions of Section 12.02 of the Plan or by written agreement assumes the obligations under the Plan.

7

(s) “Entry Date” means the first day of the month following the date the Employee satisfies the eligibility requirements under Section 3.01 of the Plan. [CONFIRM]

(t) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(u) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(v) “Financed Shares” means shares of Company Stock acquired by the Trustee with the proceeds of an Acquisition Loan, which shall constitute “qualifying employer securities” under Section 409(l) of the Code and any shares of Company Stock received upon conversion or exchange of such shares.

(w) “Highly Compensated Employee” means an Employee who, for a particular Plan Year, satisfies one of the following conditions:

(i) was a “5-percent owner” (as defined in Section 414(q)(2) of the Code) during the year or the preceding year, or

(ii) for the preceding year, had “compensation” (as defined in Section 414(q)(4) of the Code) from the Bank and its Affiliates exceeding the limit in Section 414(q)(1) of the Code ($110,000 for Plan Years beginning January 1, 2010). The applicable year for which a determination is being made is called a “determination year” and the preceding 12-month period is called “look-back year.”

(x) “Hours of Service” means hours to be credited to an Employee under the following rules:

(i) Each hour for which an Employee is paid or is entitled to be paid for services to an Employer is an Hour of Service.

(ii) Each hour for which an Employee is directly or indirectly paid or is entitled to be paid for a period of vacation, holidays, illness, disability, lay-off, jury duty, temporary military duty, or leave of absence is an Hour of Service. However, except as otherwise specifically provided, no more than 501 Hours of Service shall be credited for any single continuous period which an Employee performs no duties. No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Further, no Hours of Service shall be credited on account of payments made solely under a plan maintained to comply with worker’s compensation, unemployment compensation, or disability insurance laws, or to reimburse an Employee for medical expenses.

8

(iii) Each hour for which back pay (ignoring any mitigation of damages) is either awarded or agreed to by an Employer is an Hour of Service. However, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee would not have performed any duties. The same Hours of Service will not be credited both under paragraph (i) or (ii) as the case may be, and under this paragraph. These hours will be credited to the employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made.

(iv) Hours of Service shall be credited in any one period only under one of the foregoing paragraphs (i), (ii) and (iii); an Employee may not get double credit for the same period.

(v) If an Employer finds it impractical to count the actual Hours of Service for any class or group of non-hourly Employees, each Employee in that class or group shall be credited with 90 Hours of Service for each bi-weekly pay period in which he has at least one Hour of Service. However, an Employee shall be credited only for his normal working hours during a paid absence.

(vi) Hours of Service to be credited on account of a payment to an Employee (including back pay) shall be recorded in the period of Service for which the payment was made. If the period overlaps two or more Plan Years, the Hours of Service credit shall be allocated in proportion to the respective portions of the period included in the several Plan Years. However, in the case of periods of 31 days or less, the Committee may apply a uniform policy of crediting the Hours of Service to either the first Plan Year or the second.

(vii) In all respects an Employee’s Hours of Service shall be counted as required by Section 2530.200b-2(b) and (c) of the Department of Labor’s regulations under Title I of ERISA.

(y) “Loan Suspense Account” means that portion Trust Fund consisting of Company Stock acquired with an Acquisition Loan which has not yet been allocated to the Participants’ Accounts.

(z) “Normal Retirement Age” means the date the Employee attains age sixty-five (65).

(aa) “Normal Retirement Date” means the first day of the month coincident with or next following the Participant’s attainment of Normal Retirement Age.

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(bb) “Other Investments Account” means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund, other than Company Stock.

(cc) “Participant” means any active Employee who has become a participant in accordance with Section 3.01 of the Plan or any other person with an Account balance under the Plan.

(dd) “Plan” means this Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan, as amended from time to time.

(ee) “Plan Year” means the calendar year.

(ff) “Postponed Retirement Date” means the first day of the month coincident with or next following a Participant’s date of actual retirement which occurs after his Normal Retirement Date.

(gg) “Recognized Absence” means a period for which:

(i) an Employer grants an Employee a leave of absence for a limited period of time, but only if an Employer grants such leaves of absence on a nondiscriminatory basis to all Eligible Employees; or

(ii) an Employee is temporarily laid off by an Employer because of a change in the business conditions of the Employer; or

(iii) an Employee is on active military duty, but only to the extent that his employment rights are protected by the Military Selective Service Act of 1967 (38 U.S.C. sec. 2021).

(hh) “Reemployment After a Period of Uniformed Service” means:

(i) that an Employee returned to employment with a participating Employer, within the time frame set forth in subparagraph (ii) below, after a Period of Uniformed Service (that is, the period of time in which an Employee serves in the Uniformed Services) and the following rules corresponding to provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”) apply: (1) he gives sufficient notice of leave to the Employer prior to commencing a Period of Uniformed Service, or is excused from providing such notice; (2) his employment with the Employer prior to a Period of Uniformed Service was not of a brief, non-recurrent nature that would preclude a reasonable expectation that the employment would continue indefinitely or for a significant period; (3) the Employer’s circumstances have not changed so that reemployment is unreasonable or an undue hardship to the Employer; and (4) the applicable cumulative Periods of Uniformed Service under USERRA equals five years or less, unless service in the Uniformed Services:

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(A) in excess of five years is required to complete an initial Period of Uniformed Service;

(B) prevents the Participant from obtaining orders releasing him or her from such Period of Uniformed Service prior to the expiration of a five-year period (through no fault of the Participant);

(C) is required in the National Guard for drill and instruction, field exercises or active duty training, or to fulfill necessary additional training, or to fulfill necessary additional training requirements certified in writing by the Secretary of the branch of Uniformed Services concerned; or

(D) for a Participant is:

1. required other than for training under any provisions of law during a war or national agency declared by the President or Congress;

2. required (other than for training) in support of an operational mission for which personnel have been ordered to active duty other than during war or national emergency;

3. required in support of a critical mission or requirement of the Uniformed Services; or

4. the result of being called into service as a member of the National Guard by the President in the case of rebellion or danger of rebellion against the authority of the United States Government or if the President is unable to execute the laws of the United States with the regular forces.

(ii) The applicable statutory time frames within which an Employee must report to a Employer after a Period of Uniformed Service are as follows:

(A) If the Period of Uniformed Service was less than 31 days,

1. not later than the beginning of the first full regularly scheduled work period on the first full calendar day following the completion of the Period of Uniformed Service and the expiration of eight hours after a period of time allowing for the safe transportation of the Employee from the place of service in the Uniformed Services to the Employee’s residence; or

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2. as soon as possible after the expiration of the eight-hour period of time referred to in clause (ii)(A)1, if reporting within the period referred to in such clause is impossible or unreasonable through no fault of the Employee.

(B) In the case of an Employee whose Period of Uniformed Service was for more than 30 days but less than 181 days, by submitting an application for reemployment with a participating Employer not later than 14 days after the completion of the Period of Uniformed Service or, if submitting such application within such period is impossible or unreasonable through no fault of the Employee, the next first full calendar day when submission of such application becomes reasonable.

(C) In the case of an Employee whose Period of Uniformed Service was for more than 180 days, by submitting an application for reemployment with a participating Employer not later than 90 days after the completion of the Period of Uniformed Service.

(D) In the case of an Employee who is hospitalized for, or convalescing from, an illness or injury related to the Period of Uniformed Service the Employee shall apply for reemployment with a Employer at the end of the period that is necessary for the Employee to recover. Such period of recovery shall not exceed two years, unless circumstances beyond the Employee’s control make reporting as above unreasonable or impossible.

(iii) Notwithstanding subparagraph (i), Reemployment After a Period of Uniformed Service terminates upon the occurrence of any of the following:

(A) a dishonorable or bad conduct discharge from the Uniformed Services;

(B) any other discharge from the Uniformed Services under circumstances other than an honorable condition;

(C) a discharge of a commissioned officer from the Uniformed Services by court martial, by commutation of sentence by court martial, or, in time of war, by the President; or

(D) a demotion of a commissioned officer in the Uniformed Services for absence without authorized leave of at least 3 months confinement under a sentence by court martial, or confinement in a federal or state penitentiary after being found guilty of a crime under a final sentence.

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(ii) “Retirement Date” means a Participant’s Normal Retirement Date or Postponed Retirement Date, whichever is applicable.

(jj) “Service” means an Employee’s period(s) of employment or self-employment with an Employer, excluding for initial eligibility purposes any period in which the individual was a nonresident alien and did not receive from an Employer any earned income which constituted income from sources within the United States. An Employee’s Service shall include any Service which constitutes Service with a predecessor Employer within the meaning of Section 414(a) of the Code, provided, however, that Service with an acquired entity shall not be considered Service under the Plan unless required by applicable law or agreed to by the parties to such transaction. An Employee’s Service shall also include any Service with an entity which is not an Employer, but only either (i) in which the other entity is a member of a controlled group of corporations or is under common control with other trades and businesses within the meaning of Sections 414(b) or 414(c) of the Code, and a member of the controlled group or one of the trades and businesses is an Employer, (ii) in which the other entity is a member of an affiliated service group within the meaning of Section 414(m) of the Code, and a member of the affiliated service group is an Employer, or (iii) all Employers aggregated with the Employer under Section 414(o) of the Code (but not until the Proposed Regulations under Section 414(o) become effective). Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

(kk) “Treasury Regulations” means the regulations promulgated by the Department of Treasury under the Code.

(ll) “Trust” means the Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan Trust created in connection with the establishment of the Plan.

(mm) “Trust Agreement” means the trust agreement establishing the Trust.

(nn) “Trust Fund” means the assets held in the Trust for the benefit of Participants and their Beneficiaries.

(oo) “Trustee” means the trustee or trustees from time to time in office under the Trust Agreement.

(pp) “Uniformed Service” means the performance of duty on a voluntary or involuntary basis in the uniformed service of the United States, including the U.S. Public Health Services, under competent authority and includes active duty, active duty for training, initial activity duty for training, inactive duty training, full-time National Guard duty, and the period for which a person is absent from a position of employment for purposes of an examination to determine the fitness of the person to perform any such duty.

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(qq) “Valuation Date” means the last day of the Plan Year and each other date as of which the Committee shall determine the investment experience of the Trust Fund and adjust the Participants’ Accounts accordingly.

(rr) “Valuation Period” means the period following a Valuation Date and ending with the next Valuation Date.

(ss) “Year of Service” means any 12-consecutive month period in which an Employee completes at least 1,000 Hours of Service.

Section 3

Eligibility and Participation

Section 3.01 Initial Participation.

(a) All Eligible Employees on the closing date of the Bank’s mutual to stock conversion who are age 21 or older shall enter the Plan and become Participants as of the later of (i) the Effective Date or (ii) the Eligible Employee’s date of hire.

(b) An Eligible Employee who is first employed by an Employer after the closing date of the Bank’s mutual to stock conversion shall be a Participant on the Entry Date following their attainment of age 21 and one year of service.

Section 3.02 Certain Employees Ineligible.

The following Employees are ineligible to participate in the Plan:

(a) Employees covered by a collective bargaining agreement between the Employer and the Employee’s collective bargaining representative if:

(i) retirement benefits have been the subject of good faith bargaining between the Employer and the representative, and

(ii) the collective bargaining agreement does not expressly provide that Employees of such unit be covered under the Plan;

(b) Leased Employees;

(c) Employees who are nonresident aliens and who receive no earned income from an Employer which constitutes income from sources within the United States; and

(d) Employees of an Affiliate that has not adopted the Plan pursuant to Sections 12.01 or 12.02 of the Plan.

(e) Seasonal Employees.

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(f) Peak Employees.

(g) Temporary Employees.

Section 3.03 Transfer to and from Eligible Employment.

(a) If an Employee ineligible to participate in the Plan by reason of Section 3.02 of the Plan transfers to employment as an Eligible Employee, he shall enter the Plan as of the later of:

(i) the first Entry Date after the date of transfer, or

(ii) the first Entry Date on which he could have become a Participant pursuant to Section 3.01 of the Plan if his prior employment with the Bank or Affiliate had been as an Eligible Employee.

(b) If a Participant transfers to a position of employment that is not eligible to participate in the Plan by reason of Section 3.02 of the Plan, he shall cease active participation in the Plan as of the date of such transfer and his transfer shall be treated for all purposes of the Plan as any other termination of Service.

Section 3.04 Participation After Reemployment.

(a) Any Employee re-entering Service with an Employer after a Break in Service who has never satisfied the eligibility requirements of Section 3.01(a) of the Plan shall not receive credit for prior Service with an Employer and shall be required to meet the eligibility requirements of Section 3.01(a) of the Plan before becoming a Participant.

(b) An Employee who has satisfied the eligibility requirements of Section 3.01(a) of the Plan but who terminates Service prior to entering the Plan and becoming a Participant in accordance with Section 3.01(b) of the Plan will become a Participant on the later of:

(i) the first Entry Date on which he would have entered the Plan had he not terminated Service, or

(ii) the date he re-commences Service.

(c) A Participant whose Service terminates will re-enter the Plan as a Participant on the date he re-commences Service.

Section 3.05 Participation Not Guarantee of Employment.

Participation in the Plan does not constitute a guarantee or contract of employment and will not give any Employee the right to be retained in the employ of the Bank or any of its Affiliates nor any right or claim to any benefit under the terms of the Plan unless such right or claim has specifically accrued under the Plan.

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Section 3.06 Omission of Eligible Employee.

If, in any Plan Year, any Eligible Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Eligible Employee in the amount which the said Employer would have contributed regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.

Section 3.07 Inclusion of Ineligible Employee.

If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a forfeiture for the fiscal year in which the discovery is made. Any person who, after the close of a Plan Year, is retroactively treated by the Bank, an affiliated company or any other party as an Employee for such prior Plan Year shall not, for purposes of the Plan, be considered an Employee for such prior Plan Year unless expressly so treated as such by the Bank.

Section 4

Contributions

Section 4.01 Employer Contributions.

(a) Discretionary Contributions. Each Plan Year, each Employer, in its discretion, may make a contribution to the Trust. Each Employer making a contribution for any Plan Year under this Section 4.01(a) will contribute to the Trustee cash equal to, or Company Stock or other property having an aggregate fair market value equal to, such amount as the Board of Directors of the Employer shall determine by resolution. Notwithstanding the Employer’s discretion with respect to the medium of contribution, an Employer shall not make a contribution in any medium which would make such contribution a prohibited transaction (for which no exemption is provided) under Section 406 of ERISA or Section 4975 of the Code. Upon a Participant’s Reemployment After a Period of Uniformed Service, the Employer shall make an additional contribution on behalf of such Participant that would have been made on his or her behalf during the Plan Year or Years corresponding to the Participant’s Period of Uniformed Service.

(b) Employer Contributions for Acquisition Loans. Each Plan Year, the Employers shall, subject to the provisions of the Bank’s “Plan of Conversion” (as filed with the appropriate governmental agencies in connection with the Bank’s conversion from a mutual to stock form of organization) and any related regulatory prohibitions, contribute an amount of cash sufficient to enable to the Trustee to discharge any indebtedness incurred with respect to an Acquisition Loan pursuant to the terms of the Acquisition Loan. The

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Employers’ obligation to make contributions under this Section 4.01(b) shall be reduced to the extent of any investment earnings attributable to such contributions and any cash dividends paid with respect to Company Stock held by the Trustee in the Loan Suspense Account. If there is more than one Acquisition Loan, the Employers shall designate the one to which any contribution pursuant to this Section 4.01(b) is to be applied.

Section 4.02 Limitations on Contributions.

In no event shall an Employer’s contribution(s) made under Section 4.01 of the Plan for any Plan Year exceed the lesser of:

(a) The maximum amount deductible under Section 404 of the Code by that Employer as an expense for Federal income tax purposes; and

(b) The maximum amount which can be credited for that Plan Year in accordance with the allocation limitation provisions of Section 5.05 of the Plan.

Section 4.03 Acquisition Loans.

The Trustee may incur Acquisition Loans from time to time to finance the acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest, and shall not be payable on demand except in the event of default, and shall be primarily for the benefit of Participants and Beneficiaries of the Plan. An Acquisition Loan may be secured by a collateral pledge of the Financed Shares so acquired and any other Plan assets which are permissible security within the provisions of Section 54.4975-7(b) of the Treasury Regulations. No other assets of the Plan or Trust may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against any other Trust assets. Any pledge of Financed Shares must provide for the release of shares so pledged on a basis equal to the principal and interest (or if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), paid by the Trustee on the Acquisition Loan. The released Financed Shares shall be allocated by Participants’ Accounts in accordance with the provisions of Sections 5.04 or 5.08 of the Plan, whichever is applicable. Payment of principal and interest on any Acquisition Loan shall be made by the Trustee only from the Employer contributions paid in cash to enable the Trustee to repay such loan in accordance with Section 4.01(b) of the Plan, from earnings attributable to such contributions, and any cash dividends received by the Trustee on Financed Shares acquired with the proceeds of the Acquisition Loan (including contributions, earnings and dividends received during or prior to the year of repayment less such payments in prior years), whether or not allocated. Financed Shares shall initially be credited to the Loan Suspense Account and shall be transferred for allocation to the Company Stock Account of Participants only as payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Loan Suspense Account for allocation to Participants’ Company Stock Account for each Plan

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Year shall be based on the ratio that the payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan for that Plan Year bears to the sum of the payments of principal and interest on the Acquisition Loan for that Plan Year plus the total remaining payment of principal and interest projected (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan over the duration of the Acquisition Loan repayment period, subject to the provisions of Section 5.05 of the Plan.

Section 4.04. Conditions as to Contributions.

In addition to the provisions of Section 12.03 of the Plan for the return of an Employer’s contributions in connection with a failure of the Plan to qualify initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year after the date on which the Employer originally made such contribution, or within one year after its nondeductibility has been finally determined. However, the amount to be returned shall be reduced to take account for any adverse investment experience within the Trust in order that the balance credited to each Participant’s Accounts is not less that it would have been if the contribution had never been made by the Employer.

Section 4.05 Employee Contributions.

Employee contributions are neither required nor permitted under the Plan.

Section 4.06 Rollover Contributions.

Rollover contributions of assets from other tax-qualified retirement plans are not permitted under the Plan.

Section 4.07 Trustee-to-Trustee Transfers.

Trustee-to-trustee transfer of assets from other tax-qualified retirement plans are not permitted under the Plan.

Section 5

Plan Accounting

Section 5.01 Accounting for Allocations.

The Committee shall establish the Accounts (and sub-accounts, if deemed necessary) for each Participant, and the accounting procedures for the purpose of making the allocations to the Participants’ Accounts provided for in this Section 5. The Committee shall maintain adequate records of the cost basis of shares of Company Stock allocated to each

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Participant’s Company Stock Account. The Committee also shall keep separate records of Financed Shares attributable to each Acquisition Loan and of contributions made by the Employers (and any earnings thereon) made for the purpose of enabling the Trustee to repay any Acquisition Loan. From time to time, the Committee may modify its accounting procedures for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants, in accordance with the provisions of this Section 5 and the applicable requirements of the Code and ERISA. In accordance with Section 9 of the Plan, the Committee may delegate the responsibility for maintaining Accounts and records.

Section 5.02 Maintenance of Participants’ Company Stock Accounts.

As of each Valuation Date, the Committee shall adjust the Company Stock Account of each Participant to reflect activity during the Valuation Period as follows:

(a) First, charge to each Participant’s Company Stock Account all distributions and payments made to him that have not been previously charged;

(b) Next, credit to each Participant’s Company Stock Account the shares of Company Stock, if any, that have been purchased with amounts from his Other Investments Account, and adjust such Other Investments Account in accordance with the provisions of Section 5.03 of the Plan;

(c) Next, credit to each Participant’s Company Stock Account the shares of Company Stock representing contributions made by the Employers in the form of Company Stock and the number of Financed Shares released from the Loan Suspense Account under Section 4.03 of the Plan that are to be allocated and credited as of that date in accordance with the provisions of Section 5.04 of the Plan; and

(d) Finally, credit to each Participant’s Company Stock Account the shares of Company Stock released from the Loan Suspense Account that are to be allocated in accordance with the provisions of Section 5.08 of the Plan.

Section 5.03 Maintenance of Participants’ Other Investments Accounts.

Except as otherwise provided for under Section 5.09 of the Plan, as of each Valuation Date, the Committee shall adjust the Other Investments Account of each Participant to reflect activity during the Valuation Period as follows:

(a) First, charge to each Participant’s Other Investments Account all distributions and payments made to him that have not previously been charged;

(b) Next, if Company Stock is purchased with assets from a Participant’s Other Investments Account, the Participant’s Other Investments Account shall be charged accordingly;

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(c) Next, subject to the dividend provisions of Section 5.08 of the Plan, credit to the Other Investments Account of each Participant any cash dividends paid to the Trustee on shares of Company Stock held in that Participant’s Company Stock Account (as of the record date for such cash dividends) and dividends paid on shares of Company Stock held in the Loan Suspense Account that have not been used to repay any Acquisition Loan. Cash dividends that have not been used to repay an Acquisition Loan and have been credited to a Participant’s Other Investments Account shall be applied by the Trustee to purchase shares of Company Stock, which shares shall then be credited to the Company Stock Account of such Participant. The Participant’s Other Investments Account shall then be charged by the amount of cash used to purchase such Company Stock or used to repay any Acquisition Loan. In addition, any earnings on:

(i) Other Investments Accounts, including cash proceeds from the sale or disposition of Company Stock pursuant to Section 5.09 of the Plan, will be allocated to Participants’ Other Investments Account, pro rata, based on such Other Investment Accounts balances as of the first day of the Valuation Period, and

(ii) The Loan Suspense Account, other than dividends used to repay the Acquisition Loan, will be allocated to Participants’ Other Investments Accounts, pro rata, based on their Other Investment Account Balances as of the first day of the Valuation Period; provided, however, that shares of Company Stock allocated pursuant to Section 5.09 of the Plan shall be allocated to the Participants’ Company Stock Account in accordance with the provisions of the Section 5.09 of the Plan.

(d) Next, allocate and credit the Employer contributions made pursuant to Section 4.01(b) of the Plan for the purpose of repaying any Acquisition Loan in accordance with Section 5.04 of the Plan. Such amount shall then be used to repay any Acquisition Loan and such Participant’s Other Investments Account shall be charged accordingly; and

(e) Finally, allocate and credit the Employer contributions (other than amounts contributed to repay an Acquisition Loan) that are made in cash (or property other than Company Stock) for the Plan Year to the Other Investments Account of each Participant in accordance with Section 5.04 of the Plan.

Section 5.04 Allocation and Crediting of Employer Contributions.

(a) Except as otherwise provided for in Sections 5.08 and 5.09 of the Plan, as of the Valuation Date for each Plan Year:

(i) Company Stock released from the Loan Suspense Account for that year and shares of Company Stock contributed directly to the Plan by an Employer shall be allocated and credited to each Active Participant’s (as defined in paragraph (b) of this Section 5.04) Company Stock Account based on the ratio that each Active Participant’s Compensation bears to the aggregate

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Compensation of all Active Participants for the Plan Year, provided, however, that, for purposes of this Section, an Active Participant’s Compensation shall not be considered for any part of a Plan Year prior to the date the Participant commenced participation in the Plan, and then

(ii) The cash contributions not used to repay an Acquisition Loan and any other property (other than shares of Company Stock) contributed for that year shall be allocated and credited to each Active Participant’s Other Investments Account based on the ratio determined by comparing each Active Participant’s Compensation to the aggregate Compensation of all Active Participants for the Plan Year.

(b) For purposes of this Section 5.04, the term “Active Participant” means those Employees who:

(i) were employed by that Employer, including Employees on a Recognized Absence, on the last day of the Plan Year and completed [            ] Hours of Service during the Plan Year, or

(ii) who terminated employment during the Plan Year by reason of death, Disability, or attainment of their Retirement Date.

Section 5.05 Limitations on Allocations.

(a) In General. This Section 5.05 is intended as good faith compliance with the final Treasury Regulations issued under Section 415 of the Code (the “Final Regulations”), and it should be construed accordingly. Further, Section 415 of the Code and the Final Regulations are hereby incorporated herein by reference. The provisions of this Section 5.05 shall be effective for Limitation Years beginning on or after July 1, 2007.

(b) Limitations on Annual Additions. The limitations set forth below shall apply to the allocations to each Participant’s Accounts in any Plan Year. If the Annual Additions are exceeded for any Participant, then the Plan may correct such excess in accordance with the Employee Plans Compliance Resolution System (EPCRS) as set forth in Revenue Procedure 2006-27, or any superseding guidance, including, but not limited to, the preamble of the Final Regulations, or by any other method specifically permitted by the Internal Revenue Service.

(i) As used in the Plan, a Participant’s “Annual Additions” shall mean the sum for any Plan Year of the following amounts allocated to a Participant’s Accounts:

(A) The Participant’s share of Employer contributions; plus

(B) The Participant’s share of any forfeitures; plus

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(C) The Participant’s allocable share of the Employer’s contributions to any individual medical benefit account (within the meaning of Section 415(l)(2) of the Code) that is part of a pension or annuity plan maintained by the Employer; plus

(D) With respect to any Participant who is a key employee, any amount that is derived from the Employer’s contributions paid or accrued that are attributable to post-retirement medical benefits allocated to such Participant’s account under a welfare benefit fund (within the meaning of Section 419(e) of the Code) maintained by the Employer; and plus

(E) The Participant’s share of any allocations under a simplified employee pension maintained by the Employer.

Any excess amount applied under Section 5.05(b)(iii) in a Plan Year to reduce the Employer contributions on behalf of any Participant shall be considered to be an Annual Addition for such Participant for such Plan Year.

(ii) Subject to the adjustments set forth below, and except for catch-up contributions under Section 414(v) of the Code, during any Plan Year the maximum Annual Additions for any Participant shall in no event exceed the lesser of:

(A) $49,000, (for 2010) as adjusted by the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code; or

(B) 100% of the Participant’s Compensation for the Plan Year.

(iii) The earnings limitation referred to in Section 5.05(b)(ii)(B) shall not apply to:

(A) any contribution for medical benefits (within the meaning of Sections 401(h) of the or 419A(f)(2) of the Code) after separation from service that is otherwise treated as an Annual Addition, or

(B) any amount otherwise treated as an Annual Addition under Section 415(l)(1) of the Code.

(iv) If, for any Plan Year, it is necessary to limit the Annual Additions of any Participant to comply with this Section 5.05, the methods as authorized pursuant to the Final Regulations shall be utilized.

(v) The limitations of this Article with respect to any Participant who, at any time, has been a participant in any other defined contribution plan (whether or not terminated) or in more than one defined benefit plan (whether or not terminated) maintained by the Employer shall apply as if all such defined contribution plans or all such defined benefit plans in which the Participant has been a participant were one plan.

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(c) Compensation. For purposes of this Section 5.05, Compensation shall be adjusted to reflect the general rule of Section 1.415(c)-2 of the Final Regulations. Notwithstanding the preceding sentence, Compensation for a Participant who is permanently and totally disabled (as defined in Section 22(e)(3) of the Code) is the compensation the Participant would have received for the Limitation Year if the Participant had been paid at the rate of compensation paid immediately before becoming permanently and totally disabled if the conditions under the Final Regulations are met. In addition, payments made within the later of (i) 2 ¹/2 months after severance from employment (within the meaning of Final Regulation Section 1.415(a)-1(f)(5)), or (ii) the end of the Limitation Year that contains the date of severance (the “Post Severance Period”) will be Compensation within the meaning of Section 415(c)(3) of the Code if they are payments that, absent a severance from employment, would have been paid to the Participant while the Participant continued in employment with the Employer and are regular compensation for services during the Participant’s regular working hours, compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar compensation.

(d) Definition of Annual Additions. The Plan’s definition of “Annual Additions” is modified as follows:

(i) Restorative Payments. Annual Additions for purposes of Section 415 of the Code shall not include restorative payments. A restorative payment is a payment made to restore losses to the Plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under ERISA or under other applicable federal or state law, where Participants who are similarly situated are treated similarly with respect to the payments. Generally, payments are restorative payments only if the payments are made in order to restore some or all of the Plan’s losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). This includes payments to the Plan made pursuant to a Department of Labor order, the Department of Labor’s Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). Payments made to the Plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under ERISA are not restorative payments and generally constitute contributions that are considered Annual Additions.

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(ii) Other Amounts. Annual Additions for purposes of Section 415 of the Code shall not include: (1) the direct transfer of a benefit or employee contributions from a qualified plan to this Plan; (2) rollover contributions (as described in Sections 401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16) of the Code); (3) repayments of loans made to a Participant from the Plan; and (4) repayments of amounts described in Section 411(a)(7)(B) of the Code (in accordance with Section 411(a)(7)(C)) of the Code and Section 411(a)(3)(D) of the Code or repayment of contributions to a governmental plan (as defined in Section 414(d) of the Code) as described in Section 415(k)(3) of the Code, as well as Employer restorations of benefits that are required pursuant to such repayments.

(e) Limitation Year. The “Limitation Year” (within the meaning of Section 415 of the Code) shall be the calendar year. The Limitation Year may only be changed by a Plan amendment. If the Plan is terminated effective as of a date other than the last day of a Limitation Year, the Plan is deemed to have been amended to change its Limitation Year to end on the Plan’s termination date. As a result of such deemed amendment, the Section 415(c)(1)(A) of the Code dollar limit shall be prorated under the short Limitation Year rules under the Final Regulations.

(f) Multiple Defined Contribution Plans. In any case where a Participant also participates in another defined contribution plan of the Bank or its Affiliates, the appropriate committee of such other plan shall first reduce the after-tax contributions under any such plan, shall then reduce any elective deferrals under any such plan subject to Section 401(k) of the Code, shall then reduce all other contributions under any other such plan and, if necessary, shall then reduce contributions under this Plan, subject to the provisions of paragraph (h) of this Section 5.05.

(g) Excess Allocations. If, after applying the allocation provisions under Section 5.04 of the Plan, allocations under Section 5.04 of the Plan would otherwise result in a Participant’s account being in violation of Section 415 of the Code, the Committee shall reduce the Employer contributions for the next limitation year (and succeeding limitation years, as necessary) for that Participant if that Participant is covered by the Plan as of the end of the limitation year. However, if that Participant is not covered by the Plan as of the end of the limitation year, then the excess amounts shall be held unallocated in a suspense account for the limitation year and allocated and reallocated in the next limitation year to all the remaining Participants in the Plan; furthermore, the excess amounts shall be used to reduce Employer contributions for the next limitation year (and succeeding limitation years, as necessary) for all the remaining Participants in the Plan.

(h) Allocations Pursuant to Section 5.09. For purposes of this Section 5.05, no amount credited to any Participant’s Account pursuant to Section 5.09 of the Plan shall be counted as an “annual addition” for purposes of Section 415 of the Code. In the event any amount cannot be allocated to Affected Participants (as defined in Section 5.09 of the Plan) under the Plan pursuant to the Section 5.09 of the Plan in the year of a Change in Control, the amount which may not be so allocated in the year of the Change in Control shall be treated in accordance with this paragraph (h) of Section 5.05.

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Section 5.06 Other Limitations.

Aside from the limitations set forth in Sections 5.05 of the Plan, in no event shall more than one-third of the Employer contributions to the Plan be allocated to the Accounts of Highly Compensated Employees. In the event more than one-third of the Employer Contributions to the Plan are allocated to the Accounts of Highly Compensated Employees, the Committee shall determine the allocation of the reduced amount among the Highly Compensated Employees such that the relative share of the Employer Contributions allocable to a Highly Compensated Employee is equal to such Highly Compensated Employee’s share of the contributions allocable to all Highly Compensated Employees if this Section 5.06 were inapplicable.

Section 5.07 Limitations as to Certain Section 1042 Transactions.

To the extent that a shareholder of Company Stock sell qualifying Company Stock to the Plan and elects (with the consent of the Bank) nonrecognition of gain under Section 1042 of the Code, no portion of the Company Stock purchased in such nonrecognition transaction (or dividends or other income attributable thereto) may accrue or be allocated during the nonallocation period (the ten (10) year period beginning on the later of the date of the sale of the qualified Company Stock or the date of the Plan allocation attributable to the final payment of an Acquisition Loan incurred in connection with such sale) for the benefit of:

(a) the selling shareholder;

(b) the spouse, brothers or sisters (whether by the whole or half blood), ancestors or lineal descendants of the selling shareholder or descendant referred to in (a) above; or

(c) any other person who owns, after application of Section 318(a) of the Code, more than twenty-five percent (25%) of:

(i) any class of outstanding stock of the Bank or any Affiliate, or

(ii) the total value of any class of outstanding stock of the Bank or any Affiliate.

For purposes of this Section 5.07, Section 318(a) of the Code shall be applied without regard to the employee trust exception of Section 318(a)(2)(B)(i) of the Code.

Section 5.08 Dividends.

(a) Stock Dividends. Dividends on Company Stock which are received by the Trustee in the form of additional Company Stock shall be retained in the portion of the Trust Fund consisting of Company Stock, and shall be allocated among the Participant’s Accounts and the Loan Suspense Account in accordance with their holdings of the Company Stock on which the dividends have been paid.

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(b) Cash Dividends on Allocated Shares. Dividends on Company Stock credited to Participants’ Accounts which are received by the Trustee in the form of cash shall, at the direction of the Bank, either:

(i) be credited to Participants’ Accounts in accordance with Section 5.03 of the Plan and invested as part of the Trust Fund;

(ii) be distributed immediately to the Participants;

(iii) be distributed to the Participants within ninety (90) days of the close of the Plan Year in which paid; or

(iv) be used to repay first principal and then, if available, interest on the Acquisition Loan used to acquire Company Stock on which the dividends were paid.

In addition to the alternatives specified in the preceding paragraph regarding the treatment of cash dividends paid with respect to shares of Company Stock credited to Participants’ Accounts, if authorized by the Committee for the Plan Year, a Participant may elect that cash dividends paid on Company Stock credited to the Participant’s Account shall either be:

(i) paid to the Plan, reinvested in Company Stock and credited to the Participant’s Account;

(ii) distributed in cash to the Participant; or

(iii) distributed to the Participant within ninety (90) days of the close of the Plan Year in which paid.

Dividends subject to an election under this paragraph (and any Company Stock acquired therewith pursuant to a Participant’s election) shall at all times be fully vested. To the extent the Committee authorizes dividend elections pursuant to this paragraph, the Committee shall establish policies and procedures relating to Participant elections and, if applicable, the reinvestment of cash dividends in Company Stock, which are consistent with guidance issued under Section 404(k) of the Code.

(c) Cash Dividends on Unallocated Shares. Dividends on Company Stock held in the Loan Suspense Account which are received by the Trustee in the form of cash shall be applied as soon as practicable to payments of first principal and then, if available, interest under the Acquisition Loan incurred with the purchase of the Company Stock.

(d) Financed Shares. Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to such Company Stock shall be allocated under Sections 5.03 and 5.04 of the Plan as follows:

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(i) First, Financed Shares with a fair market value at least equal to the dividends paid with respect the Company Stock allocated to Participants’ Accounts shall be allocated among and credited to the Accounts of such Participants, pro rata, according to the number of shares of Company Stock held in such accounts on the date such dividend is declared by the Company;

(ii) Then, any remaining Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to Company Stock held in the Loan Suspense Account shall be allocated among and credited to the Accounts of all Participants, pro rata, according to each Participant’s Compensation.

Section 5.09 Allocations Upon Termination Prior to Satisfaction of Acquisition Loan.

(a) Notwithstanding any other provision of the Plan, in the event of a Change in Control, the Plan shall terminate as of the effective date of the Change in Control and, as soon as practicable thereafter, the Trustee shall repay in full any outstanding Acquisition Loan. In connection with such repayment, the Trustee shall: (i) apply cash, if any, received by the Plan in connection with the transaction constituting a Change in Control, with respect to the unallocated shares of Company Stock acquired with the proceeds of the Acquisition Loan, and (ii) to the extent additionally required to effect the repayment of the Acquisition Loan, obtain cash through the sale of any stock or security received by the Plan in connection with such transaction, with respect to such unallocated shares of Company Stock. After repayment of the Acquisition Loan, all remaining shares of Company Stock held in the Loan Suspense Account, all other stock or securities, and any cash proceeds from the sale or other disposition of any shares of Company Stock held in the Loan Suspense Account, shall be allocated among the Accounts of all Participants who were employed by an Employer on the date immediately preceding the effective date of the Change in Control. Such allocations of shares or cash proceeds shall be credited as earnings for purposes of Section 5.05 of the Plan and Section 415 of the Code, as of the effective date of the Change in Control, to the Account of each Participant who is either in active Service with an Employer, or is on a Recognized Absence, on the date immediately preceding the effective date of the Change of Control (each an “Affected Participant”), in proportion to the opening balances in their Company Stock Accounts as of the first day of the current Valuation Period. As of the effective date of a Change in Control, all Participant Accounts shall be fully vested and nonforfeitable.

(b) In the event of a termination of the Plan in connection with a Change in Control, this Section 5.09 shall have no force and effect unless the price paid for the Company Stock in connection with a Change in Control is greater than the average basis of the unallocated Company Stock held in the Loan Suspense Account as of the date of the Change in Control.

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Section 5.10 Erroneous Allocations.

No Participant shall be entitled to any annual additions or other allocations to his Account in excess of those permitted under Section 5. If it is determined at any time that the administrator and/or Trustee have erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating investment adjustments, or in excluding or including any person as a Participant, then the administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected, after taking into consideration Sections 3.6 and 3.7 and any revenue procedure or other notice published by the Internal Revenue Service regarding permissible correction methods, if applicable, and shall promptly advise the Trustee in writing of such error and of the method for correcting such error. The Accounts of any or all Participants may be revised, if necessary, in order to correct such error.

Section 6

Vesting

Section 6.01 Deferred Vesting in Accounts.

(a) A Participant shall become vested in his Accounts in accordance with the following schedule:

Years of Service	Vested Percentage
Less than 2 years		0	%
2 years		20	%
3 years		40	%
4 years		60	%
5 years		80	%
6 years		100	%

(b) For purposes of determining a Participant’s Years of Service under this Section 6.01, employment with the Bank or an Affiliate shall be deemed employment with the Employer. With respect to Employees who enter the Plan pursuant to Section 3.01(a) of the Plan, for purposes of determining a Participant’s vested percentage, all Years of Service shall be included. With respect to Employees who enter the Plan pursuant to Section 3.01(b) of the Plan, for purposes of determining a Participant’s vested percentage, all Years of Service shall be included, subject to the provisions of Section 6.05 of the Plan. Notwithstanding any provision of the Plan to the contrary, calculation of Service for determining a Participant’s Vested Percentage with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

Section 6.02 Immediate Vesting in Certain Situations.

(a) Notwithstanding Section 6.01(a) of the Plan, a Participant shall become fully vested in his Accounts upon the earlier of:

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(i) termination of the Plan or upon the permanent and complete discontinuance of contributions by his Employer to the Plan; provided, however, that in the event of a partial termination, the interest of each Participant shall fully vest only with respect to that part of the Plan which is terminated;

(ii) The Participant’s Normal Retirement Age;

(iii) A Change in Control; or

(iv) Termination of employment by reason of death or Disability. For purposes of this Section 6.02, benefits payable in the event of a Participant’s death or Disability while performing qualified military service shall fully vest in accordance with Section 414(u)(9) of the Code.

Section 6.03 Treatment of Forfeitures.

(a) If a Participant who is not fully vested in his Accounts terminates employment, that portion of his Accounts in which he is not vested shall be forfeited upon the earlier of:

(i) The date the Participant receives a distribution of his entire vested benefits under the Plan, or

(ii) The date at which the Participant incurs five (5) consecutive Breaks in Service.

(b) If a Participant who has terminated employment and has received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer prior to incurring five (5) consecutive Breaks in Service, he shall have the portion of his Accounts which was previously forfeited restored to his Accounts, provided he repays to the Trustee within five (5) years of his subsequent employment date an amount equal to the distribution. The amount restored to the Participant’s Account shall be credited to his Account as of the last day of the Plan Year in which the Participant repays the distributed amount to the Trustee and the restored amount shall come from other Employees’ forfeitures and, if such forfeitures are insufficient, from a special contribution by his Employer for that year. If a Participant’s employment terminates prior to his Account having become vested, such Participant shall be deemed to have received a distribution of his entire vested interest as of the Valuation Date next following his termination of employment.

(c) If a Participant who has terminated employment but has not received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer subsequent to incurring five (5) consecutive Breaks in Service, any undistributed balance of his Accounts from his prior participation which was not forfeited shall be maintained as a fully vested subaccount with his Account.

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(d) If a portion of a Participant’s Account is forfeited, assets other than Company Stock must be forfeited before any Company Stock may be forfeited.

(e) Forfeitures shall be reallocated among the other Participants in the Plan.

Section 6.04 Accounting for Forfeitures.

A forfeiture shall be charged to the Participant’s Account as of the first day of the first Valuation Period in which the forfeiture becomes certain pursuant to Section 6.03 of the Plan. Except as otherwise provided in Section 6.03 of the Plan, a forfeiture shall be added to the contributions of the terminated Participant’s Employer which are to be credited to other Participants pursuant to Section 4 as of the last day of the Plan Year in which the forfeiture becomes certain.

Section 6.05 Vesting Upon Reemployment.

(a) If an Employee is not vested in his Accounts, incurs a Break in Service and again performs an Hour of Service, such Employee shall receive credit for his Years of Service prior to his Break in Service only if the number of consecutive Breaks in Service is less than the greater of: (i) five (5) years or (ii) the aggregate number of his Years of Service credited before his Break in Service.

(b) If a Participant is partially vested in his Accounts, incurs a Break in Service and again performs an Hour of Service, such Participant shall receive credit for his Years of Service prior to his Break in Service; provided, however, that after five (5) consecutive Breaks in Service, a former Participant’s vested interest in his Accounts attributable to Years of Service prior to his Break in Service shall not be increased as a result of his Years of Service following his reemployment date.

(c) If a Participant is fully vested in his Accounts, incurs a Break in Service and again performs an Hour of Service, such Participant shall receive credit for all his Years of Service prior to his Breaks in Service.

Section 7

Distributions

Section 7.01 Distribution of Benefit Upon a Termination of Employment.

(a) A Participant whose employment terminates for any reason shall receive the entire vested portion of his Accounts in a single payment on a date selected by the Committee; provided, however, that such date shall be on or before the 60th day after the end of the Plan Year in which the Participant’s employment terminated. The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment. Subject to the provisions of Section 7.05 of the Plan, if the Committee so provides, a Participant may elect that his benefits be distributed to him in the form of Company Stock, cash, or some combination thereof. In

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addition, if a Participant did not receive a distribution of his vested Account balance but his non-vested Account balance was forfeited after a Break in Service, such nonvested Account balance shall be restored if the Plan terminates before the Participant has a five-year Break in Service. If the Participant did not receive a distribution of his vested Account balance, any forfeiture restored shall include earnings that would have been credited to the Account but for the forfeiture.

(b) Notwithstanding paragraph (a) of this Section 7.01, if the balance credited to a Participant’s Accounts exceeds, at the time such benefit was distributable, $1,000, his benefits shall not be paid before the latest of his 65th birthday or the tenth anniversary of the year in which he commenced participation in the Plan, unless he elects an early payment date in a written election filed with the Committee. Such an election is not valid unless it is made after the Participant has received the required notice under Section 1.411(a)-11(c) of the Treasury Regulations that provides a general description of the material features of a lump sum distribution and the Participant’s right to defer receipt of his benefits under the Plan. The notice shall be provided no less than 30 days and no more than ninety (90) days before the first day on which all events have occurred which entitle the Participant to such benefit. Written consent of the Participant to the distribution generally may not be made within 30 days of the date the Participant receives the notice and shall not be made more than ninety (90) days from the date the Participant receives the notice. However, a distribution may be made less than 30 days after the notice provided under Section 1.411(a)-11(c) of the Treasury Regulations is given, if:

(i) the Committee clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and if applicable, a particular distribution option), and

(ii) the Participant, after receiving the notice, affirmatively elects a distribution.

A Participant may modify such an election at any time, provided any new benefit payment date is at least 30 days after a modified election is delivered to the Committee.

Section 7.02 Minimum Distribution Requirements.

(a) General Rules.

(i) Precedence. The requirements of this Section 7.02 will take precedence over any inconsistent provisions of the Plan.

(ii) Requirements of Treasury Regulations Incorporated. All distributions required under this Section will be determined and made in accordance with the Treasury Regulations under section 401(a)(9) of the Internal Revenue Code.

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(iii) TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this article, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the plan that relate to section 242(b)(2) of TEFRA.

(b) Time and Manner of Distribution.

(i) Required Beginning Date. The participant’s entire interest will be distributed, or begin to be distributed, to the participant no later than the participant’s required beginning date.

(ii) Death of Participant Before Distributions Begin. If the participant dies before distributions begin, the participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(A) If the participant’s surviving spouse is the participant’s sole designated beneficiary, then, except as provided in the adoption agreement, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the participant died, or by December 31 of the calendar year in which the participant would have attained age 70 ¹/2, if later.

(B) If the participant’s surviving spouse is not the participant’s sole designated beneficiary, then, except as provided in the adoption agreement, distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the participant died.

(C) If there is no designated beneficiary as of September 30 of the year following the year of the participant’s death, the participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the participant’s death.

(D) If the participant’s surviving spouse is the participant’s sole designated beneficiary and the surviving spouse dies after the participant but before distributions to the surviving spouse begin, this section (b)(ii), other than section (b)(ii)(A), will apply as if the surviving spouse were the participant.

(iii) Forms of Distribution. All distributions under this Plan will be made in a single lump sum.

(c) Required Minimum Distributions During Participant’s Lifetime.

(i) Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(A) the quotient obtained by dividing the participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury Regulations, using the participant’s age as of the participant’s birthday in the distribution calendar year; or

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(B) if the participant’s sole designated beneficiary for the distribution calendar year is the participant’s spouse, the quotient obtained by dividing the participant’s account balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury Regulations, using the participant’s and spouse’s attained ages as of the participant’s and spouse’s birthdays in the distribution calendar year; or

(ii) Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this section (c) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the participant’s date of death.

(d) Required Minimum Distributions After Participant’s Death.

(i) Death On or After Date Distributions Begin.

(A) Participant Survived by Designated Beneficiary. If the participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant’s death is the quotient obtained by dividing the participant’s account balance by the longer of the remaining life expectancy of the participant or the remaining life expectancy of the participant’s designated beneficiary, determined as follows:

1. The participant’s remaining life expectancy is calculated using the age of the participant in the year of death, reduced by one for each subsequent year.

2. If the participant’s surviving spouse is the participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

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3. If the participant’s surviving spouse is not the participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the participant’ death, reduced by one for each subsequent year.

(B) No Designated Beneficiary. If the participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the participant’s death is the quotient obtained by dividing the participant’s account balance by the participant’s remaining life expectancy calculated using the age of the participant in the year of death, reduced by one for each subsequent year.

(ii) Death Before Date Distributions Begin.

(A) Participant Survived by Designated Beneficiary. Except as provided in the adoption agreement, if the participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant’s death is the quotient obtained by dividing the participant’s account balance by the remaining life expectancy of the participant’s designated beneficiary, determined as provided in this Section.

(B) No Designated Beneficiary. If the participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the participant’s death, distribution of the participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the participant’s death.

(C) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the participant dies before the date distributions begin, the participant’s surviving spouse is the participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse, this section will apply as if the surviving spouse were the participant.

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(e) Definitions for Section 7.02.

(i) Designated beneficiary. The individual who is designated as the beneficiary under the Plan and is the designated beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.

(ii) Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the participant’s required beginning date. For distributions beginning after the participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under section (b)(ii). The required minimum distribution for the participant’s first distribution calendar year will be made on or before the participant’s required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

(iii) Life expectancy. Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury Regulations.

(iv) Participant’s account balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over transferred to the plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

Section 7.03 Benefits on a Participant’s Death.

(a) If a Participant dies before his benefits are paid pursuant to Section 7.01 of the Plan, the balance credited to his Accounts shall be paid to his Beneficiary in a single distribution on or before the 60th day after the end of the Plan Year in which the Participant died. If the Participant has not named a Beneficiary or if his named Beneficiary should not survive him, then the balance in his Account shall be paid to his spouse (if married) or his estate. The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment.

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(b) If a married Participant dies before his benefit payments begin, then, unless he has specifically elected otherwise, the Committee shall cause the balance in his Accounts to be paid to his spouse, as Beneficiary. A married Participant may name an individual other than his spouse as his Beneficiary, provided that such election is accompanied by the spouse’s written consent, which must:

(i) acknowledge the effect of the election;

(ii) explicitly provide either that the designated Beneficiary may not subsequently be changed by the Participant without the spouse’s further consent or that it may be changed without such consent; and

(iii) must be witnessed by the Committee, its representative, or a notary public.

This requirement shall not apply if the Participant establishes to the Committee’s satisfaction that the spouse may not be located.

(c) The Committee shall from time to time take whatever steps it deems appropriate to keep informed of each Participant’s marital status. Each Employer shall provide the Committee with the most reliable information in the Employer’s possession regarding its Participants’ marital status, and the Committee may, in its discretion, require a notarized affidavit from any Participant as to his marital status. The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability to the extent of any benefit payments made as a result of the Committee’s good faith and reasonable reliance upon information obtained from a Participant as to the Participant’s marital status.

Section 7.04 Delay in Benefit Determination.

If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to this Section 7, the benefits shall in any event be paid within 60 days after they can first be determined, with whatever makeup payments may be appropriate in view of the delay.

Section 7.05 Options to Receive and Sell Stock.

(a) Unless ownership of virtually all Company Stock is restricted to active Employees and qualified retirement plans for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Company Stock, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant’s entire vested interest in his Accounts in the form of Company Stock. In that event, the Committee shall apply the Participant’s vested interest in his Other Investments Account to purchase sufficient Company Stock to make the required distribution.

(b) Any Participant who receives Company Stock pursuant to this Section, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover distribution described in Section 402(c) of the Code,

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shall have the right to require the Employer which issued the Company Stock to purchase the Company Stock for its current fair market value (hereinafter referred to as the “put right”). The put right shall be exercisable by written notice to the Committee during the first 60 days after the Company Stock is distributed by the Plan, and, if not exercised in that period, during the first 60 days in the following Plan Year after the Committee has communicated to the Participant its determination as to the Company Stock’s current fair market value. If the put right is exercised, the Trustee may, if so directed by the Committee in its sole discretion, assume the Employer’s rights and obligations with respect to purchasing the Stock. However, the put right shall not apply to the extent that the Company Stock, at the time the put right would otherwise be exercisable, may be sold on an established market in accordance with federal and state securities laws and regulations.

(c) With respect to a put right, the Employer or the Trustee, as the case may be, may elect to pay for the Company Stock in equal periodic installments, not less frequently than annually, over a period not longer than five (5) years from the 30th day after the put right is exercised pursuant to paragraph (b) of this Section 7.05, with adequate security and interest at a reasonable rate on the unpaid balance, all such terms to be set forth in a promissory note delivered to the seller with normal terms as to acceleration upon any uncured default.

(d) Nothing contained in this Section 7.05 shall be deemed to obligate any Employer to register any Company Stock under any federal or state securities law or to create or maintain a public market to facilitate the transfer or disposition of any Company Stock. The put right described in this Section 7.05 may only be exercised by a person described in the paragraph (b) of this Section 7.05, and may not be transferred with any Company Stock to any other person. As to all Company Stock purchased by the Plan in exchange for any Acquisition Loan, the put right be nonterminable. The put right for Company Stock acquired through a Acquisition Loan shall continue with respect to such Company Stock after the Acquisition Loan is repaid or the Plan ceases to be an employee stock ownership plan. Except as provided above, in accordance with the provisions of Sections 54.4975-7(b)(4) of the Treasury Regulations, no Company Stock acquired with the proceeds of an Acquisition Loan may be subject to any put, call or other option or buy-sell or similar arrangement while held by, and when distributed from, the Plan, whether the Plan is then an employee stock ownership plan.

Section 7.06 Restrictions on Disposition of Stock.

Except in the case of Company Stock which is traded on an established market, a Participant who receives Company Stock pursuant to this Section 7, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover distribution described in Section 402(c) of the Code, shall, prior to any sale or other transfer of the Company Stock to any other person, first offer the Company Stock to the issuing Employer and to the Plan at its current fair market value. This restriction shall apply to any transfer, whether voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous. Either the Employer or the

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Trustee may accept the offer within 14 days after it is delivered. Any Company Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 7.06, as applicable, as well as any other restrictions upon the transfer of the Company Stock imposed by federal and state securities laws and regulations.

Section 7.07 Direct Transfer of Eligible Plan Distributions.

(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section, a distributee (as defined below) may elect to have any portion of an eligible rollover distribution (as defined below) paid directly to an eligible retirement plan (as defined below) specified by the distributee in a direct rollover (as defined below). A “distributee” includes a Participant or former Participant. In addition, the Participant’s or former Participant’s surviving spouse and the Participant’s or former Participant’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. For purposes of this Section 7.07 a “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.

(b) To effect such a direct transfer, the distributee must notify the Committee that a direct rollover is desired and provide to the Committee sufficient information regarding the eligible retirement plan to which the payment is to be made. Such notice shall be made in such form and at such time as the Committee may prescribe. Upon receipt of such notice, the Committee shall direct the Trustee to make a trustee-to-trustee transfer of the eligible rollover distribution to the eligible retirement plan so specified.

(c) For purposes of this Section 7.07, an “eligible rollover distribution” shall have the meaning set forth in Section 402(c)(4) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not inconsistent with the above references, an eligible rollover distribution shall mean any distribution of all or any portion of the Participant’s Account, except that such term shall not include any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made (i) for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and a designated Beneficiary, or (ii) for a period of ten (10) years or more. Further, the term “eligible rollover distribution” shall not include any distribution required to be made under Section 401(a)(9) of the Code or, the portion of any distribution that is not includible in gross income (determined without regard to the exclusions for net unrealized appreciation with respect to Company Stock). To the extent applicable under the Plan, “eligible rollover distributions” shall also not include any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code.

(d) For purposes of this Section 7.07, an “eligible retirement plan” shall have the meaning set forth in Section 402(c)(8) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not consistent with the above references, an eligible retirement plan shall mean: (i) an individual retirement account described in Section 408(a) of the Code, (ii) an individual retirement annuity described in Section 408(b) of the

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Code, (iii) an annuity or annuity plan described in Section 403(a) or Section 403(b) of the Code, (iv) a qualified trust described in Section 401(a) of the Code, or (v) a governmental plan under Section 457 of the Code that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan means an individual retirement account or individual retirement annuity.

(e) An eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order as defined in Section 414(p) of the Code.

Section 7.08 Waiver of 30-Day Period After Notice of Distribution.

If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Treasury Regulations Section 1.411(a)-11(c) is given, provided that:

(i) the Trustee or Committee, as applicable, clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular option), and

(ii) the Participant, after receiving the notice, affirmatively elects a distribution.

Section 8

Voting of Company Stock and Tender Offers

Section 8.01 Voting of Company Stock.

(a) In General. The Trustee shall generally vote all shares of Company Stock held in the Trust in accordance with the provisions of this Section 8.01.

(b) Allocated Shares. Shares of Company Stock which have been allocated to Participants’ Accounts shall be voted by the Trustee in accordance with the Participants’ written instructions.

(c) Uninstructed and Unallocated Shares. Shares of Company Stock which have been allocated to Participants’ Accounts but for which no written instructions have been received by the Trustee regarding voting shall be voted by the Trustee in a manner calculated to most accurately reflect the instructions the Trustee has received from Participants regarding voting shares of allocated Company Stock. Shares of unallocated Company

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Stock shall also be voted by the Trustee in a manner calculated to most accurately reflect the instructions the Trustee has received from Participants regarding voting shares of allocated Company Stock. Notwithstanding the preceding two sentences, all shares of Company Stock which have been allocated to Participants’ Accounts and for which the Trustee has not timely received written instructions regarding voting and all unallocated shares of Company Stock must be voted by the Trustee in a manner determined by the Trustee to be solely in the best interests of the Participants and Beneficiaries.

(d) Voting Prior to Allocation. In the event no shares of Company Stock have been allocated to Participants’ Accounts at the time Company Stock is to be voted, each Participant shall be deemed to have one share of Company Stock allocated to his Accounts for the sole purpose of providing the Trustee with voting instructions.

(e) Procedure and Confidentiality. Whenever such voting rights are to be exercised, the Employers, the Committee, and the Trustee shall see that all Participants and Beneficiaries are provided with the same notices and other materials as are provided to other holders of the Company Stock, and are provided with adequate opportunity to deliver their instructions to the Trustee regarding the voting of Company Stock allocated to their Accounts or deemed allocated to their Accounts for purposes of voting. The instructions of the Participants with respect to the voting of shares of Company Stock shall be confidential.

Section 8.02 Tender Offers.

In the event of a tender offer, Company Stock shall be tendered by the Trustee in the same manner set forth in Section 8.01 of the Plan regarding the voting of Company Stock.

Section 9

The Committee and Plan Administration

Section 9.01 Identity of the Committee.

The Committee shall consist of three or more individuals selected by the Bank. Any individual, including a director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The Bank shall have the power to remove any individual serving on the Committee at any time without cause upon ten (10) days written notice to such individual and any individual may resign from the Committee at any time without reason upon ten (10) days written notice to the Bank. The Bank shall notify the Trustee of any change in membership of the Committee.

Section 9.02 Authority of Committee.

(a) The Committee shall be the “plan administrator” within the meaning of ERISA and shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically:

(i) allocated to the Bank, the Employers, or the Trustee under the Plan and Trust Agreement;

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(ii) delegated in writing to other persons by the Bank, the Employers, the Committee, or the Trustee; or

(iii) allocated to other parties by operation of law.

(b) The Committee shall have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan.

(c) The Committee shall have full investment responsibility with respect to the Investment Fund except to the extent, if any, specifically provided in the Trust Agreement.

(d) In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay such individuals reasonable compensation and expenses for their services rendered with respect to the operation or administration of the Plan to the extent such payments are not otherwise prohibited by law.

Section 9.03 Duties of Committee.

(a) The Committee shall keep whatever records may be necessary in connection with the maintenance of the Plan and shall furnish to the Employers whatever reports may be required from time to time by the Employers. The Committee shall furnish to the Trustee whatever information may be necessary to properly administer the Trust. The Committee shall see to the filing with the appropriate government agencies of all reports and returns required with respect to the Plan under ERISA and the Code and other applicable laws.

(b) The Committee shall have exclusive responsibility and authority with respect to the Plan’s holdings of Company Stock and shall direct the Trustee in all respects regarding the purchase, retention, sale, exchange, and pledge of Company Stock and the creation and satisfaction of any Acquisition Loan to the extent such responsibilities are not set forth in the Trust Agreement.

(c) The Committee shall at all times act consistently with the Bank’s long-term intention that the Plan, as an employee stock ownership plan, be invested primarily in Company Stock. Subject to the direction of the Committee with respect to any Acquisition Loan pursuant to the provisions of Section 4.03 of the Plan, and subject to the provisions of Sections 7.05 and 11.04 of the Plan as to Participants’ rights under certain circumstances to have their Accounts invested in Company Stock or in assets other than Company Stock, the Committee shall determine, in its sole discretion, the extent to which assets of the Trust shall be used to repay any Acquisition Loan, to purchase Company Stock, or to invest in other assets selected by the Committee or an investment manager. No provision of the Plan relating to the allocation or vesting of any interests in the Company Stock or

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investments other than Company Stock shall restrict the Committee from changing any holdings of the Trust Fund, whether the changes involve an increase or a decrease in the Company Stock or other assets credited to Participants’ Accounts. In determining the proper extent of the Trust Fund’s investment in Company Stock, the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents and to pay their reasonable compensation and expenses to the extent such payments are not prohibited by law.

(d) If the valuation of any Company Stock is not established by reported trading on a generally recognized public market, then the Committee shall have the exclusive authority and responsibility to determine value of the Company Stock for all purposes under the Plan. Such value shall be determined as of each Valuation Date and on any other date as of which the Trustee purchases or sells Company Stock in a manner consistent with Section 4975 of the Code and the Treasury Regulations thereunder. The Committee shall use generally accepted methods of valuing stock of similar corporations for purposes of arm’s length business and investment transactions, and in this connection the Committee shall obtain, and shall be protected in relying upon, the valuation of Company Stock as determined by an independent appraiser experienced in preparing valuations of similar businesses.

Section 9.04 Compliance with ERISA and the Code.

The Committee shall perform all acts necessary to ensure the Plan’s compliance with ERISA and the Code. Each individual member of the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA and the Code.

Section 9.05 Action by Committee.

All actions of the Committee shall be governed by the affirmative vote of a number of the members of the Committee which is a majority of the total number of the members of the Committee. The members of the Committee may meet informally and may take any action without meeting as a group.

Section 9.06 Execution of Documents.

Any instrument executed by the Committee may be signed by any member of the Committee.

Section 9.07 Adoption of Rules.

The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate for the proper operation, administration and interpretation of the Plan.

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Section 9.08 Responsibilities to Participants.

The Committee shall determine which Employees qualify to participate in the Plan. The Committee shall furnish to each Eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information may be required under ERISA. The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under the Plan. The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA or the Code (or is otherwise appropriate) to enable the Participant or Beneficiary to make whatever elections may be available pursuant to Section 7, and the Committee shall provide for the payment of benefits in the proper form and amount from the Trust. The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate benefits to the extent consistent with the terms of the Plan, applicable law, and the best interests of the individuals concerned.

Section 9.09 Alternative Payees in Event of Incapacity.

If the Committee finds at any time that an individual qualifying for benefits under this Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his legal guardian, a custodian for him under the Uniform Transfers to Minors Act, or the person having actual custody of him, or, in the case of an incompetent, to his spouse, his legal guardian, or the person having actual custody of him. The Committee and the Trustee shall not be obligated to inquire as to the actual use of the funds by the person receiving them under this Section 9.09, and any such payment shall completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.

Section 9.10 Indemnification by Employers.

Except as separately agreed in writing, the Committee, and any member or employee of the Committee, shall be indemnified and held harmless by the Employers, jointly and severally, to the fullest extent permitted by law against any and all costs, damages, expenses, and liabilities reasonably incurred by or imposed upon the Committee or such individual in connection with any claim made against the Committee or such individual or in which the Committee or such individual may be involved by reason of being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts are not paid by insurance.

Section 9.11 Abstention by Interested Member.

Any member of the Committee who also is a Participant in the Plan shall take no part in any determination specifically relating to his own participation or benefits under the Plan, unless his abstention would render the Committee incapable of acting on the matter.

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Section 10

Rules Governing Benefit Claims

Section 10.01 Claim for Benefits.

Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for his benefits with the Committee on a form provided by the Committee. The claim, including any election of an alternative benefit form, shall be filed at least 30 days before the date on which the benefits are to begin. If a Participant or Beneficiary fails to file a claim by the 30th day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant’s benefits in the standard form prescribed by Section 7 of the Plan.

Section 10.02 Notification by Committee.

Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied. If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:

(a) each specific reason for the denial;

(b) specific references to the pertinent Plan provisions on which the denial is based;

(c) a description of any additional material or information which could be submitted by the Participant or Beneficiary to support his claim, with an explanation of the relevance of such information; and

(d) an explanation of the claims review procedures set forth in Section 10.03 of the Plan.

Section 10.03 Claims Review Procedure.

Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for benefits has been denied in any respect, he may file with the Committee a written notice of appeal setting forth his reasons for disputing the Committee’s determination. In connection with his appeal the Participant or Beneficiary or his representative may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants’ and Beneficiaries’ rights of privacy. Within 60 days after receiving a notice of appeal from a prior determination (or within 120 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary and his representative within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative, if any, a written statement of the Committee’s final decision with respect to his claim, including the reasons for such decision and the particular Plan provisions upon which it is based.

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Section 11

The Trust

Section 11.01 Creation of Trust Fund.

All amounts received under the Plan from an Employer and investments shall be held in a Trust Fund pursuant to the terms of this Plan and the Trust Agreement. The benefits described in this Plan shall be payable only from the assets of the Trust Fund. Neither the Bank, any other Employer, its board of directors or trustees, its stockholders, its officers, its employees, the Committee, nor the Trustee shall be liable for payment of any benefit under this Plan except from the Trust Fund.

Section 11.02 Company Stock and Other Investments.

Trust Fund held by the Trustee shall be divided into Company Stock and investments other than Company Stock. The Trustee shall have no investment responsibility for the portion of the Trust Fund consisting of Company Stock, but shall accept any Employer contributions made in the form of Company Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with and dispose of Company Stock in accordance with the instructions of the Committee.

Section 11.03 Acquisition of Company Stock.

From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Company Stock from the issuing Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for such Company Stock no more than its fair market value, which shall be determined conclusively by the Committee pursuant to Section 9.03(d) of the Plan. The Committee may direct the Trustee to finance the acquisition of Company Stock through an Acquisition Loan subject to the provisions of Section 4.03 of the Plan.

Section 11.04 Participants’ Option to Diversify.

The Committee shall provide for a procedure under which each Participant may, during the first five years of a certain six-year period, elect to have up to 25 percent of the value of his Accounts converted into cash or other investments acceptable under Section 401(a)(28) of the Code. For the sixth year in this period, the Participant may elect to have up to 50 percent of the value of his Accounts committed to other investments. The six-year period shall begin with the Plan Year following the first Plan Year in which the Participant has both reached aged 55 and completed 10 years of participation in the Plan; a Participant’s election to diversify his Accounts must be made within the 90-day period immediately following the last day of each of the six Plan Years. The Committee may, in its discretion, permit a transfer of a portion of the Participant’s Accounts to the Employer’s 401(k) Plan, allow Participants to transfer funds to an individual retirement account or take a direct distribution in order to satisfy this Section 11.04, provided such transfer is not otherwise prohibited under the Code or ERISA. The Trustee shall comply with any investment directions received from Participants in accordance with the procedures adopted from time to time by the Committee under this Section 11.04.

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Section 12

Adoption, Amendment and Termination

Section 12.01 Adoption of Plan by Other Employers.

With the consent of the Bank, any entity may become a participating Employer under the Plan by:

(a) taking such action as shall be necessary to adopt the Plan;

(b) becoming a party to the Trust Agreement establishing the Trust Fund; and

(c) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan into effect with respect to the entity’s Employees.

Section 12.02 Adoption of Plan by Successor.

In the event that any Employer shall be reorganized by way of merger, consolidation, transfer of assets or otherwise, so that an entity other than an Employer shall succeed to all or substantially all of the Employer’s business, the successor entity may be substituted for the Employer under the Plan by adopting the Plan and becoming a party to the Trust Agreement. Contributions by the Employer shall be automatically suspended from the effective date of any such reorganization until the date upon which the substitution of the successor entity for the Employer under the Plan becomes effective. If, within 90 days following the effective date of any such reorganization, the successor entity shall not have elected to become a party to the Plan, or if the Employer shall adopt a plan of complete liquidation other than in connection with a reorganization, the Plan shall be automatically terminated with respect to Employees of the Employer as of the close of business on the 90th day following the effective date of the reorganization, or as of the close of business on the date of adoption of a plan of complete liquidation, as the case may be.

Section 12.03 Plan Adoption Subject to Qualification.

Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits. In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) of the Code, the Plan may be amended retroactively to the earliest date permitted by the Code and the applicable Treasury Regulations in order to secure qualification under Section 401(a) of the Code. If this Plan is held by the Internal Revenue Service not to qualify initially under Section

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401(a) of the Code either as originally adopted or as amended, each Employer’s contributions to the Trust under this Plan (including any earnings thereon) shall be returned to it and this Plan shall be terminated. In the event that this Plan is amended after its initial qualification and the Plan as amended is held by the Internal Revenue Service not to qualify under Section 401(a) of the Code, the amendment may be modified retroactively to the earliest date permitted by the Code and the applicable Treasury Regulations in order to secure approval of the amendment under Section 401(a) of the Code.

Section 12.04 Right to Amend or Terminate.

The Bank intends to continue this Plan as a permanent program. However, each participating Employer separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that Employer’s Employees, and the Bank reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at any time and for any reason, as it applies to the Employees of all Employers. No amendment, suspension, supersession, merger, consolidation, or termination of the Plan shall reduce any Participant’s or Beneficiary’s proportionate interest in the Trust Fund, or shall divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan. Except as is required for purposes of compliance with the Code or ERISA, the provisions of Section 4.04 relating to the crediting of contributions, forfeitures and shares of Company Stock released from the Loan Suspense Account, nor any other provision of the Plan relating to the allocation of benefits to Participants, may be amended more frequently than once every six months. Moreover, there shall not be any transfer of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation. Following a termination of this Plan by the Bank, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan and the Committee’s instructions.

Section 13

General Provisions

Section 13.01 Nonassignability of Benefits.

The interests of Participants and other persons entitled to benefits under the Plan shall not be subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated, pledged, encumbered, sold, or transferred. The prohibitions set forth in this Section 13.01 shall also apply any judgement, decree, or order (including approval of a property or settlement agreement) which relates to the provision of child support, alimony, or property rights to a present or former spouse, child, or other dependent of a Participant pursuant to a domestic relations order, unless such judgement, decree or order is determined to be a “qualified domestic relations order” as defined in Section 414(p) of the Code.

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Section 13.02 Limit of Employer Liability.

The liability of the Employers with respect to Participants and other persons entitled to benefits under the Plan shall be limited to making contributions to the Trust from time to time, in accordance with Section 4 of the Plan.

Section 13.03 Plan Expenses.

All expenses incurred by the Committee or the Trustee in connection with administering the Plan and Trust shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employers or by the Trustee.

Section 13.04 Nondiversion of Assets.

Except as provided in Sections 5.05 and 12.03 of the Plan, under no circumstances shall any portion of the Trust Fund be diverted to or used for any purpose other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.

Section 13.05 Separability of Provisions.

If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

Section 13.06 Service of Process.

The agent for the service of process upon the Plan shall be the president of the Bank and the Trustee, or such other person as may be designated from time to time by the Bank.

Section 13.07 Governing Law.

The Plan is established under, and its validity, construction and effect shall be governed by the laws of the State of North Carolina to the extent those laws are not preempted by federal law, including the provisions of ERISA.

Section 13.08 Special Rules for Persons Subject to Section 16(b) Requirements.

Notwithstanding anything herein to the contrary, any former Participant who is subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, who becomes eligible to again participate in the Plan, may not become a Participant prior to the date that is six months from the date such former Participant terminated participation in the Plan. In

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addition, any person subject to the provisions of Section 16(b) of the 1934 Act receiving a distribution of Company Stock from the Plan must hold such Company Stock for a period of six months commencing with the date of distribution. However, this restriction will not apply to Company Stock distributions made in connection with death, retirement, disability or termination of employment, or made pursuant to the terms of a qualified domestic relations order.

Section 13.09 Military Service.

Notwithstanding any other provision of this Plan to the contrary, contributions, benefits and Service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

Section 13.10 Use of Electronic Media to Provide Notices and Make Participant Elections.

Pursuant to Treasury Regulations Section 1.401(a)-21, the Plan may elect to use electronic media to provide notices required to be provided to Participants under the Plan and will accept elections from Participants communicated to the Plan using such electronic media.

Section 14

Top-Heavy Provisions

Section 14.01 Top-Heavy Provisions.

(a) Key employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the Determination Date was an officer of the Employer having annual compensation greater than $160,000 (as adjusted under Section 416(i)(1) of the Code), a 5% owner of the Employer or a 1% owner of the Employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

(b) Determination of present values and amounts. This section (ii) shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of Participants as of the distribution date.

(i) Distributions during year ending on the Determination Date. The present values of accrued benefits and the amounts of account balances of a Participant as of the Determination Date shall be increased by the distributions made with respect to the Participant under the Plan and any Plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had

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it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death or disability, this provision shall be applied by substituting “5-year period” for “1-year period”.

(ii) Participants not performing services during the year ending on the Determination Date. The accrued benefits and accounts of any individual who has not performed services for the Employer during the 1-year period ending on the Determination Date shall not be taken into account.

Section 14.02 Plan Modifications Upon Becoming Top-Heavy.

(a) Minimum Accruals. Section 5.04 of the Plan will be modified to provide that the aggregate amount of Employer contributions allocated in each Plan Year to the Accounts of each Participant who is a non-Key Employee (as defined under Section 416(i)(1) of the Code), and who is employed by an Employer as of the last day of the Plan Year, may not be less than the lesser of:

(i) three percent (3%) of his Compensation for the Plan Year; and

(ii) a percentage of his Compensation equal to the largest percentage obtained by dividing the sum of the amount credited to the Accounts of any Key Employee by that Key Employee’s Compensation.

(b) The preceding provision will remain in effect for the period in which the Plan is top-heavy. If, for any particular year thereafter, the Plan is no longer top-heavy, the provisions contained in this Section 14.02 shall cease to apply, except that any previously vested portion of any Account balance shall remain nonforfeitable.

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EX-10.3

Exhibit 10.3

FORM OF

ESOP LOAN AGREEMENT

THIS LOAN AGREEMENT (“Loan Agreement”) is made and entered into as of                     , 2011, by and between PENTEGRA TRUST COMPANY, AS THE TRUSTEE FOR THE ASHEVILLE SAVINGS BANK, S.S.B. EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Borrower”), a trust forming part of the Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan (“ESOP”), and ASB BANCORP, INC. (“Lender”), a corporation organized and existing under the laws of North Carolina.

W I T N E S S E T H

WHEREAS, the Borrower is authorized to purchase shares of common stock of ASB Bancorp, Inc. (“Common Stock”), either directly from ASB Bancorp, Inc. or in open market purchases in an amount not to exceed          percent (        %) of the shares of Common Stock offered in the initial public offering; and

WHEREAS, the Borrower is authorized to borrow funds from the Lender for the purpose of financing authorized purchases of Common Stock; and

WHEREAS, the Lender is willing to make a loan to the Borrower for such purpose.

NOW, THEREFORE, the parties agree hereto as follows:

ARTICLE I

Definitions

The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context:

Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal or local law or regulation.

Code means the Internal Revenue Code of 1986, as amended (including the corresponding provisions of any succeeding law).

Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirements of notice or lapse of time.

ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law).

Event of Default means an event or condition described in Article 5 of this Loan Agreement.

Loan means the loan described in Section 2.1 of this Loan Agreement.

Loan Documents means, collectively, the Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents.

Pledge Agreement means the agreement described in Section 2.8(a) of this Loan Agreement.

Principal Amount means the face amount of the Promissory Note, determined as set forth in Section 2.1(c) of this Loan Agreement.

Promissory Note means the promissory note described in Section 2.3 of this Loan Agreement.

Register means the register described in Section 2.9 of this Loan Agreement.

ARTICLE II

The Loan; Principal Amount;

Interest; Security; Indemnification

Section 2.1 The Loan; Principal Amount.

(a) The Lender hereby agrees to lend to the Borrower such amount, and at such time, as shall be determined under this Section 2.1; provided, however, that in no event shall the aggregate amount lent under this Loan Agreement from time to time exceed the greater of (i) $                    , or (ii) the aggregate amount paid by the Borrower to purchase up to          percent (        %) of the shares of Common Stock offered in the initial public offering.

(b) Subject to the limitations of Section 2.1(a), the Borrower shall determine the amounts borrowed under this Loan Agreement, and the time at which such borrowings are effected. Each such determination shall be evidenced in a writing which shall set forth the amount to be borrowed and the date on which the Lender shall disburse such amount, and such writing shall be furnished to the Lender by notice from the Borrower. The Lender shall disburse to the Borrower the amount specified in each such notice on the date specified therein or, if later, as promptly as practicable following the Lender’s receipt of such notice; provided, however, that the Lender shall have no obligation to disburse funds pursuant to this Agreement following the occurrence of a Default or an Event of Default until such time as such Default or Event of Default shall have been cured.

(c) For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of:

(i) the aggregate amount disbursed by the Lender pursuant to Section 2.1(b) on or before such date; over

(ii) the aggregate amount of any repayments of such amounts made before such date.

The Lender shall maintain on the Register a record of, and shall record in the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount.

Section 2.2 Interest.

(a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing with the first disbursement of funds under this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of         % per annum. Interest payable under this Agreement shall be computed on the basis of a year of 365 days and actual days elapsed (including the first day but excluding the last) occurring during the period to which the computation relates.

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(b) Accrued interest on the Principal Amount shall be payable by the Borrower on the dates set forth in Schedule I to the Promissory Note. All interest on the Principal Amount shall be paid by the Borrower in immediately available funds.

(c) Anything in this Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

Section 2.3 Promissory Note.

The Loan shall be evidenced by the Promissory Note of the Borrower attached hereto as an exhibit payable to the order of the lender in the Principal Amount and otherwise duly completed.

Section 2.4 Payment of Trust Loan.

The Principal Amount of the Loan shall be repaid in accordance with Schedule I to the Promissory Note on the dates specified therein until fully paid.

Section 2.5 Prepayment.

The Borrower shall be entitled to prepay the Loan in whole or in part, at any time and from time to time; provided, however, that the Borrower shall give notice to the Lender of any such prepayment; and provided, further, that any partial prepayment of the Loan shall be in an amount not less than $1,000. Any such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all accrued interest through the date of such prepayment; (c) made without premium or penalty; and (d) applied on the inverse order of the maturity of the installment thereof unless the Lender and the Borrower agree to apply such prepayments in some other order.

Section 2.6 Method of Payments.

(a) All payments of principal, interest, other charges (including indemnities) and other amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this Loan Agreement for notices to the Lender, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day, and when paid, such payment shall include interest to the day on which payment is in fact made.

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(b) Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, the Borrower shall not be obligated to make any payment, repayment or pre- payment on the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code or qualified under Section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under Section 501(a) of the Code or if such act or failure to act would cause the Borrower to engage in any “prohibited transaction” as such term is defined in the Section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by Section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in Section 406 of ERISA and the regulations promulgated thereunder which is not exempted by Section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower, may act or refrain from acting pursuant to this Section 2.6(b) on the basis of an opinion of counsel, and any opinion of such counsel. The Borrower may consult with counsel, and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such opinion of counsel. Nothing contained in this Section 2.6(b) shall be construed as imposing a duty on the Borrower to consult with counsel. Any obligation of the Borrower to make any payment, repayment or prepayment on the Promissory Note or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this Section 2.6(b) shall be considered a binding obligation of the Borrower, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the Promissory Note and nothing in this Section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance).

Section 2.7 Use of Proceeds of Loan.

The entire proceeds of the Loan shall be used solely for acquiring shares of Common Stock, and for no other purpose whatsoever.

Section 2.8 Security.

(a) In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall:

(i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, the Common Stock purchased with the Principal Amount, by the execution and delivery to the lender of the Pledge Agreement attached hereto as an exhibit; and

(ii) execute and deliver, or cause to be executed and delivered, such other agreement, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement.

(b) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or repayment of the Principal Amount is made, a number of shares of Common Stock held as Collateral determined pursuant to the applicable provisions of the ESOP.

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Section 2.9 Registration of the Promissory Note.

(a) The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation.

(b) Any new Promissory Note issued pursuant to Section 2.9(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or exchanged so that there will not be any loss or gain of interest on the note surrender. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of any Promissory Note as the holder thereof for purposes of payment and other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid.

ARTICLE III

Representations and Warranties of the Borrower

The Borrower hereby represents and warrants to the Lender as follows:

Section 3.1 Power, Authority, Consents.

The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and Pledge Agreement, all of which have been duly authorized by all necessary and proper corporate or other action.

Section 3.2 Due Execution, Validity, Enforceability.

Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, has been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms.

Section 3.3 Properties, Priority of Liens.

The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien.

Section 3.4 No Defaults, Compliance with Laws.

The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected.

Section 3.5 Purchase of Common Stock.

Upon consummation of any purchase of Common Stock by the Borrower with the proceeds of the Loan, the Borrower shall acquire valid, legal and marketable title to all of the Common Stock so purchased, free and clear of any liens, other than a pledge to the Lender of the Common Stock so purchased pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provisions of law or conflicts with or results in a breach of or creates (with or without the giving of notice of lapse of time, or both) a default under any agreement to which the Borrower is a

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party or by which it is bound or any of its properties is affected. No consent of any federal, state, or local governmental authority, agency, or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery, or performance of the Loan Documents and the transaction contemplated therein or in connection therewith, including without limitation, with respect to the transfer of the shares of Common Stock purchased with the proceeds of the Loan pursuant thereto.

Section 3.6 ESOP; Contributions.

As of the effective date of the ESOP sponsor’s conversion, the ESOP and the Borrower will be duly created, organized and maintained by the ESOP sponsor in compliance with all applicable laws, regulations and rulings. The ESOP will qualify as an “employee stock ownership plan” as defined in Section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under Section 401(a) of the Code.

Section 3.7 Trustee.

The trustee of the ESOP has been duly appointed by the ESOP sponsor.

Section 3.8 Compliance with Laws; Actions.

Neither the execution and delivery by the Borrower of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality, or an event of default under any agreement, to which the Borrower is a party, to which the Borrower is bound or to which the Borrower is subject, which violation or event of default would have a material adverse effect on the Borrower. There is no action or proceeding pending or threatened against either the ESOP or the Borrower before any court or administrative agency.

ARTICLE IV

Representations and Warranties of the Lender

The Lender hereby represents and warrants to the Borrower as follows:

Section 4.1 Power, Authority, Consents.

The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement.

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Section 4.2 Due Execution, Validity, Enforceability.

This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender, and each constitutes a valid and legally binding obligation of the Lender, enforceable in accordance with its terms.

ARTICLE V

Events of Default

Section 5.1 Events of Default under Loan Agreement.

Each of the following events shall constitute an “Event of Default” hereunder:

(a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note when due, or failure to make any payment of interest on the Promissory Note not later than five (5) Business Days after the date when due.

(b) Failure by the Borrower to perform or observe any term, condition or covenant of this Loan Agreement or of any of the other Loan Documents, including, without limitation, the Promissory Note and the Pledge Agreement.

(c) Any representation or warranty made in writing to the Lender in any of the Loan Documents, or any certificate, statement or report made or delivered in compliance with this Loan Agreement, shall have been false or misleading in any material respect when made or delivered.

Section 5.2 Lender’s Rights upon Event of Default.

If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such contributions and (b) “Eligible Collateral” (as defined in the Pledge Agreement); provided, however, that: (i) the value of the Borrower’s assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default (without regard to amounts owing solely as a result of any acceleration of the Loan); (ii) the Borrower’s assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan; and (iii) all rights of the Lender to the Common Stock purchased with the proceeds of the Loan covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement.

ARTICLE VI

Miscellaneous Provisions

Section 6.1 Payments Due to the Lender.

If any amount is payable by the Borrower to the Lender pursuant to any indemnity obligation contained herein, then the Borrower shall pay, at the time or times provided therefor, any such amount and shall indemnify the Lender against and hold it harmless from any loss or damage resulting from or arising out of the nonpayment or delay in payment of any such amount. If any amounts as to which the Borrower has so indemnified the Lender hereunder shall be assessed or levied against the Lender, the Lender may notify the Borrower and make immediate payment thereof, together with interest or penalties in connection therewith, and shall thereupon

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be entitled to and shall receive immediate reimbursement therefor from the Borrower, together with interest on each such amount as provided for in Section 2.2(c) of this Loan Agreement. Notwithstanding any other provision contained in this Loan Agreement, the covenants and agreements of the Borrower contained in this Section 6.1 shall survive: (a) payment of the Promissory Note and (b) termination of this Loan Agreement.

Section 6.2 Payments.

All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note “Paid” and return it to the Borrower.

Section 6.3 Survival.

All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note.

Section 6.4 Modifications, Consents and Waivers; Entire Agreement.

No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof.

Section 6.5 Remedies Cumulative.

Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the Promissory Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations.

Section 6.6 Further Assurances; Compliance with Covenants.

At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory pNote, the Pledge Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan.

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Section 6.7 Notices.

Except as otherwise specifically provided for herein, all notice, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or telecopier addressed as follows:

(a) If to the Borrower:

Asheville Savings Bank, S.S.B.

Employee Stock Ownership Plan Trust

c/o Pentegra Retirement Services

108 Corporate Park Drive

White Plains, NY 10604

Attn:                             

(b) If to the Lender:

ASB Bancorp, Inc.

11 Church Street

Asheville, NC 28801

Attn:                             

Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex, or telecopier, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed.

Section 6.8 Counterparts.

This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document.

Section 6.9 Construction; Governing Law.

The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement of an Article or section shall be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and the other Loan Documents shall be governed by, and construed and interpreted in accordance with, the laws of the State of North Carolina.

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Section 6.10 Severability.

Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provisions in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement are independent, and compliance by a party with any of them shall not excuse non-compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement.

Section 6.11 Binding Effect: No Assignment or Delegation.

This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void.

[Signature page follows]

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IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be executed as of the date first written above.

ASHEVILLE SAVINGS BANK, S.S.B. EMPLOYEE STOCK OWNERSHIP PLAN TRUST
Trustee
ASB BANCORP, INC.
By:
	Duly Authorized Officer

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FORM OF

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (“Pledge Agreement”) is made as of                     , 2011, by and between PENTEGRA TRUST COMPANY, AS TRUSTEE FOR THE ASHEVILLE SAVINGS BANK, S.S.B. EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Pledgor”), and ASB BANCORP, INC. (“Pledgee”).

W I T N E S S E T H

WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of a Loan Agreement (“Loan Agreement”), by and between the Pledgor and the Pledgee;

NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows:

Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement:

Collateral shall mean the Pledged Shares and, subject to Section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares and rights.

ESOP shall mean the Asheville Savings Bank, S.S.B. Employee Stock Ownership Plan.

Event of Default shall mean an event so defined in the Loan Agreement.

Liabilities shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note.

Pledged Shares shall mean all the Shares of Common Stock of ASB Bancorp, Inc. purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement, but excluding any such shares previously released pursuant to Section 4 of this Pledge Agreement.

Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee, a security interest in, and lien upon, the Collateral.

Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows:

(a) the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under, any agreement binding upon the Pledgor;

(b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others;

(c) this Pledge Agreement is the legal, valid, binding and enforceable obligation of the Pledgor in accordance with its terms;

(d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and

(e) subject to the first sentence of Section 4(b) of this Pledge Agreement, the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral.

Section 4. Eligible Collateral.

(a) As used herein the term “Eligible Collateral” shall mean the amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default (without regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such lesser amount of Collateral as may be required pursuant to Section 13 of this Pledge Agreement.

(b) The Pledged Shares shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulations Section 54.4975-7(b)(8), as the same may be from time to time amended or supplemented, and the applicable provisions of the ESOP. Subject to the Treasury Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral in the name of the Pledgee or its nominee, without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Eligible Collateral to make payment to the Pledgee of any amounts due or due to become due thereunder, (ii) release or exchange all or any part of the Eligible Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Eligible Collateral.

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Section 5. Delivery.

(a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement (i) either (A) certificates for the Pledged Shares, each certificate duly signed in blank by the Pledgor or accompanied by a stock transfer power duly signed in blank by the Pledgor and each such certificate accompanied by all required documentary or stock transfer tax stamps, or (B) if the Trustee does not yet have possession of the Pledged Shares, an assignment by the Pledgor of all the Pledgor’s rights to and interest in the Pledged Shares and (ii) an irrevocable proxy, in form and substance satisfactory to the Pledgee, signed by the Pledgor with respect to the Pledged Shares.

(b) Subject to the provisions of Section 6 of this Pledge Agreement, the Pledgor shall (i) be entitled to exercise any and all voting and other rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral.

Section 6. Events of Default.

(a) If a Default or Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to the Eligible Collateral, from time to time, any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of North Carolina or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsement, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) business days before such disposition. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in Section 1 hereof.

(b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale’s being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction.

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Section 7. Payment in Full. Upon the payment in full of all outstanding Liabilities, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to the Pledge Agreement.

Section 8. No Waiver. No failure or delay on the part of the Pledgee in exercising any right or remedy hereunder or under any other document which confers or grants any rights to the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such rights or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee.

Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee.

Section 10. Governing Law. This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina applicable to agreements to be performed wholly within the State of North Carolina.

Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered personally or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid as follows:

(a) If to the Pledgee:

ASB Bancorp, Inc.

11 Church Street

Asheville, NC 28801

Attn:                              

(b) If to the Pledgor:

Asheville Savings Bank, S.S.B.

Employee Stock Ownership Plan Trust

c/o Pentegra Retirement Services

108 Corporate Park Drive

White Plains, NY 10604

Attn:                             

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or at such other address as either of the parties may designate by written notice to the other party. If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made, and, if delivered by mail, the date on which such notice, request, instruction, or document is deposited in the mail shall be the date of delivery. Each notice, request, instruction or document shall bear the date on which it is delivered.

Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision herein shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.

Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a tax-qualified, leveraged employee stock ownership plan under Section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the “Code”), (b) the ESOP Trust as exempt from taxation under Section 501(a) of the Code, and (c) the loan as an exempt loan under Section 54.4975-7(b) of the Treasury Regulations and as described in Department of Labor Regulation Section 2550.408b-3.

[Signature page follows]

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IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written.

ASHEVILLE SAVINGS BANK, S.S.B. EMPLOYEE STOCK OWNERSHIP PLAN TRUST
Trustee
ASB BANCORP, INC.
By:
	Duly Authorized Officer

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FORM OF

PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned, AS TRUSTEES FOR THE ASHEVILLE SAVINGS BANK, S.S.B. EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the “Borrower”), hereby promises to pay to the order of ASB BANCORP, INC. (the “Lender”) up to              Dollars ($            ), payable in accordance with the Loan Agreement made and entered into between the Borrower and the Lender of even date herewith (“Loan Agreement”) pursuant to which this Promissory Note is issued.

The Principal Amount of this Promissory Note shall be payable in accordance with the schedule attached hereto (“Schedule I”).

This Promissory Note shall bear interest at the rate per annum set forth or established under the Loan Agreement, such interest to be payable in accordance with Schedule I.

Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates on interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds.

Failure to make any payments of principal on this Promissory Note when due, or failure to make any payment of interest on this Promissory Note not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of accrued interest on this Promissory Note shall immediately become due and payable in accordance with the terms of the Loan Agreement.

This Promissory Note is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof.

ASHEVILLE SAVINGS BANK, S.S.B.

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Trustee

EX-10.5

Exhibit 10.5

FORM OF EXECUTIVE OFFICER EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of the      day of             , 2011, by and between ASB BANCORP, INC., a North Carolina corporation (“Company”), ASHEVILLE SAVINGS BANK, a North Carolina chartered savings bank (the “Bank”), and                              (“Executive”).

RECITALS

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

WHEREAS, Company, the Bank and Executive desire to enter into an employment agreement pursuant to the terms of this Agreement;

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

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

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

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

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

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

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

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

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

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

Effective Date means the first day of the initial Term.

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

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

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

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

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

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

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

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

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

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

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

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

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2. EMPLOYMENT:

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

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

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

3. TERM: The initial term of this Agreement shall be for the period beginning on             , 2011 and continuing for a             -month period through and including             , 201     subject, however, to earlier termination in the manner provided in this Agreement. Commencing as of the first anniversary of the Effective Date and continuing as of each anniversary of the Effective Date thereafter, the disinterested members of the Board may, in the sole discretion of the Board, extend the Agreement term for an additional year, so that the remaining term of the Agreement again becomes             (__) full months from the applicable anniversary of the Effective Date, unless the Executive elects not to extend the term of this Agreement by giving written notice at least thirty (30) days prior to the applicable anniversary date. Notwithstanding the foregoing, the term of this Agreement shall be extended pursuant to Section 8(a) below upon the occurrence of a Change of Control.

4. BASE SALARY; INCENTIVE COMPENSATION:

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

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

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5. EMPLOYEE BENEFITS AND REIMBURSEMENTS:

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

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

6. INDEMNIFICATION:

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

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

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

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

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

(a) Disability: If Executive is unable to perform the essential functions of Executive’s positions on a full-time basis for a period of six (6) consecutive months (or for such shorter period ending with Executive’s eligibility for and receipt of long-term disability benefits under an insurance policy or employee benefit plan provided or made available to Executive by Company) by reason of illness or other physical or mental disability, Company shall have the right to terminate Executive’s employment under this Agreement at the end of the applicable period by written notice thereof. If Executive’s employment is so terminated, Executive shall be paid any salary and benefits to which Executive may be entitled until

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the end of the payroll period in which the date of termination occurs, and thereafter, Company shall have no further obligation for additional compensation and benefits under this Agreement. A condition of disability shall be determined by Company on the basis of competent evidence. A written opinion of a licensed physician certified in his field of specialization and acceptable to Company, or Executive’s entitlement to or receipt of long-term disability benefits under any insurance policy or employee benefit plan provided or made available to Executive by Company or under federal Social Security law, shall be conclusive evidence of disability.

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

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

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

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

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

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

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

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

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

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

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

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

(e) Termination Without Cause: Company may, in its sole discretion, by written notice to Executive terminate Executive’s employment under this Agreement immediately without Cause at any time (other than following a Change of Control, in which case a termination without Cause is governed by Section 8 of this Agreement). In the event of such termination, Executive shall continue to be paid the Base Salary that Executive is entitled to receive as of the date Executive is Terminated without Cause through the expiration of the then current Term. Nothing in this Section shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of such termination. In addition, the Bank shall continue Executive’s health and life insurance coverage at the Bank’s expense through the expiration of the then current Term. The payments described in this Section 7(e) will be due Executive regardless of any subsequent employment attained by Executive.

(f) Resignation For Good Reason:

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

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

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

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

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

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

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

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

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

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

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

(1) Company shall pay to Executive, in lieu of the compensation specified in Sections 7(e) or 7(f), a severance payment (subject to any applicable payroll or other taxes required to be withheld) equal to three (3) times the sum of (i) Executive’s Base Salary at the rate then in effect, or if greater, in effect immediately preceding the Change of Control and (ii) the average of the cash bonuses paid or accrued on Executive’s behalf with respect to the three (3) completed calendar years preceding the effective date of the Change of Control (or, if Executive has not been employed for three (3) years, the average of the completed calendar years in which Executive was employed). In addition, the Bank shall continue Executive’s health and life insurance coverage at the Bank’s expense for a thirty-six (36) month period following Executive’s Termination without Cause or Resignation for Good Reason.

(2) The payments described in this Section 8 shall be due Executive regardless of any subsequent employment obtained by Executive.

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(c) In the event that the aggregate payments or benefits to be made or afforded to Executive in the event of a Change of Control (whether under this Agreement or otherwise) would be deemed to include an “excess parachute payment” under Code Section 280G or any successor thereto, then such payments or benefits shall be reduced to the extent necessary to avoid treatment as an “excess parachute payment”, with the reduction among such payments and benefits to be made first to payments and benefits payable or provided under this Agreement.

9. NONCOMPETITION, NONSOLICITATION AND NONDISCLOSURE:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

22. ALTERNATIVE LUMP-SUM PAYMENT: For purposes of Sections 8 and 9, if (x) under the terms of the applicable policy or policies for the insurance benefits it is not possible to continue Executive’s coverage or (y) if when employment termination occurs, Executive is a specified employee within the meaning of Section 409A of the Code, if any of the continued insurance coverage benefits would be considered deferred compensation under Section 409A of the Code, and finally if an exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i) of the Code is not available for that particular insurance benefit, instead of continued insurance coverage the Bank shall pay or cause to be paid to Executive in a single lump sum an amount in cash equal to the present value of the Bank’s projected cost to maintain that particular insurance benefit had Executive’s employment not terminated, assuming continued coverage for             . The lump-sum payment shall be made within five (5) business days after employment termination or, if Executive is a specified employee within the meaning of Section 409A of the Code and an exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i) of the Code is not available, on the first business day of the seventh month after the month in which Executive’s employment terminates.

23. REGULATORY REQUIREMENTS:

(a) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Employer under this Agreement shall terminate, as of the effective date of such order, except for the payment of Annual Base Salary due and owing under Section 3.1 on the effective date of said order, and reimbursement under Section 3.5 of expenses incurred as of the effective date of termination.

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

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

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

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

(f) Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant any provision herein in contravention of the requirements of Section 2[18(k)] of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)).

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

HOLDING COMPANY

By:

ASHEVILLE SAVINGS BANK
By:
	Executive

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EX-10.6

Exhibit 10.6

ASHEVILLE SAVINGS BANK, S.S.B.

NONQUALIFIED PENSION PLAN

Amended and Restated Effective January 1, 2009

Asheville Savings Bank, S.S.B. (the “Employer”) hereby amends and restates the Asheville Savings Bank, S.S.B. Nonqualified Pension Plan for the benefit of its eligible employees on the terms and conditions described hereinafter.

ARTICLE 1

PREFACE

Section 1.1. Effective Date. The original effective date of the Plan is January 1. 1999. This amended and restated Plan is effective January 1, 2009.

Section 1.2. Purpose of the Plan. The Plan is intended to provide supplemental retirement benefits to a select group of management or highly compensated employees of the Employer.

Section 1.3. Governing Law. This Plan shall be regulated, construed and administered under the laws of the State of North Carolina to the extent that such laws are not preempted by the laws of the United States of America.

Section 1.4. Gender and Number. The masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural unless otherwise clearly required by the context.

Section 1.5. Severability. If any Plan provision is held invalid or illegal for any reason, such invalidity or illegality shall be construed and enforced as if such provision had never been included in the Plan without affecting any other provision of the Plan.

ARTICLE 2

DEFINITIONS

Except as otherwise provided in the Plan, the definitions set forth below shall have the same meanings wherever used in the Plan, unless the context clearly indicates otherwise.

Section 2.1. Accrued Benefit shall mean the amount determined under Section 3.1.

Section 2.2. Accrued Benefit Under The Qualified Plan for a Participant shall mean the “Accrued Benefit” earned as of the date of determination payable as of the “Normal Retirement Date” under the “Normal Form of Payment” as those terms are defined in the Qualified Plan. The Accrued Benefit Under The Qualified Plan for a Participant who has attained his or her Normal Retirement Age shall be the amount determined under the Delayed Retirement Provisions of the Qualified Plan

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Section 2.3. Act shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and any rules or regulations thereunder.

Section 2.4. Actuarial Equivalent shall mean equality in value of the amounts expected to be received under different forms of payment. Such equality in value shall be based on assumptions as to the occurrence of future events. The future events to be taken into account are mortality for Participants, mortality for Beneficiaries, and an interest discount for the time value of money. For this Plan, the actuarial assumptions are as follows:

(a) Mortality assumption for payments to Participants: UP Mortality Table projected to 1984, adjusted for sixty percent (60%).

(b) Mortality assumption for payments to Beneficiaries and survivors: UP Mortality Table projected to 1984, adjusted for forty percent (40%) female content.

(c) Interest Assumption: 6 1/2%

Provided that, in no event shall the lump sum produced below be less than that produced using the assumptions above, effective January 1, 2008, for the purpose of determining the single lump sum value of a Participant’s Accrued Benefit, the actuarial assumptions used to determine the Actuarial Equivalent value of lump sum payments under Article 4 shall be the Applicable Mortality Table and the Applicable Interest Rate described as follows:

(a) Applicable Mortality Table: The mortality table, modified as appropriate by the Secretary of the Treasury, based on the mortality table specified for the Plan Year under subparagraph (A) of Section 430(h)(3) of the Code (without regard to subparagraph (C) or (D) of such section).

(b) Applicable Interest Rate: The adjusted first, second and third segment rates applied under rules similar to the rules of Section 430(h)(2)(C) of the Code for the month of November for the Plan Year next preceding the Plan Year in which the benefit is payable. For purposes of this Section, the adjusted first, second and third segment rates are the first, second and third segment rates which would be determined under Section 430(h)(2)(C) of the Code if:

(i) Section 430(h)(2)(D) of the Code were applied by substituting the average yields for the month described in Section 430(h)(2)(D)(ii) of the Code for the average yields for the 24-month period described in such Section;

(ii) Section 430(h)(2)(G)(i)(II) of the Code were applied by substituting “Section 417(e)(3)(A)(ii)(II)” for “Section 412(b)(5)(B)(ii)(10,” and

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(iii) The applicable percentage under Code Section 430(h)(2)(G) were determined in accordance with the following table:

In the case of Plan Years beginning in:	The applicable percentage is:
2008	20 percent
2009	40 percent
2010	60 percent
2011	80 percent

Section 2.5. Beneficiary shall mean for a Participant who is married on the date of his or her death before payments commenced, the Participant’s surviving spouse; and for a Participant who is not married on the date of his or her death before payments commenced, the Participant’s designated beneficiary. The designation of a non-spouse beneficiary shall in writing given to the Employer. In the absence of valid beneficiary designation, the non-spouse beneficiary shall be the Participant’s estate.

Section 2.6. Board shall mean the Board of Directors of Asheville Savings Bank, S.S.B.

Section 2.7. Code shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, and any rules or regulations thereunder.

Section 2.8. Employer shall mean Asheville Savings Bank, S.S.B.

Section 2.9. Nonqualified Plan Annuity Starting Date shall mean the first day following the Participant’s Separation from Service that a Participant is first eligible to begin receiving either Early Retirement, Normal Retirement, Disability Retirement, or Delayed Retirement benefits under the terms of the Qualified Plan as it is in effect on December 31, 2008 (whichever Retirement date is earlier and without regard to whether the Participant has elected Early Retirement under the Qualified Plan).

Section 2.10. Participant shall mean a select management or highly compensated employee whose benefit under the Qualified Plan would be reduced as a result of limitations on benefits and/or compensation under the Code. For the purpose of this Plan, “employee” shall mean a common law employee of the Employer.

Section 2.11. Plan shall mean the Asheville Savings Bank, S.S.B. Nonqualified Pension Plan, as it may be amended from time to time.

Section 2.12. Plan Year shall mean the calendar year.

Section 2.13. Qualified Plan shall mean the Pension Plan for the Employees of Asheville Savings Bank, S.S.B., as it may be amended from time to time.

Section 2.14. Separation From Service, or Separate From Service, shall mean termination of employment with the Employer. However, the employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the

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Participant retains a right to reemployment with the Employer under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Employer. If the period of leave exceeds six months and the individual does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period. Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Employer and the Participant reasonably anticipated that no further services would be performed after a certain date. Facts and circumstances to be considered in making this determination include, but are not limited to, whether the Participant continues to be treated as an employee for other purposes (such as continuation of salary and participation in employee benefit programs), whether similarly situated Participants have been treated consistently, and whether the Participant is permitted, and realistically available, to perform services for other companies in the same line of business.

ARTICLE 3

Section 3.1. Accrued Benefit. A Participant shall be entitled to payment of his or her vested Accrued Benefit at the time and in the form as provided in Article 4. The Participant shall be vested in the Accrued Benefit as provided in Section 3.2. A Participant’s Accrued Benefit under this Plan shall be an amount equal to the difference between:

(a) The Accrued Benefit under the Qualified Plan without regard to limits on compensation imposed by Code § 401(a)(17) or the limits on overall benefits imposed by Code § 415, and

(b) The Accrued Benefit under the Qualified Plan.

Section 3.2. Vesting. A Participant shall be vested in his Accrued Benefit under the vesting schedule in the Qualified Plan.

ARTICLE 4

DISTRIBUTION OF BENEFITS

Section 4.1. Payment of Benefit. A Participant shall be paid his or her vested Accrued Benefit as follows:

(a) Small Payments. If the Actuarial Equivalent of the vested Accrued Benefit on either the date that the Participant Separates from Service or on the Participant’s Nonqualified Plan Annuity Starting Date is not in excess of $5,000, an amount equal to the Actuarial Equivalent of the vested Accrued Benefit shall be paid to the Participant in a single lump sum payment as soon as practicable following such date, and such payment shall entirely meet the Plan’s obligations to the Participant.

(b) Other Payments. If the Actuarial Equivalent of the vested Accrued Benefit when the Participant Separates From Service and on the Participant’s Nonqualified Plan

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Annuity Starting Date is in excess of $5,000, the vested Accrued Benefit shall be paid to the Participant on his or her Nonqualified Plan Annuity Starting Date in the form of an annuity elected by the Participant as provided in Section 4.3.

Section 4.2. Preretirement Death Benefits. If a Participant dies before benefits have commenced under Section 4.1, the Participant’s Beneficiary shall be paid as follows:

(a) Small Payments. If the Actuarial Equivalent of the vested Accrued Benefit when the Participant dies is not in excess of $5,000, an amount equal to the Actuarial Equivalent of the vested Accrued Benefit shall be paid to the Beneficiary in a single lump sum payment as soon as practicable following the Participant’s death, and such payment shall entirely meet the Plan’s obligations to the Participant and Beneficiary under the Plan.

(b) Other Payments. If the Actuarial Equivalent of the vested Accrued Benefit when the Participant dies is in excess of $5,000, the Actuarial Equivalent of the vested Accrued Benefit shall be paid to the Beneficiary in the form of a single life annuity (based on the life of the Beneficiary) as described in Section 4.3 commencing as soon as possible following the Participant’s Nonqualified Plan Annuity Starting Date (determined as if the Participant had survived until that date).

Section 4.3. Annuity Payments.

(a) Forms of Annuity Payment. The Participant shall make an election of the form of annuity payment from among those described here. Each form of annuity payment shall have a value that is the Actuarial Equivalent of the Accrued Benefit. The forms of annuity payment available for election shall include:

(i) Life Annuity: An annuity payable in equal monthly installments during the Participant’s lifetime only, on the first (1st) day of each calendar month in which the Participant has lived the entire preceding month.

(ii) Joint and Full Survivor Annuity: An annuity whereby a monthly installment shall be paid to the Participant during his lifetime and thereafter in the same monthly amount to the surviving Spouse during her lifetime, on the first (1st) day of each calendar month in which the Participant or his Spouse has lived the entire preceding month.

(iii) Joint and 75% Survivor Annuity: An annuity, whereby a monthly installment shall be paid to the Participant during his lifetime and thereafter in 75% of such monthly amount to the surviving Spouse during her lifetime, on the first (1st) day of each calendar month in which the Participant or his Spouse has lived the entire preceding month.

(iv) Joint and One-Half Survivor Annuity: An annuity, whereby a monthly installment shall be paid to the Participant during his lifetime and thereafter in one-half of such monthly amount to the surviving Spouse during her lifetime, on the first (1st) day of each calendar month in which the Participant or his Spouse has lived the entire preceding month.

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(b) Election Procedures. The Participant shall elect the form of annuity payment in writing on or before his or her Nonqualified Plan Annuity Starting Date, or as soon as practicable after the Participant’s Separation From Service, if later. The election shall be irrevocable once payments begin.

ARTICLE 5

FUNDING AND RIGHTS OF PARTICIPANTS

Section 5.1. Unfunded. The Plan is an unfunded, nonqualified plan. The benefits payable under the Plan shall be payable from the general assets of the Employer.

Section 5.2. Limitation on Rights of Participants and Beneficiaries. No Participant, surviving Spouse, Beneficiary or other person shall have any preferred claim on, or any beneficial ownership interest in, any asset of the Employer before the time that such assets are paid to the Participant, surviving Spouse, Beneficiary or other person as provided in Article 4. The right of a Participant, surviving Spouse, Beneficiary or other person to receive a benefit hereunder shall be an unsecured claim against the general assets of the Employer. Distribution in good faith of the Participant’s Accrued Benefit shall be considered a full and complete discharge of the Employer’s obligation under the Plan.

ARTICLE 6

MISCELLANEOUS

Section 6.1. Liability of Employer. Nothing in this Plan shall constitute the creation of a trust or other fiduciary relationship between the Employer and any employee, Participant, surviving Spouse, Beneficiary or other person. The Employer shall not be considered a trustee by reason of the Plan.

Section 6.2. Assignment and Alienation. No rights under this Plan may be assigned, transferred, alienated, pledged or encumbered by an employee, Participant, surviving Spouse, Beneficiary or other person.

Section 6.3. Tax Withholding. The Company shall withhold from payments under the Plan any federal, state or local taxes required to be withheld.

Section 6.4. Amendment or Termination. The Employer hereby reserves the right, by action of the Board, to amend or terminate the Plan at any time, provided that such amendment or termination shall not deprive a Participant of his or her vested Accrued Benefit determined as of the date of such amendment or termination, and provided further that such amendment or termination shall not accelerate or delay the timing of any payment as determined under the Plan in effect immediately before the amendment or termination except as may be allowed under the Treasury Regulations under Code section 409A.

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Section 6.5. No Guarantee of Employment. Nothing in the Plan shall be construed as guaranteeing future employment to an employee or Participant. Unless otherwise provided in a separate agreement, an employee or Participant shall continue to be a common law employee of the Employer solely at the will of the Employer.

Section 6.6. Administration. The Employer shall be the plan administrator, as defined in the Act and shall have all discretionary authority necessary or appropriate to the administration of the Plan, including, but not by way of limitation, the discretionary authority:

(a) to interpret the provisions of the Plan and to determine any questions arising under the Plan or in connection with the administration or operation hereof;

(b) to determine all questions affecting the eligibility of any employee to be or become a Participant in the Plan;

(c) to determine the Accrued Benefit of any Participant or any other sum payable to a Participant, surviving Spouse, Beneficiary or other person under the terms of the Plan; and

(d) to establish rules and policies for the administration of the Plan and otherwise to control and manage the operation and administration of the Plan.

Section 6.7. Claims Submission and Review Procedure. If an employee, Participant, surviving Spouse, Beneficiary or other person (the “claimant”) believes that he is entitled to a benefit from the Plan, he shall file a written claim with the Employer. Any request for benefits under the Plan shall be treated as a claim under this Section.

(a) Initial Claims Review. Commencement of benefit payments shall constitute notice of approval of a claim to the extent of the amount of payment. If a claim for benefits is wholly or partially denied, the Employer shall provide the claimant with a written notice of such denial within 90 days after receipt of the claim by the Employer (or within an additional 90 days if special circumstances require an extension of time, and written notice of the extension is furnished to the claimant). Notice of a denial shall set forth the following information: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; (iv) an explanation that a full and fair review by the Employer of the decision denying the claim may be requested by the claimant or his authorized representative by filing a written request for such review with the Employer within 60 days after such notice has been received; and (v) if such request is so filed, the claimant or his authorized representative may review pertinent documents and submit issues and comments in writing within the same 60-day period specified in subsection (iv).

(b) Claims Review Procedure. The decision of the Employer on review shall be made promptly and not later than 60 days after the Employer’s receipt of the request for review, unless special circumstances require an extension of time for processing,

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in which case the claimant shall be so notified, and a decision shall be made as soon as possible but not later than 120 days after receipt of the request for review. If the claim is denied, wholly or in part, the claimant shall promptly be provided with, a copy of the decision. The decision shall be in writing and shall include specific reasons for the denial, shall include specific references to the pertinent Plan provisions on which the denial is based, and shall be written in a manner calculated to be understood by the claimant.

Section 6.8. Unclaimed Benefits. The Employer in its discretion may either hold any unclaimed benefit under the Plan or follow applicable law respect to such unclaimed benefits.

IN WITNESS WHEREOF, this amendment and restatement of the Asheville Savings Bank, S.S.B. Nonqualified Pension Plan is executed on behalf of the Employer, the 16^th day of December, 2008.

ASHEVILLE SAVINGS BANK, S.S.B.

By:

Title:

8

2010 Amendment to the

Asheville Savings Bank, S.S.B. Nonqualified Pension Plan

Effective January 1, 2010

THIS 2010 AMENDMENT to the Asheville Savings Bank, S.S.B. Nonqualified Pension Plan (“Plan”) is effective January 1, 2010 and is intended to make certain technical changes as indicated by recent guidance under Section 409A of the Internal Revenue Code of 1986 (“Code”).

1. Section 2.10. Separation From Service is amended to read in its entirety as follows:

Section 2.10. Separation From Service, or Separate From Service, shall mean termination of employment with the Employer. However, the employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Participant retains a right to reemployment with the Employer under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Employer. If the period of leave exceeds six months and the individual does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period. Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Employer and the Participant reasonably anticipated that no further services would be performed after a certain after a certain date (whether as an employee or an independent contractor). Facts and circumstances to be considered in making this determination include, but are not limited to, whether the Participant continues to be treated as an employee for other purposes (such as continuation of salary and participation in employee benefit programs), whether similarly situated Participants have been treated consistently, and whether the Participant is permitted, and realistically available, to perform services for other companies in the same line of business.

2. A new Section 6.9. Compliance With Section 409A is added as follows:

Section 6.9. Compliance With Section 409A. The interpretation of Section 409A of the Code and its application to the terms of this Plan are uncertain and may be subject to change as additional guidance becomes available, and all benefits or payments provided by the Employer to Participants under this Plan that would constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code are intended to comply with Section 409A of the Code, and the Plan shall be interpreted to the greatest possible extent to be in compliance with Section 409A of the Code and guidance thereunder.

IN WITNESS WHEREOF, this amendment is executed on behalf of Asheville Savings Bank, S.S.B., this the         day of                     , 2010.

ASHEVILLE SAVINGS BANK, S.S.B

By:

[CORPORATE SEAL]

ATTEST:

Secretary

EX-10.7

Exhibit 10.7

ASHEVILLE SAVINGS BANK

SECOND AMENDED AND RESTATED

DIRECTORS AND OFFICERS DEFERRAL PLAN

This SECOND AMENDED AND RESTATED DIRECTORS AND OFFICERS DEFERRAL PLAN (hereafter “the Plan”) is made and entered into this 16^th day of December, 2008 effective January 1, 2009, by Asheville Savings Bank (hereafter “Bank”), a North Carolina corporation.

WITNESSETH

WHEREAS, Bank is a corporation duly organized and existing under the laws of the State of North Carolina, and

WHEREAS, the Bank has adopted a Directors and Officers Deferral Plan (the “Plan”) on or about the 20th day of April, 1999; and

WHEREAS, the Bank amended and restated the Plan as of June 17, 2003; and

WHEREAS, it is in the best interests of the Bank and the Plan to further amend and restate the Plan at this time; and

WHEREAS, the Plan was and is intended to provide incentives and reward designated executive officers and the members of the Board of Directors of Bank for their contributions from one year to the next; and

WHEREAS, the Plan is separate from Bank’s other employee plans; and

WHEREAS, this is a non-qualified, discriminatory compensation plan under which participants must be approved by the Board of Directors of Bank; and

WHEREAS, the designated executives and members of the Board of Directors desire to and have entered into an Agreement with Bank, and the Board of Directors of Bank have concluded and agreed that it is in the best interests of Bank to enter into and continue to enter into such Agreements; and

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WHEREAS, the purpose of this Amendment of the Plan is to conform the Plan to Internal Revenue Code 409 A;

NOW, THEREFORE, in consideration of the foregoing premises, Bank intends to provide designated executives and members of the Board of Directors with the continued opportunity to participate in the Plan and thereby amends and restates the Plan as follows:

ARTICLE I

ELIGIBILITY

Those executive officers selected by the Board of Directors and designated in resolutions of the Board and members of the Board of Directors shall be eligible to become a participant in this Benefit Plan (hereinafter referred to as the “Participant”).

ARTICLE II

FEES AND COMPENSATION

Subject to the limitations as set forth herein, the fees covered under the Plan shall be any and all amounts paid to the Participant for the Participant’s services (as applicable) including, but not limited to annual fees, meeting fees, committee fees, and, if applicable, total salary and wages from the Bank as reported on IRS Form W-2. Executive officers must first maximize their participation in the qualified 401(k) Plan provided by the Bank. Participants may defer retainer fees and regular board meeting fees in increments of ten percent (10%), and committee meeting fees may be deferred at fifty percent (50%) or one hundred percent (100%). Participants may elect to defer no more than one hundred percent (100%) of fees and compensation. Executive officers may elect to defer no less than five percent (5%) of fees and compensation. In addition, a minimum total annual deferral of one thousand two hundred and no/100ths dollars ($1,200.00) is required for Director participation. The deferred fees covered under the Plan shall be credited to the Participant subject to the election requirement of Article III (A) hereinbelow.

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ARTICLE III

DEFERRED COMPENSATION

A. Election of Participant’s Deferred Compensation:

The Participant shall at the same time as entering this Benefit Plan, and in no event later that than within thirty (30) days of becoming eligible to participate in the Plan, file a written statement with the Bank notifying the Bank as to the percent (%) or dollar amount of fees and compensation as defined in Article II that are to be deferred and the actual investments (as defined in Article IV B (hereinafter referred to as the “Election Form”). A copy of the said Election Form is attached hereto and marked as Exhibit “A-l.”) The election to defer fees and compensation may only be made for fees and compensation not yet earned as of the date of said election and shall be signed and delivered to the Bank on or before December 31 of the year prior to the year the duties of Participant are to occur. Signed written statements filed under this section, unless modified or revoked, shall be valid for all succeeding years. Any modification or revocation of a signed written statement must be in writing, made one (1) year prior to receiving benefits hereunder, and shall be effective for calendar years succeeding the year in which the modification or revocation is made; provided, however, that where a delay in payment is made in a modification, the Participant must defer payment for at least five (5) years from the original payment date. Notwithstanding the foregoing, the Participant shall be allowed to change their actual investments at least quarterly.

B. Payment of Participant’s Deferred Compensation:

At all times, the Participant shall “be one hundred percent (100%) vested (except as provided in Article IX) in the Participant’s Deferred Compensation Account (as defined in

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Article IV(A)). Payment of the Participant’s Deferred Account balance shall commence on the first day of the calendar month following the end of the Participant’s term of office due to resignation, removal, failure to be re-elected, retirement, or hardship as further set forth hereinbelow, and shall continue, if applicable, as set forth in the Participant’s Election Form.

(i) Retirement: Retirement age for Directors shall be age 70 and retirement age for executive officers shall be age 65, or such other date as the Participant may actually retire.

(ii) Hardship: The Bank shall permit financial hardship distributions upon an unforeseeable emergency involving the Participant or his or her family. The Participant may submit a written application for an in-service hardship distribution to the Asheville Savings Bank Pension Committee (hereinafter referred to as the “Committee”). The application must specify the nature of the financial hardship, the total amount requested to be distributed from the Participant’s Account and the total amount of the actual expense incurred or to be incurred due to the financial hardship. If, in the discretion of the Committee, the Participant has suffered an unforeseeable emergency that results in severe financial hardship to Participant, the Committee shall cause the Plan to pay an in-service distribution to the Participant from the Participant’s Account. A distribution because of an unforeseeable emergency shall not exceed the amount required to meet the immediate financial need created by the unforeseeable emergency and not otherwise reasonably available from other resources of Participant. Such distribution shall be paid in a single-sum cash payment as soon as administratively feasible, after the Committee determines that the Participant has incurred an unforeseeable emergency that will result in severe financial hardship to the Participant. Examples of an unforeseeable emergency

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shall include, but shall not be limited to. those financial needs arising on account of illness or accident of Participant, his or her spouse or a dependent of Participant, loss of Participant’s property due to casualty, or other similar extraordinary unforeseeable circumstances arising as a result of events beyond the control of Participant.

C. Investment of Participant’s Deferred Compensation:

The Participant shall at the same time as entering this Benefit Plan notify the Bank on the Election Form as to the percent (%) of deferred compensation that is to be allocated among the “actual investment” choices as defined in Article IV B herein. The Participant may make changes to the allocation of their “actual investments” at least quarterly.

D. Bank Contributions:

The Bank may make matching or other contributions to this Benefit Plan for the benefit of the Participant from time to time at the discretion of the Bank. The Participant shall be one hundred percent (100%) vested (except as provided in Article IX) in the Bank’s contributions hereunder.

E. Payment of Bank’s Contributions:

The vested amounts in the Participant’s Deferred Compensation Account attributed to Bank contributions, if any, shall be paid under the same terms and conditions as payment of the Participant’s deferred compensation.

F. Investment of Bank’s Contribution to the Participant’s Deferred Compensation Account:

The Bank’s contribution to the Participant’s Deferred Compensation Account, if any, shall be invested under the same terms and conditions as the investment of the Participant’s Deferred Compensation.

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ARTICLE IV

PARTICIPANT’S DEFERRED COMPENSATION ACCOUNT

A. Maintenance of Deferred Compensation Account:

The Plan shall establish and maintain an account on behalf of each Participant. Participant’s Account shall be credited with (i) the amount of Fees and Compensation the Participant elects to defer under the Election Form, (ii) other Bank Contributions, if any, and (iii) earnings or losses attributable to the Account. Each Account of a Participant shall be maintained until the value thereof has been distributed to or on behalf of such Participant or the Participant’s beneficiary(ies). The value of said account shall be calculated at least quarterly.

The Bank will maintain a record of any fees and compensation deferred by Participant under this Plan on or prior to October 3, 2004 and such amounts shall be treated as a separate Account if necessary in order to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended or the regulations promulgated thereunder (the “Code”). Notwithstanding anything to the contrary, the assets of the Account shall remain in the United States at all times.

B. Actual Investment:

Each Participant will be allowed to select from a restricted list to be used to determine the investment allocation of their respective Deferred Compensation Account. The performance of the deemed investments will be used to determine the earnings and the losses to credit to Participant’s Deferred Compensation Account. The Participant will be allowed to change their investment allocation quarterly.

C. Amounts in Deferred Compensation Account.

Bank may at its sole option disburse in its entirety a Participant’s Deferred Compensation Account when the balance in that Account is less than $10,000.

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ARTICLE V

DEATH OF PARTICIPANT

In the event of the death of the Participant prior to commencement of payments, within thirty (30) days after the Participant’s death, the Participant’s Deferred Compensation Account balance as of the date of death shall be paid as set forth in the Election Form, to such individual or individuals as the Participant may have designated in writing and filed with the Bank. In the event no beneficiary designation has made by Participant, the Participant’s Account balance shall be paid to the duly qualified executor or administrator or the Participant’s estate.

ARTICLE VI

CHANGE OF CONTROL

In the event of a change of control, meaning the occurrence of any of the following: (a) a merger, business combination or other transaction such that a person, or more than one person acting as a “Group” (as determined by Section 409A of the Code), acquires ownership of Bank stock that constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Bank; (b) any one person, or more than one person acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Bank of thirty five percent (35%) or more of the total voting power of the stock of the Bank; (c) a majority of the members of the Bank’s Board of Directors are replaced in any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Bank’s Board of Directors prior to the date of the appointment or election; or (d) a change in the ownership of a substantial portion of the Bank’s assets, as of the date that any person, or more than one person action as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Bank that have a total gross

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fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Bank immediately prior to the acquisition. For the purposes of this analysis: (i) gross fair market value means the value of the assets of the Bank, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets, and (ii) a transfer of assets by the Bank shall not be treated as a change in the ownership of such assets if the assets are transferred to (1) a shareholder of the Bank (immediately before the asset transfer) in exchange for or with respect to its stock; (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Bank; (iii) a person, or more than one person acting as a Group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all of the outstanding stock of the Bank; or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in (3);

Then, if a Participant’s employment with the Bank is terminated solely by reason of the occurrence of a change of control, Participant shall be entitled to receive the Participant’s Account balance as of the date of the change of control which shall be paid as set forth in the Election Form to the Participant or to such individuals as the Participant may have designated in writing and filed with the Bank.

ARTICLE VII

AMENDMENT AND REVOCATION

A. Amendment:

The Bank shall have the right to amend the Plan, at any time and from time to time, in whole or in part. The Bank shall notify each Participant in writing of any Plan amendment.

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B. Revocation:

Although the Bank has established the Plan with the intention and expectation of maintaining the Plan indefinitely, the Bank may terminate or discontinue the Plan in whole or in part at any time without any liability for such termination or discontinuance. Upon Plan termination, no further contributions shall be made to it and the Bank shall retain each of Participant’s accounts (earnings and losses thereon) for a period of twelve (12) months after termination or discontinuation and distribution of benefits will commence and distribute all Participant’s accounts on or before twenty four(24) months after termination of this Plan.

ARTICLE VIII

ADMINISTRATION AND CLAIMS

A. Plan Administrator:

The Plan Administrator of the Plan shall be The Asheville Savings Bank Pension Committee until its resignation or removal by the Board. As Plan Administrator, the Asheville Savings Bank Pension Committee shall be responsible for the management and administration of the Plan. The Plan Administrator may delegate to others certain aspects of the management and operation responsibilities of the Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

B. Claims Procedure and Arbitration:

In the event a dispute arises over benefits under the Plan and benefits are not paid to the Participant (or to the Participant’s beneficiary(ies) in the case of the Participant’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Plan Administrator named above within sixty (60) days from the date payments are refused. The Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specific reasons

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for such denial, reference to the provisions of the Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Plan Administrator fails to take any action within the aforesaid sixty-day period.

If claimants desire a second review they shall notify the Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review the Plan or any documents relating thereto and submit any written issues and comments it may feel appropriate. In their sole discretion, the Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this Benefit Plan upon which the decision is based.

If claimants continue to dispute the benefit denial, then claimants may submit the dispute to an Arbitrator for final arbitration. The Arbitrator shall be selected by mutual agreement of the Bank and the claimants. The Arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such Arbitrator with respect to any controversy properly submitted to it for determination.

ARTICLE IX

FORFEITURES

Notwithstanding anything to the contrary, the right of a Participant or a beneficiary to receive future payment (including deferred annual fees, meeting fees, committee fees, salary, wages and any earnings attributable thereto) hereunder shall be forfeited if the Participant is discharged for cause from employment by Bank. For the purposes of this Article IX, “cause” shall mean embezzlement of corporate funds, conviction of a crime involving moral turpitude, or continuous or willful failure to abide by the Bank’s policies, all as may be determined by the Plan Administrator.

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ARTICLE X

MISCELLANEOUS

A. Purpose:

The Plan is maintained by the Plan for the primary purpose of providing deferred compensation benefits for a select group of management or highly compensated executives of the Corporation. The Plan is designated and will be administered as a non-qualified, “tophat” plan of deferred compensation under the Employee Retirement Income Security Act of 1974.

B. Beneficiary:

The term “beneficiary” as used herein shall mean any person or trust, or combination thereof, last designated by the Participant in writing filed with the Plan Administrator by the Participant during the Participant’s life upon a form provided by the Plan. Any such designation or designations of beneficiary(ies) shall be revocable at any time without the consent of any beneficiary, whether now living or born hereafter, by written designations of beneficiaries made by the Participant and filed by the Participant with the Bank during the Participant’s life. In the absence of or failure of designated beneficiary(ies), the Participant’s estate shall be beneficiary.

C. Spendthrift:

It is agreed that neither the Participant, nor any beneficiary hereunder, shall have any right to sell, assign, transfer, pledge or encumber the right to receive any payments hereunder, and any attempt to do so shall be void. A Participant or beneficiary interest in benefits under the Plan shall not be subject to debts or liabilities of any kind and shall not be subject to attachment, garnishment or legal process.

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D. No Fiduciary Relationship:

Other than as otherwise provided herein, the Bank shall be under no obligation to purchase or maintain any life insurance policy, annuity contract, or any other asset, or in any manner to provide funding for their obligations under this Plan. Nothing contained in the Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between any of the Bank, Participant, Participant’s designated beneficiary(ies) or any other person. Any bonus deferred or funds invested in connection with the Bank shall continue to be part of the general funds of the Bank. To the extent that any person acquires a right to receive payments under this Plan, such rights shall be no greater than the right of any unsecured general creditor of the Bank.

E. Binding Effect:

This Plan shall be binding upon the parties entering into an agreement pursuant hereto, their beneficiaries, heirs, executors, administrators, successors and assigns.

F. Interpretation:

Where appropriate in the Plan, words used in the singular will include the plural and words used in the masculine or neuter may include masculine, neuter, or feminine.

G. Integration and Governing Law:

This Plan sets forth the entire Agreement and mutual understanding of parties entering into such an Agreement pursuant hereto, and any and all prior agreements, to the extent inconsistent herewith, are hereby superseded. The Plan, and any Agreement entered pursuant hereto, shall be construed in accordance with and governed by the laws of the State of North Carolina.

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H. No Representations:

The Bank does not represent or guarantee that any particular federal or state income, payroll, personal property or other tax consequence will result from participation in the Plan. A Participant should consult with professional tax advisors to determine the tax consequences of his or her participation. Furthermore, the Bank does not represent or guarantee successful investments of deferred amounts and shall not be required to restore any losses which may result from such investment or lack of investment.

I. Severability:

If a court of competent jurisdiction holds any provision of this Plan to be invalid or unenforceable, the remaining provisions of the Plan shall continue to be fully effective.

J. No Rights Against Bank:

Neither the establishment of this Plan nor any modification thereof, nor the creation of any fund or account, nor the payment of any benefit, shall be construed as giving a Participant or any other person any legal or equitable right against the Bank except as provided in the Plan. In no event shall the terms of employment of any employee be modified or any way affected by the Plan.

K. Effect on Other Bank Benefit Plans:

Nothing contained in this Plan shall affect the right of the Participant to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus, or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

L. Headings:

Headings and subheadings in this Plan are inserted for reference and convenience only and shall not be deemed a part of this Plan.

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M. Contractual Liability:

The obligation of the Bank to make payments hereunder shall constitute a contractual liability of the Bank to the Participant. Such payments shall be made from the general funds of the Bank, and the Bank shall not be required to establish or maintain any special or separate fund or to establish a trust or otherwise to segregate assets to assure that such payments shall be made, and the Participant shall not have any interest in any particular assets of the Bank by reason of its obligations hereunder. To the extent that any person requires a right to receive payment from the Bank, such right shall be no greater than the right of an unsecured creditor of the Bank.

N. Third Party Advisors:

The Plan Administrator may engage an attorney, accountant, actuary or any other technical advisor on matters regarding the operation of the Plan and to perform such other duties as shall be required in connection therewith, and may employ such clerical and related personnel as the Plan Administrator shall deem requisite or desirable in carrying out the provisions of the Plan. The Plan Administrator shall from time to time, but no less frequently than annually, review the financial condition of the Plan and determine the financial and liquidity needs of the Plan. The Plan Administrator shall communicate such needs to the Bank so that its policies may be appropriately coordinated to meet such needs.

O. Set Off:

Notwithstanding any other provision of the Plan, the Bank may reduce the amount of any payment otherwise payable to or on behalf of a participant hereunder by the amount of any loan, cash advance, extension of credit or other obligation of the Participant to the Bank that is then due and payable, and the Participant shall be deemed to have consented to such reduction.

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TRUST AGREEMENT

Between

ASHEVILLE SAVINGS BANK

And

FIDELITY MANAGEMENT TRUST COMPANY

ASHEVILLE SAVINGS BANK DIRECTORS AND OFFICERS DEFERRAL PLAN TRUST

Dated as of August 3, 2009

TABLE OF CONTENTS

Section 1.	Definitions	2
Section 2.	Trust	5
(a)	Establishment	5
(b)	Grantor Trust	6
(c)	Trust Assets	6
(d)	Non-Assignment	6
Section 3.	Payments to Sponsor	6
Section 4.	Disbursements	6
(a)	Limitations	7
Section 5.	Investment of Trust	7
(a)	Selection of Investment Options	7
(b)	Available Investment Options	7
(c)	Investment Directions	7
(d)	Unfunded Status of Plan	7
(e)	Mutual Funds	8
(i)	Execution of Purchases and Sales	8
(ii)	Voting	8
(f)	Trustee Powers	8
Section 6.	Recordkeeping and Administrative Services to Be Performed	10
(a)	General	10
(b)	Accounts	10
(c)	Inspection and Audit	10
(d)	Notice of Plan Amendment	11
(e)	Returns, Reports and Information	12
Section 7.	Compensation and Expenses	12
Section 8.	Directions and Indemnification	12
(a)	Identity of the Sponsor and the Administrator	12
(b)	Directions from the Sponsor and the Administrator	12
(c)	Directions from Participants	13
(d)	Indemnification	13
(e)	Survival	13
Section 9.	Resignation or Removal of Trustee	13
(a)	Resignation and Removal	13
(b)	Termination	13
(c)	Notice Period	13
(d)	Transition Assistance	14
(e)	Failure to Appoint Successor	14
Section 10.	Successor Trustee	14
(a)	Appointment	14
(b)	Acceptance	14
(c)	Corporate Action	14
Section 11.	Resignation, Removal, and Termination Notices	15
Section 12.	Duration	15
Section 13.	Insolvency of Sponsor	15
Section 14.	Amendment or Modification	16

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Section 15.	Electronic Services	16
Section 16.	Assignment	17
Section 17.	Force Majeure	18
Section 18.	Confidentiality; Safeguarding of Data	18
Section 19.	General	20
(a)	Performance by Trustee, its Agents or Affiliates	20
(b)	Entire Agreement	20
(c)	Waiver	20
(d)	Successors and Assigns	20
(e)	Partial Invalidity	20
(f)	Section Headings	21
(g)	Communications	21
(h)	Survival	21
Section 20.	Authorization To Make Available Fidelity Personal Guidance Offerings	21
Section 21.	Situs of Trust Assets	22
Section 22.	Governing Law	22
(a)	Massachusetts Law Controls	22
(b)	Trust Agreement Controls	22
SCHEDULES		23
Schedule “A”	Recordkeeping and Administrative Services	23
Schedule “B”	Fee Schedule	26
Schedule “C”	Investment Options	27
Schedule “D”	Operational Guidelines for Non-Fidelity Mutual Funds	28

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TRUST AGREEMENT, dated as of the third day of August 2009 (“Effective Date”), between ASHEVILLE SAVINGS BANK, a North Carolina corporation, having an office at P.O. Box 652, Asheville, North Carolina 28802 (the “Sponsor”), and FIDELITY MANAGEMENT TRUST COMPANY, a Massachusetts trust company, having an office at 82 Devonshire Street, Boston, Massachusetts 02109 (the “Trustee”).

WITNESSETH:

WHEREAS, the Sponsor is the sponsor of the Asheville Savings Bank Directors and Officers Deferral Plan (the “Plan”); and

WHEREAS, the Sponsor wishes to establish an irrevocable trust (the “Trust”) with regard to the Plan and to contribute to the Trust assets that shall be held therein, subject to the claims of Sponsor’s creditors in the event of Sponsor’s Insolvency, as herein defined, until paid to Participants and their beneficiaries in such manner and at such times as specified in the Plan; and

WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”); and

WHEREAS, it is the intention of the Sponsor to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; and

WHEREAS, the Trustee is willing to hold and invest the aforesaid plan assets in trust among several investment options selected by the Sponsor; and

WHEREAS, the Sponsor also wishes to have the Trustee perform certain ministerial recordkeeping and administrative functions under the Plan; and

WHEREAS, the Trustee is willing to perform recordkeeping and administrative services for the Plan if the services are ministerial in nature and are provided within a framework of plan provisions, guidelines and interpretations conveyed in writing to the Trustee by the Administrator (as defined herein).

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth below, the Sponsor and the Trustee agree as follows:

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Section 1. Definitions.

The following terms as used in this Trust Agreement have the meaning indicated unless the context clearly requires otherwise:

(a) “Administrator”

“Administrator” shall mean Asheville Savings Bank, identified in the Plan document as the “administrator” of the Plan, or otherwise, the Plan Sponsor.

(b) “Agreement”

“Agreement” shall mean this Trust Agreement, and the Schedules and/or Exhibits attached hereto, as the same may be amended and in effect from time to time.

(c) “Business Day”

“Business Day” shall mean each day the NYSE is open. The closing of a Business Day shall mean the NYSE’s normal closing time of 4:00 p.m. (ET), however, in the event the NYSE closes before such time or alters its closing time, all references to the NYSE closing time shall mean the actual or altered closing time of the NYSE.

(d) “Code”

“Code” shall mean the Internal Revenue Code of 1986, as it has been or may be amended from time to time.

(e) “EDT”

“EDT” shall mean electronic data transfer.

(f) “Electronic Services”

“Electronic Services” shall mean communication and services made available via electronic media.

(g) “ERISA”

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it has been or may be amended from time to time.

(h) “External Account Information”

“External Account Information” shall mean account information, including retirement savings account information, from third party websites or other websites maintained by Fidelity or its affiliates.

(i) “Fidelity Mutual Fund”

“Fidelity Mutual Fund” shall mean any investment company advised by Fidelity Management & Research Company or any of its affiliates.

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(j) “FIIOC”

“FIIOC” shall mean Fidelity Investments Institutional Operations Company, Inc.

(k) “In Good Order”

“In Good Order” shall mean in a state or condition acceptable to the Trustee in its sole discretion, which the Trustee determines is reasonably necessary for accurate execution of the intended transaction.

(l) “Insolvency”

“Insolvency” shall mean that (i) Sponsor is unable to pay its debts as they become due, or (ii) Sponsor is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

(m) “Insolvent”

“Insolvent” shall mean that (i) Sponsor is unable to pay its debts as they become due, or (ii) Sponsor is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

(n) “Losses”

“Losses” shall mean any and all loss, damage, penalty, liability, cost and expense, including without limitation, reasonable attorney’s fees and disbursements.

(o) “Mutual Fund”

“Mutual Fund” shall refer both to Fidelity Mutual Funds and Non-Fidelity Mutual Funds.

(p) “NAV”

“NAV” shall mean Net Asset Value.

(q) “NFSLLC”

“NFSLLC” shall mean National Financial Services LLC.

(r) “Non-Fidelity Mutual Fund”

“Non-Fidelity Mutual Fund” shall mean certain investment companies not advised by Fidelity Management & Research Company or any of its affiliates.

(s) “NYSE”

“NYSE” shall mean the New York Stock Exchange.

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(t) “Participant”

“Participant” shall mean, with respect to the Plan, any employee (or former employee) with an account under the Plan, which has not yet been fully distributed and/or forfeited, and shall include the designated beneficiary(ies) with respect to the account of any deceased employee (or deceased former employee) until such account has been fully distributed and/or forfeited.

(u) “Participant Recordkeeping Reconciliation Period”

“Participant Recordkeeping Reconciliation Period” shall mean the period beginning on the date of the initial transfer of assets to the Trust and ending on the date of the completion of the reconciliation of Participant records.

(v) “Person”

“Person” shall mean any corporation, joint stock company, limited liability company, association, partnership, joint venture, organization, individual, business or other trust or any other entity or organization of any kind or character, including a court or other governmental authority.

(w) “PIN”

“PIN” shall mean personal identification number.

(x) “Plan”

“Plan” shall mean the Asheville Savings Bank Directors and Officers Deferral Plan.

(y) “Plan Administration Design & Discovery Document”

“Plan Administration Design & Discovery Document” shall mean the document which sets forth the administrative and recordkeeping duties and procedures to be followed by the Trustee in administering the Plan, as such document may be amended and in effect from time to time during the initial implementation of the Plan onto the Fidelity Participant Recordkeeping System (“FPRS”). This document is an interim document and shall be superseded by the approved Plan Administration Manual.

(z) “Plan Administration Manual”

“Plan Administration Manual” shall mean the document which sets forth the administrative and recordkeeping duties and procedures to be followed by the Trustee in administering the Plan, as such document may be amended and in effect from time to time. This definition shall include the Plan Administration Design & Discovery Document from the implementation process until the full Plan Administration Manual can be generated and approved.

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(aa) “Plan Sponsor Webstation”

“Plan Sponsor Webstation” shall mean the graphical windows based application that provides current Plan and Participant information including indicative data, account balances, activity and history.

(bb) “Reporting Date”

“Reporting Date” shall mean the last day of each fiscal quarter of the Plan and, if not on the last day of fiscal quarter, the date as of which the Trustee resigns or is removed pursuant to this Agreement or the date as of which this Agreement terminates pursuant to Section 9 hereof.

(cc) “SEC”

“SEC” shall mean the Securities and Exchange Commission.

(dd) “Sponsor”

“Sponsor” shall mean Asheville Savings Bank, a North Carolina corporation, or any successor to all or substantially all of its businesses which, by agreement, operation of law or otherwise, assumes the responsibility of the Sponsor under this Agreement.

(ee) “Trust”

“Trust” shall mean the Asheville Savings Bank Directors and Officers Deferral Plan Trust, being the trust established by the Sponsor and the Trustee pursuant to the provisions of this Agreement.

(ff) “Trustee”

“Trustee” shall mean Fidelity Management Trust Company, a Massachusetts trust company and any successor to all or substantially all of its trust business as described in Section 10. The term Trustee shall also include any successor trustee appointed pursuant to Section 10 to the extent such successor agrees to serve as Trustee under this Agreement.

(gg) “VRS”

“VRS” shall mean Voice Response System.

Section 2. Trust.

(a) Establishment.

The Sponsor hereby establishes the Trust with the Trustee. The Trust shall consist of an initial contribution of money or other property acceptable to the Trustee in its sole discretion, made by the Sponsor or transferred from a previous trustee under the Plan, such additional sums of money as shall from time to time be delivered to the Trustee under the Plan, all investments made therewith and proceeds thereof, and all earnings and profits thereon, less the payments that are made by the Trustee as provided herein, without distinction between principal and income. The

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Trustee hereby accepts the Trust on the terms and conditions set forth in this Agreement. In accepting this Trust, the Trustee shall be accountable for the assets received by it, subject to the terms and conditions of this Agreement.

(b) Grantor Trust.

The Trust is intended to be a grantor trust, of which the Sponsor is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, as amended, and shall be construed accordingly.

(c) Trust Assets.

The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Sponsor and shall be used exclusively for the uses and purposes of Participants and general creditors as herein set forth. Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Agreement shall be mere unsecured contractual rights of Participants and their beneficiaries against the Sponsor. Any assets held by the Trust will be subject to the claims of the Sponsor’s general creditors under federal and state law in the event of Sponsor’s Insolvency.

(d) Non-Assignment.

Benefit payments to Participants and their beneficiaries funded under this Trust may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered, or subjected to attachment, garnishment, levy, execution, or other legal or equitable process. Notwithstanding anything in this Agreement to the contrary, the Sponsor can direct the Trustee to disperse monies pursuant to a domestic relations order as defined in Code section 414(p)(1)(B) in accordance with Section 4(a).

Section 3. Payments to Sponsor.

Except as provided under this Agreement, the Sponsor shall have no right to retain or divert to others any of the Trust assets before all payment of benefits have been made to Participants pursuant to the terms of the Plan.

Section 4. Disbursements.

The Trustee shall disburse monies to the Administrator for benefit payments in the amounts that the Administrator directs from time to time in writing. The Trustee shall have no responsibility to ascertain whether the Administrator’s direction complies with the terms of the Plan or any applicable law. The Trustee shall not be responsible for: (i) making benefit payments to Participants under the Plan, (ii) any Federal, State or local income tax reporting or withholding with respect to such Plan benefits, and (iii) FICA (Social Security and Medicare) or any Federal or State unemployment tax with respect to Plan distributions. Upon confirmation to Trustee by Sponsor that all benefits payable under the Plan have been distributed to Participants, any remaining assets may be paid to the Sponsor.

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(a) Limitations.

The Trustee shall not be required to make any disbursement in excess of the net realizable value of the assets of the Trust at the time of the disbursement. The Trustee shall not be required to make any disbursement in cash unless the Administrator has provided a written direction as to the assets to be converted to cash for the purpose of making the disbursement.

Section 5. Investment of Trust.

(a) Selection of Investment Options.

The Trustee shall have no responsibility for the selection of investment options under the Trust and shall not render investment advice to any person in connection with the selection of such options.

(b) Available Investment Options.

The Sponsor shall direct the Trustee as to what investment options the Trust shall be invested in (i) during the Participant Recordkeeping Reconciliation Period, and (ii) following the Participant Recordkeeping Reconciliation Period, subject to the following limitations. The Sponsor may determine to offer as investment options only Mutual Funds; provided, however, that the Trustee shall not be considered a fiduciary with investment discretion. The Sponsor may add or remove investment options with the consent of the Trustee to reflect administrative concerns and upon mutual amendment of this Agreement and the Schedules thereto, to reflect such additions.

(c) Investment Directions.

The Sponsor shall direct the Trustee as to how to invest the assets held in the Trust. In order to provide for an accumulation of assets comparable to the contractual liabilities accruing under the Plan, the Sponsor may direct the Trustee in writing to invest the assets held in the Trust to correspond to the hypothetical investments made for Participants in accordance with their direction under the Plan. In such cases, Participants may provide directions with respect to their hypothetical investments under the Plan by use of the system maintained for such purposes by the Trustee or its agents, as may be agreed upon from time to time by the Sponsor and the Trustee, and shall be processed in accordance with the fund exchange provisions set forth in the Plan Administration Manual. The Trustee shall not be liable for any loss or expense that arises from a Participant’s exercise or non-exercise of rights under this Section 5 over the assets in the Participant’s accounts. In the event that the Trustee fails to receive a proper direction, the assets in question shall be invested in the investment option set forth for such purpose on Schedule “C” until the Trustee receives a proper direction.

(d) Unfunded Status of Plan

The Sponsor’s designation of available investment options, the maintenance of accounts for each Participant, the crediting of investments gains (or losses) to such accounts, and the exercise by Participants of any powers relating to investments under this Agreement are solely for the purpose of providing a mechanism for measuring the obligation of the Sponsor to any particular Participant under the applicable Plan. As provided in this Agreement, no Participant will have

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any preferential claim to or beneficial ownership interest in any asset or investment held in the Trust, and the rights of any Participant under the applicable Plan and this Agreement are solely those of an unsecured general creditor of the Sponsor with respect to the benefits of the Participant under the Plan.

(e) Mutual Funds.

On the effective date of this Agreement, in lieu of receiving a printed copy of the prospectus for each Fidelity Mutual Fund selected by the Sponsor as a Plan investment option or short-term investment fund, the Sponsor hereby consents to receiving such documents electronically. The Sponsor shall access each prospectus on the internet after receiving notice from the Trustee that a current version is available online at a website maintained by the Trustee or its affiliate. Trustee represents that on the effective date of this Agreement, a current version of each such prospectus is available at https://www.fidelity.com or such successor website as Trustee may notify the Sponsor of in writing from time to time. The Sponsor represents that it has accessed/will access each such prospectus as of the effective date of this Agreement at https://www.fidelity.com or such successor website as Trustee may notify the Sponsor of in writing from time to time. Transactions involving Non-Fidelity Mutual Funds shall be executed in accordance with the operational guidelines set forth in Schedule “D” attached hereto. Trust investments in Mutual Funds shall be subject to the following limitations:

(i) Execution of Purchases and Sales.

Purchases and sales of Mutual Funds (other than for exchanges) shall be made on the date on which the Trustee receives from the Sponsor In Good Order all information and documentation necessary to accurately effect such transactions and (if applicable) wire transfer of funds.

Exchanges of Mutual Funds shall be processed in accordance with the fund exchange provisions set forth in the Plan Administration Manual.

(ii) Voting.

At the time of mailing of notice of each annual or special stockholders’ meeting of any Mutual Fund, the Trustee shall send a copy of the notice and all proxy solicitation materials to the Sponsor, together with a voting direction form for return to the Trustee or its designee. The Trustee shall vote the shares held in the Trust in the manner as directed by the Sponsor. The Trustee shall not vote shares for which it has received no corresponding directions from the Sponsor. The Sponsor shall also have the right to direct the Trustee as to the manner in which all shareholder rights, other than the right to vote, shall be exercised. The Trustee shall have no further duty to solicit directions from the Sponsor.

(f) Trustee Powers.

The Trustee shall have the following powers and authority:

(i) Subject to this Section 5, to sell, exchange, convey, transfer, or otherwise dispose of any property held in the Trust, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or other property delivered to the Trustee or to inquire into the validity, expediency, or propriety of any such sale or other disposition.

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(ii) To cause any securities or other property held as part of the Trust to be registered in the Trustee’s own name, in the name of one or more of its nominees, or in the Trustee’s account with the Depository Trust Company of New York and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust.

(iii) To keep that portion of the Trust in cash or cash balances as the Sponsor or Administrator may, from time to time, deem to be in the best interest of the Trust.

(iv) To make, execute, acknowledge, and deliver any and all documents of transfer or conveyance and to carry out the powers herein granted.

(v) To borrow funds from a bank or other financial institution not affiliated with the Trustee in order to provide sufficient liquidity to process Plan transactions in a timely fashion, provided that the cost of borrowing shall be allocated in a reasonable fashion to the investment fund(s) in need of liquidity. The Sponsor acknowledges that it has received the disclosure on the Trustee’s line of credit program and credit allocation policy and a copy of the text of Prohibited Transaction Exemption 2002-55 prior to executing this Agreement if applicable.

(vi) To settle, compromise, or submit to arbitration any claims, debts, or damages due to or arising from the Trust; to commence or defend suits or legal or administrative proceedings; to represent the Trust in all suits and legal and administrative hearings; and to pay all reasonable expenses arising from any such action, from the Trust if not paid by the Sponsor.

(vii) To employ legal, accounting, clerical, and other assistance as may be required in carrying out the provisions of this Agreement and to pay their reasonable expenses and compensation from the Trust if not paid by the Sponsor.

(viii) To do all other acts, although not specifically mentioned herein, as the Trustee may deem necessary to carry out any of the foregoing powers and the purposes of the Trust.

Notwithstanding any powers granted to Trustee pursuant to this Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. The Trustee will file an annual fiduciary return to the extent required by law.

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Section 6. Recordkeeping and Administrative Services to Be Performed.

(a) General.

The Trustee shall perform those recordkeeping and administrative functions described in Schedule “A” attached hereto. These recordkeeping and administrative functions shall be performed within the framework of the Administrator’s written directions regarding the Plan’s provisions, guidelines and interpretations. The Sponsor acknowledges that the Trustee will be working to streamline and standardize its service model and agrees to reasonably cooperate with the Trustee in connection with those efforts. The Trustee will make the Sponsor aware of the service model changes in advance and will work with the Sponsor to determine the most efficient and effective methods of implementing the changes. The Sponsor acknowledges that the Trustee does not provide legal or tax advice, and that the Sponsor must obtain its own legal and tax counsel for advice on the plan design appropriate for its specific situation and on legal and tax issues pertaining to the administration of the Plan. The Sponsor further acknowledges that the Trustee has no continuing responsibility to be aware of and responsive to IRS guidance provided under Section 409A of the Code as the Trustee is not the responsible party for (a) ensuring that the Administrator’s or Sponsor’s direction to the Trustee conforms with that guidance, and (b) the payment of all taxes and penalties associated with a failure to maintain such compliance.

(b) Accounts.

The Trustee shall keep accurate accounts of all investments, receipts, disbursements, and other transactions hereunder, and shall report the value of the assets held in the Trust as of the last day of each Reporting Date. Within thirty (30) days following each Reporting Date or within sixty (60) days in the case of a Reporting Date caused by the resignation or removal of the Trustee, or the termination of this Agreement, the Trustee shall file with the Administrator a written account setting forth all investments, receipts, disbursements, and other transactions effected by the Trustee between the Reporting Date and the prior Reporting Date, and setting forth the value of the Trust as of the Reporting Date. Except as otherwise required under applicable law, upon the expiration of six (6) months from the date of filing such account, the Trustee shall have no liability or further accountability to anyone with respect to the propriety of its acts or transactions shown in such account, except with respect to such acts or transactions as to which a written objection shall have been filed with the Trustee within such six (6) month period.

(c) Inspection and Audit.

Upon the resignation or removal of the Trustee or the termination of this Agreement, the Trustee shall provide to the Sponsor, at no expense to the Sponsor, in the format regularly provided to the Sponsor, a statement of each Participant’s account as of the resignation, removal, or termination, and the Trustee shall provide to the Sponsor or the Plan’s new recordkeeper such further records as are reasonable, at the Sponsor’s expense.

The Trustee will provide to auditors (including third-party auditors and Sponsor’s internal audit staff) as Sponsor may designate in writing, access to any Trustee owned or managed facility at which the services are being performed, to appropriate Trustee management personnel, and to the data and records (and other documentation reasonably requested by the Sponsor) maintained

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by the Trustee with respect to the services solely for the purpose of examining (i) transactional books and records maintained by the Trustee in order to provide the services, (ii) documentation of service level performance, and (iii) invoices to the Sponsor. Any such audits will be conducted at the Sponsor’s expense. The Sponsor and its auditors will first look to the most recent Type II Service Auditor’s Report (“Type II SAR”) before conducting further audits. Type II SAR’s are reports issued by the Trustee’s or its affiliate’s independent public accounting firm in accordance with Statement on Auditing Standard No. 70 (“SAS 70”). If a matter is not covered in such Type II SAR, then the Sponsor will provide the Trustee with a proposed detailed scope and timeframe of the audit requested by the Sponsor in writing at least sixty (60) days prior to date of the audit. The Sponsor will provide the Trustee with not less than ninety (90) days prior written notice of an audit, excepting audit requests from governmental or regulatory agencies. The Sponsor and its auditors will conduct such audits in a manner that will result in a minimum of inconvenience and disruption to the Trustee’s operations. Audits may be conducted only during normal business hours and no more frequently than annually unless otherwise required as a matter of law or for compliance with regulatory or contractual requirements. Any audit assistance provided by the Trustee in excess of the number of audit hours per annum referenced in the fee schedule shall be provided on a fee-for-service basis. The Sponsor and its auditors will not be entitled to review or audit (i) data or information of other customers or clients of the Trustee, (ii) any of Trustee’s proprietary data, or (iii) any other Confidential Information of the Trustee that is not relevant for the purposes of the audit. The Sponsor and its auditors will not be entitled to logical access to the Trustee’s networks and systems, nor unrestricted physical access to Trustee’s facilities and personnel. Reviews of processes, controls, and support documentation will be facilitated with appropriate Trustee’s personnel. The Trustee will use commercially reasonable efforts to cooperate in the audit, will make available on a timely basis the information reasonably required to conduct the audit and will assist the designated employees of the Sponsor or its auditors as reasonably necessary. The Sponsor will reimburse the Trustee for any costs incurred by the Trustee in connection with an audit conducted pursuant to this section. To the maximum extent possible, audits will be designed and conducted (in such manner and with such frequency) so as not to interfere with the provision of the services. The Sponsor will not use any competitors of the Trustee (or any significant subcontractor of Trustee under this Agreement) to conduct such audits. The auditors and other representatives of the Sponsor will execute and deliver such confidentiality and non-disclosure agreements and comply with such security and confidentiality requirements as the Trustee may reasonably request in connection with such audits.

(d) Notice of Plan Amendment.

The Trustee’s provision of the recordkeeping and administrative services set forth in this Section shall be conditioned on the Sponsor delivering to the Trustee a copy of any amendment to the Plan as soon as administratively feasible following the amendment’s adoption, and on the Administrator providing the Trustee, on a timely basis, with all the information the Trustee deems necessary for the Trustee to perform the recordkeeping and administrative services and such other information as the Trustee may reasonably request.

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(e) Returns, Reports and Information.

Except as set forth in the Plan Reporting section of Schedule “A”, the Administrator shall be responsible for the preparation and filing of all returns, reports, and information required of the Trust or Plan by law. The Trustee shall provide the Administrator with such information as the Administrator may reasonably request to make these filings. The Administrator shall also be responsible for making any disclosures to Participants required by law.

Section 7. Compensation and Expenses.

Sponsor shall pay to Trustee, within thirty (30) days of receipt of the Trustee’s bill, the fees for services in accordance with Schedule “B.” Fees for services are specifically outlined in Schedule “B” and are based on any assumptions identified therein. In the event that the Plan characteristics referenced in the assumptions outlined in Schedule “B” change significantly by either falling below or exceeding current or projected levels, such fees may be subject to revision, upon mutual renegotiation. To reflect increased operating costs, Trustee may once each calendar year amend Schedule “B” without the Sponsor’s consent upon ninety (90) days prior notice to the Sponsor.

All reasonable expenses of Plan administration as shown on Schedule “B” attached hereto, as amended from time to time, shall be a charge against and paid from the appropriate Participants’ accounts, except to the extent such amounts are paid by the Sponsor in a timely manner.

All expenses of the Trustee relating directly to the acquisition and disposition of investments constituting part of the Trust, and all taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon or in respect of the Trust or the income thereof, shall be a charge against and paid from the appropriate Participants’ accounts.

Section 8. Directions and Indemnification.

(a) Identity of the Sponsor and the Administrator.

The Trustee shall be fully protected in relying on the fact that the Sponsor and the Administrator under the Plan are the individual or persons named as such above or such other individuals or persons as the Sponsor may notify the Trustee in writing.

(b) Directions from the Sponsor and the Administrator.

Whenever the Sponsor or the Administrator provides a direction to the Trustee, the Trustee shall not be liable for any loss or expense arising from the direction if the direction is contained in a writing provided by any individual whose name has been submitted (and not withdrawn) in writing to the Trustee by the Sponsor or the Administrator unless it is clear on the direction’s face that the actions to be taken under the direction would be contrary to the terms of this Agreement. The Trustee may rely without further duty of inquiry on the authority of any such individual to provide direction to the Trustee on behalf of the Sponsor.

For purposes of this Section, such direction may also be made via EDT, facsimile or such other secure electronic means in accordance with procedures agreed to by the Sponsor and the Trustee and, in any such case the Trustee shall be fully protected in relying on such direction as if it were a direction made in writing by the Sponsor.

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(c) Directions from Participants.

The Trustee shall not be liable for any loss which arises from any Participant’s exercise or non-exercise of rights under the Plan over the assets in the Participants’ hypothetical accounts.

(d) Indemnification.

The Sponsor shall indemnify the Trustee against, and hold the Trustee harmless from, any and all Losses that may be incurred by, imposed upon, or asserted against the Trustee by reason of any claim, regulatory proceeding, or litigation arising from any act done or omitted to be done by any individual or person with respect to the Plan or Trust, excepting only any and all Losses arising solely from the Trustee’s negligence or bad faith.

The Trustee shall indemnify the Sponsor against, and hold the Sponsor harmless from, any and all Losses that may be incurred by, imposed upon, or asserted against the Sponsor by reason of any claim, regulatory proceeding, or litigation arising from Trustee’s negligence or bad faith.

(e) Survival.

The provisions of this Section shall survive the termination of this Agreement.

Section 9. Resignation or Removal of Trustee.

(a) Resignation and Removal.

The Trustee may resign at any time in accordance with the notice provisions set forth below. The Sponsor may remove the Trustee at any time in accordance with the notice provisions set forth below.

(b) Termination.

This Agreement may be terminated in full, or with respect to only a portion of the Plan (i.e. a “partial deconversion”) at any time by the Sponsor upon prior written notice to the Trustee in accordance with the notice provisions set forth below.

(c) Notice Period.

In the event either party desires to terminate this Agreement or any Services hereunder, the party shall provide at least sixty (60) days prior written notice of the termination date to the other party; provided, however, that the receiving party may agree, in writing, to a shorter notice period.

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(d) Transition Assistance.

In the event of termination of this Agreement, if requested by Sponsor, the Trustee shall assist Sponsor in developing a plan for the orderly transition of the Plan data, cash and assets then constituting the Trust and services provided by the Trustee hereunder to Sponsor or its designee. The Trustee shall provide such assistance for a period not extending beyond sixty (60) days from the termination date of this Agreement. The Trustee shall provide to Sponsor, or to any person designated by Sponsor, at a mutually agreeable time, one file of the Plan data prepared and maintained by the Trustee in the ordinary course of business, in the Trustee’s format. The Trustee may provide other or additional transition assistance as mutually determined for additional fees, which shall be due and payable by the Sponsor prior to any termination of this Agreement.

(e) Failure to Appoint Successor.

If, by the termination date, the Sponsor has not notified the Trustee in writing as to the individual or entity to which the assets and cash are to be transferred and delivered, the Trustee may bring an appropriate action or proceeding for leave to deposit the assets and cash in a court of competent jurisdiction. The Trustee shall be reimbursed by the Sponsor for all costs and expenses of the action or proceeding including, without limitation, reasonable attorneys’ fees and disbursements.

Section 10. Successor Trustee.

(a) Appointment.

If the office of Trustee becomes vacant for any reason, the Sponsor may in writing appoint a successor trustee under this Agreement. The successor trustee shall have all of the rights, powers, privileges, obligations, duties, liabilities, and immunities granted to the Trustee under this Agreement. The successor trustee and predecessor trustee shall not be liable for the acts or omissions of the other with respect to the Trust.

(b) Acceptance.

As of the date the successor trustee accepts its appointment under this Agreement, title to and possession of the Trust assets shall immediately vest in the successor trustee without any further action on the part of the predecessor trustee, except as may be required to evidence such transition. The predecessor trustee shall execute all instruments and do all acts that may be reasonably necessary and requested in writing by the Sponsor or the successor trustee to vest title to all Trust assets in the successor trustee or to deliver all Trust assets to the successor trustee.

(c) Corporate Action.

Any successor of the Trustee or successor trustee, either through sale or transfer of the business or trust department of the Trustee or successor trustee, or through reorganization, consolidation, or merger, or any similar transaction of either the Trustee or successor trustee, shall, upon consummation of the transaction, become the successor trustee under this Agreement.

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Section 11. Resignation, Removal, and Termination Notices.

All notices of resignation, removal, or termination under this Agreement must be in writing and mailed to the party to which the notice is being given by certified or registered mail, return receipt requested, to the Sponsor c/o Asheville Savings Bank, P.O. Box 652, Asheville, North Carolina 2882 and to the Trustee c/o Fidelity Investments, Contracts Development & Negotiation, 82 Devonshire Street, MM1M, Boston, Massachusetts 02109, or to such other addresses as the parties have notified each other of in the foregoing manner.

Section 12. Duration.

This Trust shall continue in effect without limit as to time, subject, however, to the provisions of this Agreement relating to amendment, modification, and termination thereof.

Section 13. Insolvency of Sponsor.

(a) Trustee shall cease disbursement of funds for payment of benefits to Participants if the Sponsor is Insolvent.

(b) All times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of general creditors of the Sponsor under federal and state law as set forth below.

(i) The Board of Directors and the Chief Executive Officer of the Sponsor shall have the duty to inform Trustee in writing of Sponsor’s Insolvency. If a person claiming to be a creditor of the Sponsor alleges in writing to Trustee that Sponsor has become Insolvent, Trustee shall determine whether Sponsor is Insolvent and, pending such determination, Trustee shall discontinue disbursements for payment of benefits to Participants.

(ii) Unless Trustee has actual knowledge of Sponsor’s Insolvency, or has received notice from Sponsor or a person claiming to be a creditor alleging that Sponsor is Insolvent, Trustee shall have no duty to inquire whether Sponsor is Insolvent. Trustee may in all events rely on such evidence concerning Sponsor’s solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Sponsor’s solvency.

(iii) If at any time Trustee has determined that Sponsor is Insolvent, Trustee shall discontinue disbursements for payments to Participants and shall hold the assets of the trust for the benefit of Sponsor’s general creditors. Nothing in this Agreement shall in any way diminish any rights of Participants to pursue their rights as general creditors of Sponsor with respect to benefits due under the Plan or otherwise.

(iv) Trustee shall resume disbursement for the payment of benefits to Participants in accordance with this Agreement only after Trustee has determined that Sponsor is not Insolvent (or is no longer Insolvent).

(c) If the Sponsor permits the employees of another member of the same controlled group (as defined in IRC Section 414(b) or (c)) to participate in the Plan, all of the assets held by the Trust will be subject to the claims of the general creditors of both the Sponsor and all of such participating affiliates and, for purposes of Section 13(a), the Sponsor is considered Insolvent if any such affiliate meets the definition of Insolvent.

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(d) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to (a) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Participants by Sponsor in lieu of the payments provided for hereunder during any such period of discontinuance.

Section 14. Amendment or Modification.

This Agreement may be amended or modified at any time and from time to time only by an instrument executed by both the Sponsor and the Trustee. The individuals authorized to sign such instrument shall be those authorized by the Sponsor. Notwithstanding the foregoing, Trustee reserves the right to unilaterally amend this Agreement to update services and procedures and to revise the fee schedule upon 90 days notice to the Sponsor.

Section 15. Electronic Services.

(a) The Trustee may provide communications and Electronic Services via electronic media, including, but not limited to NetBenefits, eWorkplace and Fidelity Plan Sponsor WebStation. The Sponsor agrees to use such Electronic Services only in the course of reasonable administration of or participation in the Plan and to keep confidential and not alter, publish, copy, broadcast, retransmit, reproduce, frame-in, link to, commercially exploit or otherwise redisseminate the Electronic Services, any content associated therewith, or any portion thereof (including, without limitation, any trademarks and service marks associated therewith), without the written consent of the Trustee. Notwithstanding the foregoing, the Trustee acknowledges that certain Electronic Services may, by their nature, be intended for non-commercial, personal use by Participants or their beneficiaries, with respect to their participation in the Plan, or for their other retirement or employee benefit planning purposes, and certain content may be intended or permitted to be modified by the Sponsor in connection with the administration of the Plan. In such cases, the Trustee will notify the Sponsor of such fact, and any requirements or guidelines associated with such usage or modification no later than the time of initial delivery of such Electronic Services. To the extent permission is granted to make Electronic Services available to administrative personnel designated by the Sponsor, it shall be the responsibility of the Sponsor to keep the Trustee informed as to which of the Sponsor personnel are authorized to have such access. Except to the extent otherwise specifically agreed by the parties, the Trustee reserves the right, upon notice when reasonably feasible, to modify or discontinue Electronic Services, or any portion thereof, at any time.

(b) Without limiting the responsibilities of the Trustee or the rights of the Sponsor stated elsewhere in this Agreement, Electronic Services shall be provided to the Sponsor without acceptance of legal liability related to or arising out of the electronic nature of the delivery or provision of such Services. To the extent that any Electronic Services utilize Internet services to transport data or communications, the Trustee will take, and the Sponsor agrees to follow, reasonable security precautions. However, the Trustee disclaims any liability for interception of any such data or communications. The Trustee reserves the right not to accept data or communications transmitted electronically or via electronic media by the Sponsor or a third party if it determines that the method of delivery does not provide adequate data security, or

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if it is not administratively feasible for the Trustee to use the data security provided. The Trustee shall not be responsible for, and makes no warranties regarding access, speed or availability of Internet or network services, or any other service required for electronic communication, nor does the Trustee make any warranties, express or implied, and specifically disclaims all warranties of merchantability, fitness for a particular purpose, or non-infringement. The Trustee shall not be responsible for any loss or damage related to or resulting from any changes or modifications to the Electronic Services made in violation of this Agreement.

(c) The Sponsor acknowledges that certain web sites through which the Electronic Services are accessed may be protected by passwords or require a login and the Sponsor agrees that neither the Sponsor nor, where applicable, Participants, will obtain or attempt to obtain unauthorized access to such Services or to any other protected materials or information, through any means not intentionally made available by the Trustee for the specific use of the Sponsor. To the extent that a PIN is necessary for access to the Electronic Services, the Sponsor and/or its Participants, as the case may be, are solely responsible for all activities that occur in connection with such PINs.

(d) The Trustee will provide to Participants the FullView^SM service via NetBenefits, through which Participants may elect to consolidate and manage any retirement account information available through NetBenefits as well as External Account Information. To the extent not provided by the Trustee or its affiliates, the data aggregation service will be provided by Yodlee.com, Inc. or such other independent provider as the Trustee may select, pursuant to a contract that requires the provider to take appropriate steps to protect the privacy and confidentiality of information furnished by users of the service. The Sponsor acknowledges that Participants who elect to use FullView^SM must provide passwords and PINs to the provider of data aggregation services. The Trustee will use External Account Information to furnish and support FullView^SM or other services provided pursuant to this Agreement, and as otherwise directed by the Participant. The Trustee will not furnish External Account Information to any third party, except pursuant to subpoena or other applicable law. The Sponsor agrees that the information accumulated through FullView^SM shall not be made available to the Sponsor, provided, however, that the Trustee shall provide to the Sponsor, upon request, aggregate usage data that contains no personally identifiable information.

Section 16. Assignment.

This Agreement, and any of its rights and obligations hereunder, may not be assigned by any party without the prior written consent of the other party(ies), and such consent may be withheld in any party’s sole discretion. Notwithstanding the foregoing, Trustee may assign this Agreement in whole or in part, and any of its rights and obligations hereunder, to a subsidiary or affiliate of Trustee without consent of the Sponsor. All provisions in this Agreement shall extend to and are binding upon the parties hereto and their respective successors and permitted assigns.

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Section 17. Force Majeure.

No party shall be deemed in default of this Agreement to the extent that any delay or failure in performance of its obligation(s) results, without its fault or negligence, from any cause beyond its reasonable control, such as acts of God, acts of civil or military authority, acts of terrorism, whether actual or threatened, quarantines, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, power outages or strikes. This clause shall not excuse any of the parties to the Agreement from any liability which results from failure to have in place reasonable disaster recovery and safeguarding plans adequate for protection of all data each of the parties to the Agreement are responsible for maintaining for the Plan.

Section 18. Confidentiality; Safeguarding of Data.

(a) Confidential Information. In connection with this Agreement, each of the parties has disclosed and may continue to disclose to the other party information that relates to the disclosing party’s business operations, financial condition, employees, former employees, eligible dependents and beneficiaries of such employees and former employees, customers, business associates, products, services or technical knowledge. Except as otherwise specifically agreed in writing by the parties, Trustee and Sponsor each agree that from and after the Effective Date (i) all information communicated to it before or after the Effective Date by the other and identified as confidential or proprietary, (ii) all information identified as confidential or proprietary to which it has access in connection with the services, whether such access was before or after the Effective Date, (iii) all information communicated to it that reasonably should have been understood by the receiving party to be proprietary and confidential to the disclosing party including without limitation technical, trade secret or business information, financial information, business or marketing strategies or plans, product development or customer information, and (iv) the terms and conditions of this Agreement (collectively, the “Confidential Information”) will be used only in accordance with this Agreement.

(b) Ownership of Information/Safeguarding Information. Each party’s Confidential Information will remain the property of that party except as otherwise expressly provided in this Agreement. Each party will use at least the same degree of care to safeguard and to prevent disclosing to third parties the Confidential Information of the other as it employs to avoid unauthorized disclosure or publication of its own information (or information of its customers) of a similar nature, and in any event, no less than reasonable care. Each party may use and disclose relevant aspects of the other party’s Confidential Information to its employees, affiliates, subcontractors and agents to the extent such disclosure is reasonably necessary for the performance of its obligations under this Agreement or the enforcement of its rights under this Agreement; provided, however, that the disclosing party shall ensure that such parties agree to be bound by confidentiality provisions at least as restrictive as those set forth in this Section 18; and provided further, however, that in no event shall Sponsor disclose such Confidential Information to direct competitors of the Trustee. Each party will be responsible for any improper disclosure of Confidential Information by such party’s employees, affiliates, subcontractors or agents. Neither party will (i) make any use or copies of the Confidential Information of the other except as contemplated by this Agreement, or (ii) sell, assign, lease or otherwise commercially exploit the Confidential Information (or any derivative works thereof) of the other party. Neither party will withhold the Confidential Information of the other party (including in the case of the Sponsor, the Personal Data) or refuse for any reason (including due to the other party’s actual or alleged breach of this Agreement) to promptly return to the other party its Confidential Information (including copies thereof) if requested to do so.

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(c) Return of Information. Upon expiration or any termination of this Agreement and completion of a party’s obligations under this Agreement, each party will return or destroy, as the owner may direct, all documentation in any medium that contains or refers to the other party’s Confidential Information; however, each party may retain copies of Confidential Information of the other party solely to the extent required for compliance with applicable professional standards and applicable law.

(d) Exceptions to Confidential Treatment. Sections 18(a), (b) and (c) shall not apply to any particular information that either party can demonstrate (i) was, at the time of disclosure to it (a) already known to the receiving party (and not subject to a pre-existing confidentiality agreement) or (b) publicly known; (ii) after disclosure to it, becomes publicly known through no fault of the receiving party; (iii) was received after disclosure to it from a third party who did not indicate that the information was to be treated as confidential in connection with the disclosure or (iv) was independently developed by the receiving party without use of the Confidential Information of the disclosing party. In addition, a party will not be considered to have breached its obligations under this Section 18 for disclosing Confidential Information of the other party to the extent required to satisfy any valid subpoena, court order, litigation or regulatory request, or any other legal requirement of a competent governmental authority, provided that following receipt of any such request, or making a determination that disclosure is legally required, and to the extent that it may legally do so, such party advises the other party prior to making such disclosure in order that the other party may object to such disclosure, take action to ensure confidential treatment of the Confidential Information, or take such other action as it considers appropriate to protect the Confidential Information. In addition, Trustee will not be considered to have breached its obligations under this Section 18 for using or disclosing Confidential Information to the extent Trustee or an affiliate of the Trustee is specifically authorized by an individual to use that individual’s personal information (including plan-related and account-related information applicable to that individual) in connection with any other Trustee products or services.

(e) No Duty to Disclose. Nothing contained in this Section 18 will be construed as obligating a party to disclose its Confidential Information to the other party, or as granting to or conferring on a party, expressly or impliedly, any rights or license to the Confidential Information of the other party provided that Trustee shall be excused from its obligations to perform hereunder to the extent Sponsor fails to provide any such information as is reasonably necessary for Trustee to perform the services and otherwise meet its obligations hereunder.

(f) Personal Data. In order to fulfill its obligations under this Agreement, Trustee may receive in connection with this Agreement or the services provided hereunder personal data, including compensation, benefits, tax, marital/family status and other similar information about participants (“Personal Data”). Trustee acknowledges that it is receiving Personal Data only in connection with the performance of the services and Trustee will not use or disclose Personal Data without the permission of the Sponsor for any purpose other than as permitted in this Agreement and in fulfilling its obligations under this Agreement, unless disclosure is required or permitted under this Agreement or by applicable law. With respect to Personal Data it receives under this Agreement, Trustee agrees to (i) safeguard Personal Data in accordance with its privacy policy, and (ii) exercise at least the same standard of care in safeguarding such Personal Data that it uses to protect the personal data of its own employees. Notwithstanding the

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foregoing, Sponsor may monitor Trustee’s interactions with participants, and Sponsor authorizes Trustee to permit third-party prospects of the Trustee to monitor participants’ interactions for the purpose of evaluating Trustee’s services. Nothing in this Agreement shall affect in any way other product or service arrangements entered into separately by Trustee or its affiliates and the Sponsor and/or participants.

(i) Foreign Data Protection Laws. Sponsor is responsible for any and all activities necessary to ensure compliance with applicable laws regarding data protection outside of the United States and for ensuring that the transfer of Personal Data to Trustee is in compliance with such laws. Sponsor will not transfer any Personal Data to Trustee unless Sponsor has satisfied such laws, such as through the use of consents. Trustee will be entitled to presume that, unless notified to the contrary by Sponsor, activities necessary to ensure compliance with such laws have been satisfied by Sponsor with respect to all Personal Data furnished to Trustee hereunder. Trustee will have no obligation to process any Personal Data if Trustee is on notice that compliance with such laws has not been met.

Section 19. General.

(a) Performance by Trustee, its Agents or Affiliates.

The Sponsor acknowledges and authorizes that the services to be provided under this Agreement shall be provided by the Trustee, its agents or affiliates, and that certain of such services may be provided pursuant to one or more other contractual agreements or relationships.

(b) Entire Agreement.

This Agreement, together with the Schedules referenced herein, contains all of the terms agreed upon between the parties with respect to the subject matter hereof. This Agreement supersedes any and all other agreements, written or oral, made by the parties with respect to the services.

(c) Waiver.

No waiver by either party of any failure or refusal to comply with an obligation hereunder shall be deemed a waiver of any other obligation hereunder or subsequent failure or refusal to comply with any other obligation hereunder.

(d) Successors and Assigns.

The stipulations in this Agreement shall inure to the benefit of, and shall bind, the successors and assigns of the respective parties.

(e) Partial Invalidity.

If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

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(f) Section Headings.

The headings of the various sections and subsections of this Agreement have been inserted only for the purposes of convenience and are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement.

(g) Communications.

In the event that the Sponsor retains any responsibility for delivering Participant communications to some or all Participants and beneficiaries, the Sponsor agrees to furnish the communications to such Participants in a timely manner as determined under applicable law.

The provisions of this Agreement shall apply to all information provided and all Participant communications prepared and delivered by the Sponsor or the Trustee during the implementation period prior to the execution date of this Agreement and throughout the term set forth in this Agreement.

(h) Survival.

Trustee’s and Sponsor’s respective obligations under this Agreement, which by their nature would continue beyond the termination of this Agreement, including but not limited to those contained in Sections and/or subsections entitled “Inspection and Audit,” “Indemnification,” and “Confidentiality; Safeguarding of Data” shall survive any termination of the Agreement.

Section 20. Authorization To Make Available Fidelity Personal Guidance Offerings.

Notwithstanding any provision of the Agreement to the contrary, Sponsor hereby authorizes Trustee, Fidelity Employer Services Company LLC, Fidelity Brokerage Services LLC, and other affiliates of the Trustee, throughout the term of this Agreement and any extensions thereto, to provide and/or offer personal and/or workplace services, programs, and products (collectively, “Personal Guidance Offerings”) to any and all Persons with respect to whom the Trustee receives any information hereunder, including Personal Guidance Offerings unrelated to retirement or employment, and the Trustee may use for such purpose any information received hereunder or otherwise related to the Plan or Sponsor. Such information shall be treated in accordance with Fidelity Investments’ privacy policy. Any information collected by the Trustee in the course of providing Personal Guidance Offerings may be retained and used by the Trustee, Fidelity Employer Services Company LLC, Fidelity Brokerage Services LLC, or affiliates of the Trustee after the termination of this Agreement. Persons who request that the Trustee discontinue communications related to Personal Guidance Offerings other than workplace-related offerings shall be permitted to do so in accordance with industry rules and practices and through various means that may be specific by communication medium. The Trustee agrees to indemnify Sponsor against any claims brought against Sponsor by a Person who purchases a product or service of the Trustee or any affiliate of the Trustee as a result of the actions taken by Trustee pursuant to this Section to the extent such claim is the result of Trustee’s (or, if applicable, an affiliate of the Trustee’s) negligence or failure to follow the terms of any agreements entered into between such Person and the Trustee (or the affiliate of the Trustee).

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Section 21. Situs of Trust Assets.

The Sponsor and the Trustee agree that no assets of the Trust shall be located or transferred outside of the United States.

Section 22. Governing Law.

(a) Massachusetts Law Controls.

This Agreement is being made in the Commonwealth of Massachusetts, and the Trust shall be administered as a Massachusetts trust. The validity, construction, effect, and administration of this Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, except to the extent those laws are superseded under section 514 of ERISA.

(b) Trust Agreement Controls.

The Trustee is not a party to the Plan, and in the event of any conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of this Agreement shall control.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. By signing below, the undersigned represent that they are authorized to execute this Agreement on behalf of the respective parties. Each party may rely without duty of inquiry on the foregoing representation.

ASHEVILLE SAVINGS BANK
By:
	Authorized Signatory
Name:
Title:
Date:

FIDELITY MANAGEMENT TRUST COMPANY
By:
	FMTC Authorized Signatory
Name:
Date:

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SCHEDULES

Schedule “A” Recordkeeping and Administrative Services

Administration

* Establishment and maintenance of Participant account and election percentages.

* Maintenance of the Plan investment options set forth on Schedule “C”.

* Maintenance of the money classifications set forth in the Plan Administration Manual.

* The Trustee will provide the recordkeeping and administrative services set forth on this Schedule “A” or as otherwise agreed to in writing (or by means of a secure electronic medium) between Sponsor and Trustee. The Trustee may unilaterally add or enhance services, provided there is no impact on the fees set forth in Schedule “B.”

A) Participant Services

1) Participant service representatives are available each Business Day at the times set forth in the Plan Administration Manual via toll free telephone service for Participant inquiries and transactions.

2) Through the automated voice response system and on-line account access via the world wide web, Participants have virtually 24 hour account inquiry. Through on-line account access via the world wide web, Participants also have virtually 24 hour transaction capabilities.

3) For security purposes, all calls are recorded. In addition, several levels of security are available including the verification of a PIN or such other personal identifier as may be agreed to from time to time by the Sponsor and the Trustee.

4) The following services are available via the telephone or such other electronic means as may be agreed upon from time to time by the Sponsor and the Trustee:

• Process Participant enrollments, in accordance with the procedures set forth in the Plan Administration Manual.

• Provide Plan investment option information.

• Provide and maintain information and explanations about Plan provisions.

• Respond to requests for literature.

• Maintain and process changes to Participants’ contribution allocations for all money sources, if applicable.

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• Provide investment information and plan information.

B) Plan Accounting

1) Process consolidated payroll contributions according to the Sponsor’s payroll frequency via Plan Sponsor Webstation or other medium permitted by the Trustee. The data format will be provided by the Trustee.

2) Maintain and update employee data necessary to support Plan administration. The data will be submitted according to payroll frequency.

3) Provide daily Plan and Participant level accounting for all Plan investment options.

4) Provide daily Plan and Participant level accounting for all money classifications for the Plan.

5) Audit and reconcile the Plan and Participant accounts daily.

6) Maintain and process changes to Participants’ existing hypothetical investment mix elections.

C) Participant Reporting

1) Provide confirmation to Participants of all Participant initiated transactions either online or via the mail. Online confirms are generated upon submission of a transaction and mail confirms are available by mail generally within five (5) calendar days of the transaction.

2) Provide Participant statements in accordance with the procedures set forth in the Plan Administration Manual.

D) Plan Reporting

1) Prepare, reconcile and deliver a monthly Trial Balance Report presenting all money classes and investments. This report is based on the market value as of the last business day of the month. The report will be delivered not later than twenty (20) calendar days after the end of each month in the absence of unusual circumstances.

E) Government Reporting

1) Provide necessary account information to the Sponsor for issuance of Participant checks and tax reporting.

2) Provide Mutual Fund tax reporting (Forms 1099 DIV. and 1099-B) to the Sponsor.

F) Other

1) Plan Sponsor Webstation: The Fidelity Participant Recordkeeping System is available on-line to the Sponsor via the Plan Sponsor Webstation. PSW is a graphical, Windows-based application that provides current Plan and Participant-level information, including indicative data, account balances, activity and history. The Sponsor agrees that PSW access will not be granted to third parties without the prior consent of the Trustee.

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2) Change of Address by Telephone: The Trustee shall allow Participants as directed by the Sponsor and documented in the Plan Administration Manual, to make address changes via Fidelity’s toll-free telephone service.

ASHEVILLE SAVINGS BANK		FIDELITY MANAGEMENT TRUST
		COMPANY
By:		By:
	Authorized Signatory                 Date		FMTC Authorized Signatory                 Date

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Schedule “B” Fee Schedule

Annual Recordkeeping Fee: $10,000.00 per year billed and payable on a quarterly basis.

* This fee will be imposed for each calendar quarter, or any part thereof, that it remains necessary to maintain a Participant’s account(s) as part of the Plan’s records, e.g., vested, deferred, forfeiture, and terminated Participants who must remain on file through calendar year-end for reporting purposes.

Non-Fidelity Mutual Funds: Payments made directly to Fidelity Investments Institutional Operations Company, Inc. (FIIOC) or its affiliates by Non-Fidelity Mutual Fund vendors shall be posted and updated quarterly on Plan Sponsor Webstation at https://psw.fidelity.com or a successor site.

Other Fees:

• Other Fees: separate charges may apply for extraordinary expenses resulting from large numbers of simultaneous manual transactions, from errors not caused by Fidelity, reports not contemplated in this Agreement, corporate actions, audit support in excess of the standard and customary hours allotted for the annual financial statement audit, or the provision of communications materials in hard copy which are also accessible to participants via electronic services in the event that the provision of such material in hard copy would result in an additional expense deemed to be material. The Administrator may withdraw reasonable administrative fees from the Trust by written direction to Fidelity.

Note: These fees are based on the Plan characteristics, asset configuration, net cash flow, fund selection and number of Participants existing as of the date of this agreement. In the event that one or more of these factors changes significantly, fees may be subject to change after discussion and mutual agreement of the parties. Significant changes in the legal and regulatory environment would also prompt discussion and potential fee changes.

ASHEVILLE SAVINGS BANK		FIDELITY MANAGEMENT TRUST COMPANY
By:		By:
	Authorized Signatory                     Date		FMTC Authorized Signatory                     Date

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Schedule “C” Investment Options

In accordance with Section 5(b), the Sponsor hereby directs the Trustee that Participants’ individual hypothetical accounts may be invested in the following investment options:

• Fidelity Capital & Income Fund

• Fidelity Government Income Fund

• Fidelity Real Estate Investment Portfolio

• Fidelity Low-Priced Stock Fund

• Fidelity Select Natural Resources Portfolio

• Fidelity Retirement Money Market Portfolio

• Harbor Bond Fund - Institutional Class

• Harbor International Fund - Institutional Class

• Vanguard 500 Index Fund - Investor Class

• Loomis Sayles Bond Fund - Retail Class

• KEELEY Small Cap Value Fund, Inc.

• T. Rowe Price Growth Stock Fund

• Dodge & Cox Stock Fund

The Sponsor hereby directs that the investment option referred to in Section 5(c) shall be the Fidelity Retirement Money Market Portfolio.

ASHEVILLE SAVINGS BANK
By:
	Authorized Signatory                     Date

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Schedule “D” Operational Guidelines for Non-Fidelity Mutual Funds

Pricing

By 7:00 p.m. Eastern Time (“ET”) each Business Day, the Non-Fidelity Mutual Fund Vendor (“Fund Vendor”) will input the following information (“Price Information”) into the Fidelity Participant Recordkeeping System (“FPRS”) via the remote access price screen that FIIOC, an affiliate of the Trustee, has provided to the Fund Vendor: (1) the NAV for each Fund at the Close of Trading, (2) the change in each Fund’s NAV from the Close of Trading on the prior Business Day, and (3) in the case of an income fund or funds, the daily accrual for interest rate factor (“mil rate”). FIIOC must receive Price Information each Business Day. If on any Business Day the Fund Vendor does not provide such Price Information to FIIOC, FIIOC shall pend all associated transaction activity in the FPRS until the relevant Price Information is made available by Fund Vendor.

Trade Activity and Wire Transfers

By 7:00 a.m. ET each Business Day following Trade Date (“Trade Date Plus One”), FIIOC will provide, via facsimile, to the Fund Vendor a consolidated report of net purchase or net redemption activity that occurred in each of the Funds up to 4:00 p.m. ET on the prior Business Day. The report will reflect the dollar amount of assets and shares to be invested or withdrawn for each Fund. FIIOC will transmit this report to the Fund Vendor each Business Day, regardless of processing activity. In the event that data contained in the 7:00 a.m. ET facsimile transmission represents estimated trade activity, FIIOC shall provide a final facsimile to the Fund Vendor by no later than 9:00 a.m. ET. Any resulting adjustments shall be processed by the Fund Vendor at the net asset value for the prior Business Day.

The Fund Vendor shall send via regular mail to FIIOC transaction confirms for all daily activity in each of the Funds. The Fund Vendor shall also send via regular mail to FIIOC, but no later than the fifth Business Day following calendar month close, a monthly statement for each Fund. FIIOC agrees to notify the Fund Vendor of any balance discrepancies within twenty (20) Business Days of receipt of the monthly statement.

For purposes of wire transfers, FIIOC shall transmit a daily wire for aggregate purchase activity and the Fund Vendor shall transmit a daily wire for aggregate redemption activity, in each case including all activity across all Funds occurring on the same day.

Prospectus Delivery

FIIOC shall be responsible for the timely delivery of Fund prospectuses and periodic Fund reports (“Required Materials”) to Participants, and shall retain the services of a third-party vendor to handle such mailings. The Fund Vendor shall be responsible for all materials and production costs, and hereby agrees to provide the Required Materials to the third-party vendor selected by FIIOC. The Fund Vendor shall bear the costs of mailing annual Fund reports to Participants. FIIOC shall bear the costs of mailing prospectuses to Participants.

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Proxies

The Fund Vendor shall be responsible for all costs associated with the production of proxy materials. FIIOC shall retain the services of a third-party vendor to handle proxy solicitation mailings and vote tabulation. Expenses associated with such services shall be billed directly the Fund Vendor by the third-party vendor.

Participant Communications

The Fund Vendor shall provide internally prepared fund descriptive information approved by the Funds’ legal counsel for use by FIIOC in its written Participant communication materials. FIIOC shall utilize historical performance data obtained from third-party vendors (currently Morningstar, Inc., FACTSET Research Systems and Lipper Analytical Services) in telephone conversations with Participants and in quarterly Participant statements. The Sponsor hereby consents to FIIOC’s use of such materials and acknowledges that FIIOC is not responsible for the accuracy of third-party information. FIIOC shall seek the approval of the Fund Vendor prior to retaining any other third-party vendor to render such data or materials under this Agreement.

Compensation

FIIOC shall be entitled to payments as set forth in a separate agreement with the Fund Vendor.

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SAMPLE DIRECTION LETTER

[Employer’s Letterhead]

FESCO Business Compliance, Attn: Contracts.

Fidelity Investments

82 Devonshire Street, MM1M

Boston, MA 02109

Re: Investment Instructions for Rabbi Trust Assets

Dear [Insert Names]:

The Participants under the Asheville Savings Bank Directors and Officers Deferral Plan (“Plan”) have the right to direct the investment of their Plan account in hypothetical investment options, which are currently based on Mutual Funds. Fidelity Management Trust Company has agreed pursuant to a Trust Agreement with Asheville Savings Bank dated August 3, 2009, to receive such Participant directions.

The Sponsor hereby directs the Trustee to invest funds contributed to the rabbi trust in a manner which corresponds directly to elections made by Participants under the Plan. The Sponsor hereby directs the Trustee to vote the shares of Fidelity and Non-Fidelity Mutual Funds and vote and/or tender shares of Sponsor Stock as directed by the Sponsor.

These procedures will remain in effect until a revised instruction letter is provided by the Sponsor and accepted by the Trustee.

Sincerely,

Authorized Signatory

(w/enc.)

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EX-10.8

Exhibit 10.8

Asheville Savings Bank, SSB

Amended and Restated

Management Incentive Plan

1. Purpose

The purpose of The Asheville Savings Bank Management Incentive Plan (the “Plan”) is to provide selected key employees of Asheville Savings Bank, SSB (the “Bank”) with the opportunity to receive payments of amounts from a pool related to the rate of return on assets of the Bank and distributed based on the achievements of individual objectives (the “Objectives”). The Plan provides an incentive to employees to enhance the profitability of the Bank, within the constraints of safe, sound banking practices. The implementation of an incentive plan is designed to enhance the potential compensation of the Bank’s employees assisting in the attraction, motivation and retention of qualified employees.

2. Effective Date and Plan Year.

The Effective Date of the Plan shall be January 1, 1998, as amended and restated as of January 1, 2006. The Plan Year shall be the calendar year.

3. Eligibility.

An individual shall be eligible to become a Participant in the Plan who satisfies the following requirements:

a. The individual is a regular employee of the Bank as of July 1 of any year. For this purpose, an individual shall be considered to be a “regular employee” if there exists between the individual and the Bank the legal and bona fide relationship of employer and employee.

b. The individual is a key employee of the Bank. For this purpose a “key employee” shall mean an employee recommended by the Chief Executive Officer (CEO) to the Board of Directors of the Bank (the “Board”) as being in a position to affect materially the profits of the Bank by reason of the nature and extent of the employee’s duties and responsibilities. Initially, this meaning shall be limited to those in the management chain of command, up to the CEO.

c. The individual is approved by the Board as a Participant in the Plan.

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4. Participation.

4.1 Prior to the beginning of each Plan Year, the Chief Executive Officer shall approve a list of eligible employees to become Participants in the Plan (a “Participant”) with respect to such Plan Year. Participants shall be approved by the Board at its discretion. In the event of the promotion of an employee or the hiring of a new employee on or before July 1 of the Plan Year, the Chief Executive Officer may approve the entry of a Participant into the Plan. In such case, the Incentive Award determined under Section 5 with respect to such Participant shall be multiplied by a fraction, the numerator of which is the number of full calendar months during the Plan Year in which he/she is a Participant and the denominator of which is twelve. Participation in the Plan requires the Participant to be subject to the provisions of the Plan and such other terms and conditions as the Board shall provide.

4.2 This plan section applies only to participants who are also participants in the Directors and Officers Deferral Plan. Prior to any deferral of all or a portion of an Incentive Award hereunder, a participant must first maximize their participation in the qualified 401(k) Plan provided by the Bank. In the event that a Participant desires to defer all or a portion of any Incentive Award otherwise payable hereunder, then the Participant must complete and file an election form (the “Election Form”) with the Bank; (a) if it is the first year of eligibility of a Participant, within thirty (30) days of becoming eligible to participate in the Plan; or (b) no later than June 30^th of each year, in each case notifying the Bank as to the percent or dollar amount of the Incentive Award that are to be deferred each year and the Participant’s designated beneficiary in the event of a Termination Event (as defined in Section 6 below). A copy of the Election Form is attached hereto as Exhibit A. The election to defer all or a portion of an Incentive Award may only be made for an Incentive Award not yet earned as of the date of said election. Participant’s may defer all (100%) or a portion of their receipt of an Incentive Award in increments of five percent (5%), with a minimum deferral of five percent (5%). Signed Election Forms, unless modified or revoked in writing, shall be valid for all succeeding years. Any modification or revocation of an Election Form must be in writing, made at least one year prior to receiving an Incentive Award hereunder and shall be effective for calendar years succeeding the year in which the modification or revocation is made; provided, however that where a delay in payment is made in a modification, the Participant must defer payment for at least five (5) years from the original payment date. Notwithstanding the foregoing, Participants shall be allowed to change their investments of any deferred amounts at least quarterly.

5. Incentive Award.

5.1 Subject to Section 5.2, each Participant for a Plan Year shall receive an Incentive Award determined by multiplying the individual’s objectives achieved by a weighting factor (positive or negative). The sum of the weights derived is then multiplied by a Potential Award, adjusted for the Bank’s achievement of its objective for Return of Average Assets. For purposes of this section 5, the following definitions shall apply.

a. “ROAA” means a percentage determined by dividing the net income of the Bank for the Plan Year before accruals of Incentive Awards under this Plan by the average month-end total assets of the Bank during the Plan Year. The ROAA for

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a Plan Year shall be determined by the independent certified public accountants of the Bank in accordance with generally accepted accounting principles.

b. “Actual ROAA” means the ROAA actually achieved by the Bank for the Plan Year.

c. “Maximum ROAA” means the ROAA determined for each Plan Year by the Board above which no additional Incentive Award shall be paid. The Maximum ROAA with respect to a Plan Year shall be determined by the Board prior to the first day of such Plan Year.

d. “Minimum ROAA” means the ROAA determined for each Plan Year by the Board below which no Incentive Award shall be paid. The Minimum ROAA with respect to a Plan Year shall be determined by the Board prior to the first day of such Plan Year.

e. “Potential Award” means with respect to each Participant for the Plan Year a dollar amount determined by multiplying the mid-point level for his salary grade as of the first day of the Plan Year by a percentage designated by the Board prior to the first day of the Plan Year. The Potential Award represents the Incentive Award payable to the Participant in the event the Maximum ROAA and all of the Participant’s Personal Objectives are fully achieved for the Plan Year.

5.2 Notwithstanding any other provision of this Plan, the Chief Executive Officer shall recommend the payment of the Incentive Award as determined under Section 5.1 and the Board shall approve such awards. The Board in its discretion may adjust the amount of the payment as it deems necessary to meet the purpose of this Plan. Where interpretations of achievement or performance on the Incentive Award calculation factors is inconsistent, the judgment of the Board will prevail.

5.3 To receive an Incentive Award from the Plan, the Participant must be an active employee of the Bank on the last day of the Plan Year.

6. Termination of Employment during Plan Year.

The Participant shall not receive an Incentive Award with respect to a Plan Year if, for reasons other than a Termination Event as defined in this Section 6, the employment of the Participant by the Bank is terminated during the Plan Year or the duties of the position of the Participant are changed during the Plan Year so that he no longer is considered a “key employee” as described in Section 3. The following shall each constitute a “Termination Event”:

a. Death of the Participant while employed by the Bank.

b. Retirement of the Participant from the Bank with the approval of the Board.

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c. Disability of the Participant while employed by the Bank. For this purpose, the term “disability” shall mean the Participant, as a result of physical or mental illness or disease, injury (excluding self-inflicted injury) or chemical addiction is: (1) unable to engage in any substantial gainful activity by reason of any medically determined physical or mental impairment which can be expected to last for a continuous period of twelve (12) months or has a condition which can be expected to result in death; or (2) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Bank. The determination of disability shall be made by the Board based on medical evidence from an independent physician selected by the Participant with the approval of the Board.

In the event of a Termination Event, the Participant or his Beneficiary shall receive an Incentive Award with respect to such Plan Year equal to the amount determined under Section 5 multiplied by a fraction, the numerator of which is the number of full calendar months during the Plan Year in which he was a Participant prior to the Termination Event and the denominator of which is twelve; the payment of which shall be accordance with Participant’s Election Form, if completed.

7. Change of Job during Plan Year.

In the event that a Participant changes jobs within the Bank during the Plan Year, the Participant’s potential award will be calculated on a prorated basis. The Participant’s job tenure will be the basis for proration. Proration will be calculated by rounding tenure to the nearest full month.

8. Payment of Incentive Awards.

Unless Participant has timely completed an Election Form electing to defer all or a portion of an Incentive Award hereunder, the Incentive Award for a Plan Year shall be paid by the Bank in cash to the Participant or his Beneficiary no later than two and one-half months after the end of the Plan Year.

9. Withholding.

There shall be deducted from the payment of the Incentive Award the amount of any tax or other amount required by any governmental authority to be withheld and paid over by the Bank to such authority for the account of the person entitled to such payment.

10. Nonassignability of Incentive Awards.

The right to receive payment of the Incentive Award shall not be assignable or transferable (including by pledge or hypothecation) other than by will or the laws of intestate succession.

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11. Deferred Incentive Award Accounts; Investment.

11.1 (a) If a Participant timely completes an Election Form and elects to defer the receipt of all or a portion of an Incentive Award hereunder, the Bank shall establish and maintain a Deferred Incentive Award Account for the Participant. Participant’s Deferred Incentive Award Account shall be credited with the amount of the Participant’s Incentive Award if earned and when paid by the Bank that Participant has elected to defer under the Election Form. At all times, the Participant shall be one hundred percent (100%) vested (except as provided in Section 11.3) in the Participant’s Deferred Incentive Award Account. Payment of the Participant’s Deferred Incentive Award Account shall commence on the first day of the calendar month following the end of Participant’s employment with the Bank due to resignation, retirement, financial hardship (as provided in Section 11.2 below), death or disability as set forth in Participant’s Election Form. Each Deferred Incentive Award Account shall be maintained until the value thereof has been distributed to or on behalf of such Participant. The value of such Deferred Incentive Award Account shall be calculated at least annually.

(b) The Bank will maintain a record of any Incentive Award amounts deferred by a Participant under this Plan on or prior to December 31, 2004 and such amounts shall be treated as a separate Account if necessary, in order to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended or the regulations promulgated thereunder (the “Code”). Notwithstanding anything to the contrary, the assets of any Deferred Incentive Award Account shall remain in the United States at all time.

11.2 The Bank shall permit a financial hardship distribution from a Deferred Incentive Award Account upon the occurrence of an unforeseeable emergency involving a Participant or his or her family. The Participant may submit a written application for an in-service hardship distribution to the Board. The application must specify the nature of the financial hardship, the total amount of the actual expense incurred or to be incurred due to the financial hardship. If, in the discretion of the Board, the Participant has suffered an unforeseeable emergency that results in severe financial hardship to the Participant or his or her family, the Board shall cause the Plan to pay an in-service distribution to the Participant from the Participant’s Deferred Incentive Award Account. A distribution because of an unforeseeable emergency shall not exceed the amount required to meet the immediate financial need created by the unforeseeable emergency and not otherwise reasonably available from other resources of the Participant. Such distribution shall be paid in a single- sum cash payment as soon as administratively feasible, after the Board has reached its determination. Examples of an unforeseeable emergency shall include, but not be limited to, those financial needs arising on account of illness or accident of Participant, his or her spouse or a dependent of Participant, loss of Participant’s property due to casualty, or similar extraordinary unforeseeable circumstances arising as a result of events beyond the control of Participant.

11.3 Notwithstanding anything to the contrary in this Plan, the right of a Participant or a beneficiary to receive future payments hereunder, including distributions from a Deferred Incentive Award Account, shall be forfeited if the Participant is discharged for cause from employment from the Bank. For purposes of this Section 11.3, “cause” shall mean embezzlement

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of funds, conviction of a crime involving moral turpitude or continuous or willful failure to abide by the Bank’s policies, all as may be determined by the Board.

11.4 The Participant shall indicate on his or her Election Form as to the percent (%) of any deferred Incentive Award that is to be allocated among the investment choices provided by the Bank. The performance of the deemed investments will be used to determine the earnings and the losses to credit to the Participant’s Deferred Incentive Award Account. The Participant will be allowed to change the investment allocation of their Deferred Incentive Award Account quarterly.

12. No Right or Obligation of Continued Employment.

Nothing contained in the Plan shall require the Bank to continue to employ the Participant, nor shall the Participant be required to remain in the employment of the Bank.

13. Retirement Plans.

The treatment of any amounts accrued, payable or paid out under this Plan will be treated consistently with all Asheville Savings Bank retirement plans regarding the inclusion of such payouts in the basis for retirement funding.

14. Dilution or Other Adjustments.

14.1 Subject to Section 14.2 below, if there is any change in the Bank because of a merger, consolidation or reorganization involving the Bank, the Board shall make such adjustments to any provisions of this Plan as the Board deems desirable to prevent the dilution or enlargement of rights granted hereunder.

14.2 In the event of a change of control, meaning the occurrence of any of the following: (a) a merger, business combination or other transaction such that a person, or more than one person acting as a “Group” (as determined by Section 409A of the Code), acquires ownership of Bank stock that constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Bank; (b) any one person, or more than one person acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Bank of thirty five percent (35%) or more of the total voting power of the stock of the Bank; (c) a majority of the members of the Bank’s Board of Directors are replaced in any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Bank’s Board of Directors prior to the date of the appointment or election; or (d) a change in the ownership of a substantial portion of the Bank’s assets, as of the date that any person, or more than one person action as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Bank that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Bank immediately prior to the acquisition. For the purposes of this analysis: (i) gross fair market value means the value of the assets of the Bank, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets,

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and (ii) a transfer of assets by the Bank shall not be treated as a change in the ownership of such assets if the assets are transferred to (1) a shareholder of the Bank (immediately before the asset transfer) in exchange for or with respect to its stock; (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Bank; (iii) a person, or more than one person acting as a Group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all of the outstanding stock of the Bank; or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in (3);

Then, if a Participant’s employment with the Bank is terminated solely by reason of the occurrence of a change of control, Participant shall be entitled to receive the Participant’s Deferred Incentive Award Account balance as of the date of the change of control which shall be paid as set forth in the Election Form to the Participant or to such individuals as the Participant may have designated in writing and filed with the Bank.

15. Administration of the Plan.

15.1 The Plan shall be administered by the Chief Executive Officer with the consent and approval of the Board or its designate committee. Subject to the provisions of the Plan, the Board shall have plenary authority in its discretion, among other things, to determine the levels for Performance Factors and Award Triggers, to approve the Incentive Awards to Plan Participants, to interpret the Plan and to prescribe, amend and rescind rules and regulations relating to the Plan. The Board shall exercise its authority through Management and such Committees of the Board as may be appropriate.

15.2 In the event a dispute arises over benefits under the Plan and benefits are not paid from a Deferred Incentive Award Account to the Participant (or to the Participant’s beneficiary(ies) in the case of the Participant’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Board within sixty (60) days from the date payments are refused. The Board shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of the Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Board fails to take any action within the aforesaid sixty-day period.

If claimants desire a second review they shall notify the Board in writing within sixty (60) days of the first claim denial. Claimants may review the Plan or any documents relating thereto and submit any written issues and comments it may feel appropriate. In its sole discretion, the Board shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this Plan upon which the decision is based.

If claimants continue to dispute the benefit denial, then claimants may submit the dispute

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to an Arbitrator for final arbitration. The Arbitrator shall be selected by mutual agreement of the Bank and the claimants. The Arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such Arbitrator with respect to any controversy properly submitted to it for determination.

16. Amendment, Termination and Continuation of the Plan.

The Plan may be amended or terminated at any time by the Board, in whole or in part without any liability for any such amendment or termination. The Plan must be affirmed by the Board at the beginning of each Plan Year. In the event of a termination of the Plan, no further amounts may be deferred into a Deferred Incentive Award Account and the Bank shall retain each Deferred Incentive Award Account (with any earnings and losses thereon) until distribution of benefits commences as provided in this Plan.

17. Binding on Successors.

The obligations of the Bank under the Plan shall be binding upon any organization which shall succeed to all or substantially all of the assets of the Bank, and the term “Bank,” whenever used in the Plan, shall mean and include any such organization after the succession.

18. Applicable Law.

The Plan shall be governed by and construed in accordance with the laws of the State of North Carolina.

19. Miscellaneous.

A. Beneficiary: The term “beneficiary” as used herein shall mean any person or trust, or combination thereof, last designated by the Participant in writing filed with the Bank by the Participant during the Participant’s life upon an Election Form provided by the Plan. Any such designation or designations of beneficiary(ies) shall be revocable at any time without the consent of any beneficiary, whether now living or born hereafter, by written designations of beneficiaries made by the Participant and filed by the Participant with the Bank during the Participant’s life. In the absence of or failure of designated beneficiary(ies), the Participant’s estate shall be beneficiary.

B. Spendthrift: It is agreed that neither the Participant, nor any beneficiary hereunder, shall have any right to sell, assign, transfer, pledge or encumber the right to receive any payments hereunder, and any attempt to do so shall be void. A Participant or beneficiary interest in benefits under the Plan shall not be subject to debts or liabilities of any kind and shall not be subject to attachment, garnishment or legal process.

C. No Fiduciary Relationship: Other than as otherwise provided herein, the Bank shall be under no obligation to purchase or maintain any life insurance policy, annuity contract, or any other asset, or in any manner to provide funding for its obligations under this Plan. Nothing contained in the Plan and no action taken pursuant to the provisions of this Plan shall

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create or be construed to create a trust of any kind, or a fiduciary relationship between any of the Bank, Participant, Participant’s designated beneficiary(ies) or any other person. Any bonus deferred or funds invested in connection with the Bank shall continue to be part of the general funds and assets of the Bank. To the extent that any person acquires a right to receive payments under this Plan, such rights shall be no greater than the right of any unsecured general creditor of the Bank.

D. No Representations: The Bank does not represent or guarantee that any particular federal or state income, payroll, personal property or other tax consequence will result from participation in the Plan or any deferral of all or a portion of an Incentive Award. A Participant should consult with professional tax advisors to determine the tax consequences of his or her participation and any deferral of all or a portion of an Incentive Award. Furthermore, the Bank does not represent or guarantee successful investments of deferred amounts and shall not be required to restore any losses which may result from such investment or lack of investment.

E. Severability: If a court of competent jurisdiction holds any provision of this Plan to be invalid or unenforceable, the remaining provisions of the Plan shall continue to be fully effective.

F. Effect on Other Bank Benefit Plans: Nothing contained in this Plan shall affect the right of the Participant to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus, or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

G. Contractual Liability: The obligation of the Bank to make payments hereunder shall constitute a contractual liability of the Bank to the Participant. Such payments shall be made from the general funds of the Bank, and the Bank shall not be required to establish or maintain any special or separate fund or to establish a trust or otherwise to segregate assets to assure that such payments shall be made, and the Participant shall not have any interest in any particular assets of the Bank by reason of its obligations hereunder. To the extent that any person requires a right to receive payment from the Bank, such right shall be no greater than the right of an unsecured creditor of the Bank.

H. Third Party Advisors: The Board may engage an attorney, accountant, actuary or any other technical advisor on matters regarding the operation of the Plan and to perform such other duties as shall be required in connection therewith, and may employ such clerical and related personnel as the Board shall deem requisite or desirable in carrying out the provisions of the Plan. The Board shall from time to time, but no less frequently than annually, review the financial condition of the Plan and determine the financial and liquidity needs of the Plan. The Board shall communicate such needs to the Bank so that its policies may be appropriately coordinated to meet such needs.

I. Set Off: Notwithstanding any other provision of the Plan, the Bank may reduce the amount of any payment otherwise payable to or on behalf of a Participant hereunder by the amount of any loan, cash advance, extension of credit or other obligation of the Participant to the Bank that is then due and payable, and the Participant shall be deemed to have consented to such reduction.

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EX-10.9

Exhibit 10.9

PROPOSED

ASHEVILLE SAVINGS BANK

CHANGE IN CONTROL SEVERANCE PLAN

Section 1. Plan Name and Effective Date

1.1 The name of the Plan is the Ashville Savings Bank Change in Control Severance Plan. The effective date of the Plan shall be                 , 2011.

Section 2. Purpose

2.1 The purpose of the Plan is to provide severance pay to eligible Employees following a Change in Control and under the conditions set forth in this Plan. Severance payments under the Plan are designed to provide the Employee with funds while seeking other employment.

Section 3. Definitions

Bank shall mean the Ashville Savings Bank, a North Carolina-chartered savings bank.

Board shall mean the Board of Directors (or a Committee thereof) of the Bank.

Cause shall mean: (1) willful failure to follow or to cooperate in carrying out any of the lawful policies of Company or the Bank or the lawful directions of the Board, (2) continued and willful neglect of duties for or on behalf of the Bank, (3) willful misconduct in connection with the performance of any of the Employee’s duties, (4) conduct which results in the Employee’s suspension and/or temporary prohibition or removal and/or permanent prohibition from participation in the conduct of the affairs of the Bank pursuant to the rules and regulations of the primary federal or state banking agency having regulatory jurisdiction over the Bank, (5) conviction of a felony or any misdemeanor involving moral turpitude or willful violation of any law, rule or regulation to which the Bank is subject or of a final order or other formal administrative action entered into, by or imposed upon the Bank; (6) willful violation of any code of conduct or standards of ethics applicable to employees of the Bank that results in material and demonstrable damage to the business or reputation of the Bank, or (7) the issuance of a permanent injunction or similar remedy against the Employee preventing the Employee from executing or performing the duties of his position. The Employee shall be entitled to at least seven (7) days’ prior written notice of the Bank’s intention to terminate his or her employment for any Cause, specifying the grounds for such termination and the means, if any, to rectify such conduct, and seven (7) days to rectify or appeal in writing to the Board regarding the existence of such Cause.

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

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

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

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

Comparable Position shall mean a position that, following a Change in Control, would (i) provide the Employee with base compensation and benefits that are comparable in the aggregate to those provided to the Employee prior to the Change in Control, (ii) provide the Employee with an opportunity for variable bonus compensation that is comparable to the opportunity provided to the Employee prior to the Change in Control, (iii) be in a location that would not require the Employee to increase his or her daily one way commuting distance by more than thirty-five (35) miles as compared to the Employee’s commuting distance immediately prior to the Change in Control and (iv) have job skill requirements and duties that are comparable to the requirements and duties of the position held by the Employee prior to the Change in Control.

Employee shall mean a regular, active full-time, part-time, or Part-time Plus employee of the Bank, but excludes an employee who has a written employment agreement, severance agreement, or similar agreement with the Bank providing for severance payment(s) in the event of termination of employment.

Participant shall mean an Employee who satisfies the eligibility requirements as set forth in Section 4.1.

Pay shall mean the base or regular compensation rate as of the calendar month preceding the date of employment termination. In the case of a non-exempt Employee, “Pay” shall not include overtime compensation paid to such Employee during such month.

Payment Period shall mean, with respect to payment by the Bank of the Severance Payment pursuant to Section 5.1, the number of weeks or months of Pay a Participant is entitled to under Section 5.1. The Payment Period is not dependent on whether a benefit payment under Section 5 is made periodically or in a lump sum.

Plan shall mean this Ashville Savings Bank Employee Severance Plan as it may be amended from time to time.

Service shall mean all employment with the Bank, or any successor thereof.

Severance Payment has the meaning given to such term in Section 5.1.

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Section 4. Eligibility

4.1 An Employee shall be eligible to receive a Severance Payment as set forth in Section 5, if:

(a) as of the Employee’s termination date, the Employee has completed at least one (1) year of Service with the Bank (provided, however, that an Employee serving as a Senior Vice President or Vice President shall not be subject to the foregoing minimum service requirement),

(b) on or after the effective date of a Change in Control and continuing through the first anniversary of the Change in Control, the Employee’s employment is terminated by the Bank, other than under the circumstances described in Section 5.5; and

(c) the Employee signs a general release waiving any employment-related claims against the Bank in a form provided by the Bank.

Section 5. Severance Payment Calculation and Payment

5.1 A Participant under the Plan shall be eligible to receive a severance payment calculated as follows (the “Severance Payment”):

Participant who is a Senior Vice President – Eighteen (18) months of Pay.

Participant who is a Vice President – Twelve (12) months of Pay.

Participant who is an Assistant Vice President – Nine (9) months of Pay.

All other Non-Officer Participants. – the greater of: (a) two (2) weeks of Pay for each completed year of Service, calculated based on the Employee’s hire date, but not to exceed fifty two (52) weeks of Pay, or (b) four weeks of Pay.

Notwithstanding anything herein to the contrary, the Severance Payment shall not exceed two (2) times the lesser of:

(a) the Participant’s annual compensation (as defined in Internal Revenue Code of 1986, as amended (the “Code”) Regulation Section 1.415-2(d)(2)) for the calendar year preceding the calendar year in which the employment terminates; and

(b) the maximum amount of compensation under Section 401(a)(17) of the Code for the calendar year in which occurs the date of employment termination.

5.2 The Bank reserves the right to offset the payments described in Section 5.1 above against any monies the Participant owes the Bank.

5.3 Payments under the Plan shall be made during the Payment Period in accordance with the regular payroll schedule of the Bank, subject to any necessary or required benefit or tax withholding.

5.4 If a Participant dies before receiving a payment due under the Plan, such payment shall continue to be paid to the beneficiary designated by the Participant at the time of termination of employment. If no beneficiary has been designated, then such payments shall be made to the Participant’s estate.

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5.5 Notwithstanding anything in this Plan to the contrary, in the event of an Employee’s involuntary termination for Cause, the voluntary termination by the Employee of his or her employment for any reason, other than upon the Bank’s failure to provide the Employee with a Comparable Position, or the Employee’s termination of employment after the Plan terminates, the Employee will not be entitled to any compensation under this Section 5, other than regular compensation and benefits to which the Employee is entitled through the date of termination.

Section 6. Administration

6.1 The Plan is sponsored and shall be administered by the Bank.

6.2 The Bank may at any time delegate to a person or body, or reserve therefore, any of the fiduciary responsibilities or administrative duties with respect to the Plan. The Bank, or any such delegate, shall have the complete discretion and authority to interpret the Plan, including matters regarding eligibility and benefit entitlement.

6.3 Subject to the limitation of the provisions of the Plan, the Bank may establish such rules for the administration of the Plan as the Bank may deem desirable.

6.4 The expenses of administering the Plan, including the benefits, shall be paid by the Bank out of its general assets.

6.5 The Plan and all of its records shall be kept on a calendar year basis, beginning January 1 and ending December 31 of each calendar year.

6.6 Except as required by applicable law, benefits provided under the Plan shall not be subject to assignment or alienation, since they are primarily for the support and maintenance of the Participants. Likewise, such benefits shall not be subject to attachment by creditors of or through legal process against the Bank or any Participant.

6.7 The Bank reserves the right to change, amend or terminate the Plan by a resolution adopted by a majority of the Board. The Plan shall be reviewed annually by the Compensation Committee of the Board. Participants will be notified of any changes, and all changes will be subject to the Plan’s provisions and applicable laws. Notwithstanding the foregoing, the Plan is not subject to amendment or termination on or after the effective date of a Change in Control.

6.8 Nothing herein shall be construed as giving to any Employee of the Bank any right to remain in the employ of the Bank, alter an Employee’s status as an at-will employee, or provide or be construed as providing any right to claim any other benefit or allowance after termination of employment with the Bank except as expressly provided for herein.

Section 7. Miscellaneous

7.1 An Employee who believes they are entitled to benefits under the Plan, must submit a written claim to the Bank within sixty (60) days of the date of the alleged occurrence giving rise to the claim. If the Bank or any delegate believes that the claim should be denied, the Employee shall be notified in writing of the denial of the claim within ninety (90) days after the Bank’s receipt of the claim. Such notice shall (a) set forth the specific reason or reasons for the denial, making reference to the pertinent provisions of the Plan on which the denial is based; (b) describe any additional material or information that should be received before the claim may be acted upon favorably and explain the reason why such material or information, if any, is needed; (c) inform the Employee of his or her right pursuant to this section to request review of the decision by the Bank; and (d) explain the Plan’s claims review procedure and the time limits applicable to such procedures. An Employee who believes that he or she has

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submitted all available and relevant information may appeal the denial of a claim to the Bank by submitting a written request for review within sixty (60) days after the date on which such denial is received. Such period may be extended by the Bank for good cause shown. During this period, the Employee making the request for review may examine the Plan documents, records and other information relevant to the Employee’s claim for benefits. The Bank shall decide whether or not to grant the claim within sixty (60) days after receipt of the request for review, but this period may be extended by the Bank for up to an additional sixty (60) days in special circumstances. The Bank’s decision shall be in writing, shall include specific reasons for the decision, shall refer to pertinent provisions of the Plan on which the decision is based, and shall be conclusive and binding on all persons.

7.2. The Plan and the rights of the parties hereunder shall be governed by and interpreted in accordance with federal law, and, to the extent applicable, the laws of North Carolina. The invalidity or unenforceability of any provision or any part of any provision, hereof shall in no way effect the validity or enforceability of any other provision or part hereof.

Section 8. Regulatory Requirements

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

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

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

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

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

(6) Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made under any other provision herein in contravention of the requirements of Section 2[18(k)] of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)).

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EX-10.10

Exhibit 10.10

ASHEVILLE SAVINGS BANK

LONG TERM INCENTIVE PLAN

THIS IS THE LONG TERM INCENTIVE PLAN (“Plan”) of ASHEVILLE SAVINGS BANK, (the “Bank”) a North Carolina Savings Bank with its principal office located at 11 Church Street, Asheville, North Carolina, adopted by the Board of Directors of the Bank, under which a long term incentive opportunity may be granted from time to time to Eligible Employees and/or Eligible Directors of the Bank, and of any corporation or other entity of which the Bank owns, directly or indirectly, not less than (50%) of any class of equity securities (a “Subsidiary”), subject to the following provisions:

ARTICLE 1

DEFINITIONS

The following terms shall have the meanings set forth below. Additional terms defined in this Agreement shall have the meanings ascribed to them when first used herein.

Bank Equity. Bank Equity consists of retained earnings from operations including preferred or common stock, any surplus, and any undivided profits.

Board. The Board of Directors of Asheville Savings Bank.

Change in Control Transaction. The dissolution or liquidation of the Bank, or a reorganization, merger or consolidation of the Bank with, or a sale of all or substantially all of the assets of the Bank, to another Bank, other entity or person.

Code. The Internal Revenue Code of 1986, as amended.

Committee. The Budget Committee of the Board (or such comparable Committee as the Board may appoint from time to time).

Death. The date of death of an Eligible Employee or an Eligible Director who has received any Equity Rights.

Disability. The date on which an Eligible Employee or an Eligible Director who has received any Equity Rights becomes permanently and totally disabled within the meaning of Section 22 (e) (3) of the Code, which shall be determined by the Committee on the basis of such medical or other evidence as it may reasonably require or deem appropriate.

Distribution Amount. The amount of each Equity Increase distributed in accordance with the Equity Rights Agreement to an Eligible Employee or Eligible Director.

Effective Date. The effective date of the Plan is January 1, 2003.

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Eligible Directors. Those individuals who are duly elected, non-employee directors of the Bank or a Subsidiary who are recommended by the Committee and whose selection is approved by the Board.

Eligible Employees. Those individuals who meet the following eligibility requirements:

(i) Such individual is a full time employee of the Bank or a Subsidiary and there exists between the Bank or a Subsidiary and the individual the legal and bona fide relationship of employer and employee. In determining whether such relationship exists, the regulations of the United States Treasury Department relating to the determination of such relationship for the purpose of collection of income tax at the source on wages shall be applied.

(ii) Such individual has been recommended by the Committee to the Board as being in a position to materially contribute to the financial success of the Bank and the Board has approved the recommendation. The list of such selected individuals may be amended, expanded, restricted or otherwise modified by the Committee, subject to ratification of such action by the Board and subject to prior vesting of an individual’s Equity Rights.

Ending Bank Equity. Ending Bank Equity is the Bank Equity as of December 31 of the third year following the determination of the Initial Bank Equity.

Equity Increase. Equity Increase is the excess, if any, of the Ending Bank Equity over the Initial Bank Equity.

Equity Right. The opportunity to share in future Equity Increases.

Equity Rights Agreement. The agreement, as it may be amended from time to time, that must be executed by an Eligible Employee or an Eligible Director to effectuate the grant of an Equity Right.

Grant Date. Grant Date is the date the Equity Rights Agreement is executed by the Bank and an Eligible Employee or Eligible Director, as applicable.

Initial Bank Equity. Initial Bank Equity is the Bank Equity as of the first day of the January nearest to the date the Board votes to grant Equity Rights to Eligible Employees and Eligible Directors.

Just Cause Termination. For purposes of this Plan, a just cause termination means: (i) the willful failure by an Eligible Employee or an Eligible Director to substantially perform his duties and continuance of such failure for more than 20 days after the Bank notifies the Eligible Employee or Eligible Director in writing that he is failing substantially to perform his duties, (ii) an Eligible Employee’s or an Eligible Director’s engaging in serious misconduct (including, without limitation, any criminal, fraudulent or dishonest conduct) that is injurious to the Bank or any of its Subsidiaries (iii) an Eligible Employee’s or an Eligible Director’s conviction of, or entering a plea of nolo contendere to, any crime that constitutes a felony or involves moral turpitude, or (iv) the breach by an Eligible Employee or an Eligible Director of any written covenant or agreement with the Bank not to disclose any information pertaining to the Bank or not to compete or interfere with the Bank.

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Retirement. “Retirement” shall mean termination of employment after attaining early retirement age (55) or normal retirement age (65) (except in the case of a Just Cause Termination). Provided, however, that with regard to an Eligible Director, Retirement shall be mandatory upon attaining age 70.

Tax Withholding Liability. All federal and state income taxes, Social Security tax, Medicare tax and any other taxes applicable to compensation income arising from any transaction required by applicable law to be withheld by the Bank.

Vesting Period. The Vesting Period is the time period between the Grant Date and the Ending Bank Equity date.

ARTICLE 2

GENERAL

Section 2.1. Purpose. The purposes of this Plan are (i) to assist the Bank, and any of its Subsidiaries, in attracting and retaining capable directors and employees, (ii) to provide a long range incentive for directors and selected employees to remain in the management and service of the Bank or any Subsidiary, and (iii) to encourage the directors and selected employees to perform at levels of effectiveness that result in an increase in the Bank’s or any Subsidiary’s financial success, by rewarding the directors and selected employees with the potential to share in Equity Increases, if any, subject to the terms of this Plan.

Section 2.2. Administration.

(a) The Plan will be administered by the Committee. In the absence at any time of a duly appointed Committee, the Plan will be administered by the Board. The Committee may designate any officers or employees of the Bank or any Subsidiary to assist in the administration of the Plan, to execute documents on behalf of the Committee, and to perform such other ministerial duties as may be delegated to them by the Committee.

(b) Subject to the provisions of the Plan, the interpretation and construction of any provision of the Plan by the Committee will be final and conclusive upon all persons eligible to participate in the Plan. By way of illustration and not of limitation, the Committee shall have the discretion:

(i) to construe and interpret the Plan and to determine the terms and provisions (and amendments thereof) of the Equity Rights Agreements;

(ii) to define the terms used in the Plan and in the Equity Rights Agreements;

(iii) to prescribe, amend and rescind the rules and regulations relating to the Plan;

(iv) to recommend to the Board the employees and directors to be granted Equity Rights, the Grant Date, and the percentage of Equity Increases that may be available for.granting, all of which are subject to approval by the Board;

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(v) to determine any leaves of absence which may be granted to Eligible Employees without constituting a termination of their employment for the purposes of the Plan; and

(vi) to make all other determinations and interpretations necessary or advisable for the administration of the Plan.

(c) In determining the Eligible Employees and Eligible Directors to whom Equity Rights may be granted and the percentage of the Equity Increases, if any, to be granted under each Equity Rights Agreement, the Committee will take into account the nature of the services rendered by such Eligible Employees and Eligible Directors, their present and potential contributions to the financial success of the Bank and/or a Subsidiary and such other factors as the Committee deems relevant. An Eligible Employee or Eligible Director who has been granted Equity Rights under this Plan may be granted additional Equity Rights under this Plan if the Committee so determines.

(d) The granting of Equity Rights pursuant to this Plan is in the exclusive discretion of the Board, and until the Board acts, and the Equity Rights Agreement is fully executed, no individual shall receive any Equity Rights under this Plan. The terms of this Plan shall be interpreted in accordance with this intent.

Section 2.3. Determination of Equity Increase. The amount of any Equity Increase is determined by measuring the excess of the Ending Bank Equity for the year in question over the Initial Bank Equity for the year in question. The Distribution Amount will be distributed as soon as practicable after each Vesting Period has expired. If the Initial Bank Equity exceeds the Ending Bank Equity, no Eligible Director and no Eligible Employee will receive any distributions under their individual Equity Rights Agreements and the Equity Rights pertaining to that Vesting Period will expire and be null and void. Attached as Schedule A to this Plan is an example of the operation of the Plan.

ARTICLE 3

GRANT OF EQUITY RIGHT

Section 3.1. Grant of Equity Rights.

(a) On an annual basis, the Board will determine whether or not any Equity Rights will be awarded under this Plan. If the Board determines to provide the incentive of additional Equity Rights, it will determine and record the Initial Bank Equity for the year in question.

(b) If the Board decides to award Equity Rights, the Committee will make recommendations to the Board as to the percentage of the Equity Increases that may be available for granting to Eligible Employees and/or Eligible Directors, subject to approval by the Board, whose action shall be conclusive and binding.

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(c) The grant of an Equity Right pursuant to this Plan will not affect in any way the right or power of the Bank to make adjustments, reclassification, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.

Section 3.2. Terms and Conditions of Equity Rights.

(a) The term of this Plan is ten (10) years and no grants of Equity Rights may be awarded after expiration of the Plan.

(b) The Committee may recommend, and the Board may approve, more than one grant of an Equity Right to an Eligible Employee or an Eligible Director.

(c) Each grant of an Equity Right shall be evidenced by an Equity Rights Agreement in form and substance satisfactory to the Committee in its discretion, consistent with the provisions of this Article III.

(d) Nothing contained in Article III, any Equity Rights Agreement or in any other agreement executed in connection with the granting of an Equity Right under this Article III will confer upon any employee or director any right with respect to the continuation of his or her status as an employee of, consultant or independent contractor to, or director of the Company or any of its Subsidiaries.

(e) A holder of an Equity Right shall have no rights as a member of the Bank, or as a shareholder of the Bank or its successor in interest with respect to any shares of stock should the Bank convert to stock organization or complete any Change of Control. An adjustment to the amount of any Equity Increase may be made for any extraordinary dividends, whether in cash, securities or other property or distributions or other rights for which the Vesting Period has not expired, subject to approval by the Board.

(f) A Vesting Period may be accelerated by the Committee in its discretion.

Section 3.3. Distribution of Equity Rights.

(a) A holder of an Equity Right must be an Eligible Employee or Eligible Director at all times from the Grant Date until the expiration of the Vesting Period. However, this requirement may be waived by the Committee in its sole and absolute discretion if the Committee determines to make a payment as provided in Section 3.6 in the event of Death or Disability of an Eligible Employee or Eligible Director.

(b) An Equity Right that does not expire will be paid out in accordance with the Equity Rights Agreement. The Tax Withholding Liability for Eligible Employees will be deducted from the Distribution Amount pursuant to the Equity Rights Agreement.

(c) Equity Increases may be adjusted, subject to Board approval, for the effects of extraordinary dividends, and any equity capital increases related to any action other than through profits of the Bank, including the issuance of common stock which occurred during the Vesting Period.

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(d) The Distribution Amount will be payable to the Eligible Employee and/or the Eligible Director either in United States dollars, in cash or by check, Bank draft or money order payable to the order of the Eligible Employee and/or the Eligible Director.

Section 3.4. Change in Control Transaction. At any time prior to the date of consummation of a Change in Control Transaction, the Committee may, subject to Board approval in its absolute discretion, determine that all or any part of the Equity Right granted under this Plan shall become immediately vested and payable in full and may thereafter be payable at any time before the date of consummation of the Change in Control Transaction (except to the extent that such acceleration of exercisability would result in an “excess parachute payment” within the meaning of Section 280G of the Code). Any Equity Rights that have not been fully paid out before the date of consummation of the Change in Control Transaction will terminate on such date, unless a provision has been made in writing in connection with such transaction for the assumption of all Equity Rights that have not expired previously, or for the substitution for Equity Rights (or similar incentive programs) of the successor employer Bank, or a parent or a subsidiary thereof, with appropriate adjustments as to the Equity Increase to be awarded such that the money equivalent of the unexpired Equity Rights is not diluted, in which event the unexpired Equity Rights will continue in the manner and under the terms so provided.

Section 3.5. Restrictions on Transfer. An Equity Right granted under Article III may not be transferred and, during the lifetime of the Eligible Employee or Eligible Director to whom it was granted, may be exercised only by such Eligible Employee or Eligible Director.

Section 3.6. Distribution of Equity Rights upon Death or Disability. In the event of the Death of an Eligible Employee or an Eligible Director prior to the end of the Vesting Period, the Committee will determine, in its sole and absolute discretion, whether the Distribution Amount will be paid to the decedent’s estate, heirs or beneficiaries, as applicable. Likewise, in the event of the Disability of an Eligible Employee or Eligible Director prior to the end of the Vesting Period, the Committee will determine, in its sole and absolute discretion, whether the disabled Eligible Employee or Eligible Director may receive his or her Distribution Amount.

Section 3.7. Evidence of Participation. The Equity Rights Agreement will serve as evidence of ownership of an Equity Right.

Section 3.8. Amendment and Discontinuance. The Board may amend, suspend or discontinue the provisions of this Article III at any time or from time to time, provided that no such action may alter or impair an existing unexpired Equity Right without the consent of the applicable Eligible Employee or Eligible Director.

ARTICLE 4

MISCELLANEOUS

Section 4.1. No Obligation to Accept Distribution Amount. The granting of Equity Rights shall impose no obligation upon the recipient to accept any Distribution Amount associated with any Equity Rights.

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Section 4.2. Captions and Headings; Gender and Number. Captions and paragraph headings used herein are for convenience only, do not modify or affect the meaning of any provision herein, are not a part of, and shall not serve as a basis for, interpretation or construction of this Plan. As used herein, the masculine gender shall include the feminine and neuter, and the singular number shall include the plural, and vice versa, whenever such meanings are appropriate.

Section 4.3. Governing Law. Without regard to the principles of conflicts of laws, the laws of the State of North Carolina shall govern and control the validity, interpretation, performance, and enforcement of this Plan and any Equity Rights issued pursuant to this Plan and the related Equity Rights Agreements.

Section 4.4. Severable Provisions. The Bank intends that the provisions of each of the Articles in this Plan be deemed to be effective on an independent basis, and that if one or more of such Articles, or the operative provisions thereof, are deemed invalid, void or voidable, the remainder of such Articles will continue in full force and effect.

IN WITNESS WHEREOF, this Plan is effective as the 18th day of March, 2003.

ASHEVILLE SAVINGS BANK, S.S.B.

By:

Name:

Title:

ATTEST:
By:
Name:
Title:
	[CORPORATE SEAL]

7

SCHEDULE A

EXAMPLE OF HOW PLAN OPERATES

GRANT 1: Grant Date = 02/01/03 Initial Bank Equity date = 01/01/03 Employee’s Equity Right granted = 2% Initial Bank Equity = $1000 at 01/01/03 Vesting Period ends 12/31/05 Ending Bank Equity = $1300 at 12/31/05	GRANT 2: Grant Date = 02/01/04 Initial Bank Equity date = 01/01/04 Employee’s Equity Right granted = 5% Initial Bank Equity = $1100 at 01/01/04 Vesting Period ends 12/31/06 Ending Bank Equity = $1500 at 12/31/06
GRANT 3: Grant Date = 02/01/05 Initial Bank Equity date = 01/01/05 Employee’s Equity Right granted = 4% Initial Bank Equity = $1200 at 01/01/05 Vesting Period ends 12/31/07 Ending Bank Equity = $900 at 12/31/07

Grant	Ending Bank Equity		Initial Bank Equity		Equity Increase		Value of Employee’s Equity Right (Distribution Amount)
Grant 1	$	1300	$	1000	$	300	.02 x $300 = $6
Grant 2	$	1500	$	1100	$	400	.05 x $400 = $20
Grant 3	$	900	$	1200		–$300	$0 (since equity increase is negative, Equity Right = $0)

ASHEVILLE SAVINGS BANK

EMPLOYEE EQUITY RIGHTS AGREEMENT

WHEREAS, Asheville Savings Bank (the “Bank”) has adopted the Asheville Savings Bank Long Term Incentive Plan (the “Plan”); and

WHEREAS,                 (“Employee”), an employee of the Bank, has been selected to participate and desires to participate in the Plan.

NOW, THEREFORE, the Bank and Employee agree to the terms and conditions of the Plan and this agreement (the “Agreement”) as more fully described below.

ARTICLE I

DEFINITIONS

Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in the Plan. Additional terms defined in this Agreement shall have the meanings ascribed to them when first used herein.

ARTICLE II

GRANT OF EQUITY RIGHTS

The Committee, acting under authority set forth in the Plan, and as approved by the Board, hereby grants to Employee on January 30, 2007 (which for purposes of this Agreement is the Grant Date) an Equity Right in the amount of 0.41 % of the Bank’s Equity Increase during the Vesting Period (the “Employee’s Equity Right”), subject to the terms and conditions described below and in the Plan. The Equity Rights granted herein are not valid unless this Equity Rights Agreement is executed by both a duly authorized officer of the Bank and Employee.

ARTICLE III

Terms and Conditions

Section 3.1 No Guarantee of Future Awards.

Employee acknowledges that the Employee’s Equity Rights granted hereunder are issued with an intent to provide a performance incentive to Employee. Employee specifically acknowledges that this award in no way commits the Bank to any further such awards.

Section 3.2 Value of the Employee’s Equity Rights.

Employee acknowledges that the value of the Employee’s Equity Rights granted hereunder is $0 unless an Equity Increase occurs during the Vesting Period and that payment of any Employee’s Equity Rights is subject to all of the terms and conditions incorporated in this Agreement.

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Section 3.3 Other Terms and Conditions.

(a) Employee acknowledges that nothing contained in this Agreement or in any other agreement executed in connection with the granting of Equity Rights under the Plan will confer upon any Eligible Employee any right with respect to the continuation of his or her status as an employee of the Bank or any of its Subsidiaries.

(b) Employee’s right to receive the Distribution Amount shall vest and first become payable on the last day of the Vesting Period. Such Vesting Period may be accelerated or shortened by the Committee in its discretion.

(c) This Agreement will terminate immediately with the Employee’s Equity Rights having a value of $0 if:

1) During the Vesting Period, the Bank is rated 3 or lower by the pertinent banking regulatory agencies’ CAMELS safety and soundness rating system.

2) The Bank’s Average Assets divided by Ending Bank Equity falls below 9%, as measured on the final day of any month, and remains below 9% for six (6) or more consecutive months prior to the end of the Vesting Period.

3) The Bank’s Average Asset Growth Rate, as measured by the difference between Total Assets less Borrowed Funds, exceeding 25% of Total Assets, at the date that the Initial Bank Equity is determined, minus Total Assets less Borrowed Funds, exceeding 25% of Total Assets, at the end of the Vesting Period, divided by Total Assets less Borrowed Funds, exceeding 25% of Total Assets, at the date that the Initial bank Equity is determined, times 100, is less than 9%.

Terms used in this subsection (c) and not otherwise defined in the Plan or this Agreement shall reference the identical line items on the Bank’s internally generated Balance Sheet as and for the dates indicated.

Section 3.4 Distribution of Employee’s Equity Rights.

(a) Employee must be an Eligible Employee at all times from the Grant Date until the end of the Vesting Period. However, this requirement may be waived by the Committee in its sole and absolute discretion if the Committee determines to make a payment as provided in Section 3.7 in the event of Death or Disability of Employee.

(b) The Distribution Amount will be paid to Employee as soon as praticable after the end of the Vesting Period. Employee understands that receipt of the Distribution Amount is taxable as ordinary income for federal and state tax purposes. The Tax Withholding Liability for Employee will be deducted from the Distribution Amount before pay-out to Employee.

2

(c) Subject to Board approval, Equity Increases may be adjusted for the effects of extraordinary dividends and any equity capital increases related to any action other than through profits of the Bank, including the issuance of common stock which occurred during the Vesting Period.

(d) The Distribution Amount shall be payable to Employee either in United States dollars, in cash or by check, Bank draft or money order payable to the order of the Employee.

Section 3.5 Change in Control Transaction.

At any time prior to the date of consummation of a Change in Control Transaction, the Committee may, subject to Board approval, in its absolute discretion, determine that all or any part of the Employee’s Equity Rights granted under this Agreement shall become immediately vested and payable in full and may thereafter be payable at any time before the date of consummation of the Change in Control Transaction (except to the extent that such acceleration of exercisability would result in an “excess parachute payment” within the meaning of Section 280G of the Code). Any Employee’s Equity Rights that have not been fully paid out before the date of consummation of the Change in Control Transaction will terminate on such date, unless a provision has been made in writing in connection with such transaction for the assumption of all Employee’s Equity Rights that have not expired previously, or for the substitution for Equity Rights (or similar incentive programs) of the successor employer Bank, or a parent or a subsidiary thereof, with appropriate adjustments as to the Equity Increase to be awarded such that the money equivalent of the unexpired Employee’s Equity Rights is not diluted, in which event the unexpired Employee’s Equity Rights will continue in the manner and under the terms so provided.

Section 3.6 Restrictions on Transfer.

Equity Rights evidenced by this Agreement may not be transferred and, during the lifetime of Employee, may be exercised only by Employee.

Section 3.7 Distribution of Equity Rights upon Death or Disability.

In the event of the Death of an Eligible Employee prior to the end of the Vesting Period, the Committee will determine, in its sole and absolute discretion, whether the Distribution Amount will be paid to the decedent’s estate, heirs or beneficiaries, as applicable. Likewise, in the event of the Disability of an Eligible Employee prior to the end of the Vesting Period, the Committee will determine, in its sole and absolute discretion, whether the disabled Eligible Employee may receive his or her Distribution Amount.

Section 3.8 Evidence of Participation.

This Agreement shall serve as evidence of ownership of the Employee’s Equity Rights granted herein.

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Section 3.9 Amendment and Discontinuance.

The Board may amend, suspend or discontinue the provisions of this Article III at any time or from time to time; provided that no such action may alter or impair an existing unexpired Equity Right without the consent of Employee.

ARTICLE IV

MISCELLANEOUS

Section 4.1 No Obligation to Accept Distribution Amount.

The execution of this Agreement shall impose no obligation upon Employee to accept any Distribution Amount associated with any Employee’s Equity Rights granted hereunder.

Section 4.2 Captions and Headings; Gender and Number.

Captions and paragraph headings used herein are for convenience only, do not modify or affect the meaning of any provision herein, are not a part of, and shall not serve as a basis for, interpretation or construction of this Agreement. As used herein, the masculine gender shall include the feminine and neuter, and the singular number shall include the plural, and vice versa, whenever such meanings are appropriate.

Section 4.3 Governing Law.

Without regard to the principles of conflicts of laws, the laws of the State of North Carolina shall govern and control the validity, interpretation, performance and enforcement of this Agreement.

This Agreement entered into this              day of             , 20__, as witnessed by the following signatures:

Employee:	Asheville Savings Bank, S.S.B.
	By:
	Name:
	Title:

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EX-23.2

Exhibit 23.2

DIXON HUGHES GOODMAN LLP

Certified Public Accountants and Advisors

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Asheville Savings Bank S.S.B. and Subsidiary

Asheville, North Carolina

We hereby consent to the use in this Registration Statement on Form S-1 of our report dated May 26, 2011, relating to the consolidated financial statements of Asheville Savings Bank S.S.B. and Subsidiary. We also consent to the reference to our Firm under the caption “Experts” in such Registration Statement.

Asheville, North Carolina May 26, 2011

500 Ridgefield Court, Asheville, NC 28806    |    T 828.254.2254    |    F 828.254.6859    |    dhgllp.com

EX-23.3

Exhibit 23.3

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

202-467-6862 — (FAX) 202-467-6963

May 26, 2011

Board of Directors

Asheville Savings Bank, S.S.B.

11 Church Street

Asheville, North Carolina 28801

Members of the Board:

We hereby consent to the use of our firm’s name in the Application for Conversion, and amendments thereto, filed by Asheville Savings Bank, S.S.B. with the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. We also consent to the use of our firm’s name in the Registration Statement on Form S-1, and amendments thereto, filed by ASB Bancorp, Inc. with the Securities and Exchange Commission. Additionally, we consent to the inclusion of, summary of, and reference to our Conversion Valuation Appraisal Report in such filings and amendments, including the Prospectus of ASB Bancorp, Inc.

Sincerely,

FELDMAN FINANCIAL ADVISORS, INC.

EX-99.1

Exhibit 99.1

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

202-467-6862 — (FAX) 202-467-6963

Asheville Saving Bank, S.S.B.

Asheville, North Carolina

Conversion Valuation Appraisal Report

Valued as of May 9, 2011

Prepared By

Feldman Financial Advisors, Inc.

Washington, DC

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

202-467-6862 — (FAX) 202-467-6963

May 9, 2011

Board of Directors

Asheville Savings Bank, S.S.B.

11 Church Street

Asheville, North Carolina 28801

Members of the Board:

At your request, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of Asheville Savings Bank, S.S.B. (the “Bank”) in connection with the simultaneous conversion of the Bank from the mutual to stock form of ownership, the issuance of the Bank’s capital stock to ASB Bancorp, Inc. (the “Company”), and the offering of shares of common stock of the Company for sale to certain depositors of the Bank, employee benefit plans of the Bank, and other members of the general public (collectively referred to herein as the “Conversion”). This Appraisal is furnished pursuant to the Bank’s regulatory filing of the Application for Conversion (“Application”) with the Federal Deposit Insurance Corporation (“FDIC”) and the North Carolina Commissioner of Banks.

Feldman Financial Advisors, Inc. (“Feldman Financial”) is a financial consulting and economic research firm that specializes in financial valuations and analyses of business enterprises and securities in the thrift, banking, and mortgage industries. The background of Feldman Financial is presented in Exhibit I. In preparing the Appraisal, we conducted an analysis of the Bank that included discussions with the Bank’s management, the Bank’s legal counsel, Kilpatrick Townsend & Stockton LLP, and the Bank’s independent auditor, Dixon Hughes Goodman LLP. In addition, where appropriate, we considered information based on other available published sources that we believe are reliable; however, we cannot guarantee the accuracy and completeness of such information.

We also reviewed, among other factors, the economy in the Bank’s primary market area and compared the Bank’s financial condition and operating performance with that of selected publicly traded thrift institutions. We reviewed conditions in the securities markets in general and in the market for thrift institution common stocks in particular.

The Appraisal is based on the Bank’s representation that the information contained in the Application and additional evidence furnished to us by the Bank and its independent auditor are truthful, accurate, and complete. We did not independently verify the financial statements and other information provided by the Bank and its independent auditor, nor did we independently value the assets or liabilities of the Bank. The Appraisal considers the Bank only as a going concern and should not be considered as an indication of the liquidation value of the Bank.

FELDMAN FINANCIAL ADVISORS, INC.

Board of Directors

Asheville Savings Bank, S.S.B.

May 9, 2011

Page Two

It is our opinion that, as of May 9, 2011, the estimated aggregate pro forma market value of the Bank was within a range (the “Valuation Range”) of $53,550,000 to $72,450,000 with a midpoint of $63,000,000. The Valuation Range was based upon a 15% decrease from the midpoint to determine the minimum and a 15% increase from the midpoint to establish the maximum. Assuming an additional 15% increase above the maximum value would result in an adjusted maximum of $83,317,500. Thus, assuming an offering price of $10.00 per share of common stock, the Company will offer a minimum of 5,355,000 shares, a midpoint of 6,300,000 shares, a maximum of 7,245,000 shares, and an adjusted maximum of 8,331,750 shares.

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion. Moreover, because the Appraisal is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of stock in the Conversion will thereafter be able to sell such shares at prices related to the foregoing estimate of the Bank’s pro forma market value. Feldman Financial is not a seller of securities within the meaning of any federal or state securities laws and any report prepared by Feldman Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.

The Valuation Range reported herein will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Bank’s operating performance, financial condition, or management policies, and current conditions in the securities markets for thrift institution common stocks. Should any such new developments or changes be material, in our opinion, to the valuation of the Bank, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in detail at that time.

Respectfully submitted,

Feldman Financial Advisors, Inc.

/s/ Trent R. Feldman

Trent R. Feldman

President

/s/ Peter W. L. Williams

Peter W. L. Williams

Principal

FELDMAN FINANCIAL ADVISORS, INC.

TABLE OF CONTENTS

TAB			PAGE
	INTRODUCTION			1
I.	Chapter One – BUSINESS OF ASHEVILLE SAVINGS BANK, S.S.B.
	General Overview			4
	Financial Condition			11
	Income and Expense Trends			23
	Interest Rate Risk Management			31
	Asset Quality			34
	Office Properties			37
	Market Area			39
II.	Chapter Two – COMPARISONS WITH PUBLICLY TRADED THRIFTS
	General Overview			51
	Selection Criteria			52
	Recent Financial Comparisons			56
III.	Chapter Three – MARKET VALUE ADJUSTMENTS
	General Overview			70
	Earnings Prospects			71
	Financial Condition			73
	Market Area			74
	Management			75
	Dividend Policy			75
	Liquidity of the Issue			76
	Subscription Interest			77
	Recent Acquisition Activity			78
	Effect of Government Regulations and Regulatory Reform			80
	Stock Market Conditions			80
	New Issue Discount			83
	Adjustments Conclusion			86
	Valuation Approach			86
	Valuation Conclusion			89
IV.	Appendix – EXHIBITS
	I	Background of Feldman Financial Advisors, Inc.		I-1
	II-1	Consolidated Balance Sheets		II-1
	II-2	Consolidated Income Statements		II-2
	II-3	Loan Portfolio Composition		II-3
	II-4	Net Loan Activity		II-4
	II-5	Investment Portfolio Composition		II-5
	II-6	Deposit Account Distribution		II-6
	II-7	Borrowed Funds Distribution		II-7
	II-8	Office Properties		II-8
	III	Financial and Market Data for All Public Thrifts		III-1
	IV-1	Pro Forma Assumptions for Conversion Stock Offering		IV-1
	IV-2	Pro Forma Conversion Valuation Range		IV-2
	IV-3	Pro Forma Conversion Analysis at the Maximum Valuation		IV-3
	IV-4	Comparative Valuation Ratio Differential		IV-4

i

FELDMAN FINANCIAL ADVISORS, INC.

LIST OF TABLES{PRIVATE}

TAB			PAGE
I.	Chapter One – BUSINESS OF ASHEVILLE SAVINGS BANK, S.S.B.
	Table 1	Selected Financial Condition Data		11
	Table 2	Relative Balance Sheet Concentrations		12
	Table 3	Income Statement Summary		24
	Table 4	Selected Operating Ratios		25
	Table 5	Income Statement Ratios		27
	Table 6	Yield and Cost Summary		29
	Table 7	Interest Rate Risk Analysis		33
	Table 8	Non-performing Assets Summary		35
	Table 9	Allowance for Loan Loss Summary		36
	Table 10	Branch Office Deposit Data		38
	Table 11	Selected Demographic Data		41
	Table 12	Comparative Employment Concentrations		44
	Table 13	Major Employers in the Asheville Area		45
	Table 14	Deposit Market Share in the Asheville MSA		47
	Table 15	Deposit Market Share in the Greater Asheville Area		48
	Table 16	Residential Mortgage Lending Market Share in the Asheville MSA		50
II.	Chapter Two – COMPARISONS WITH PUBLICLY TRADED THRIFTS
	Table 17	Comparative Group Operating Summary		55
	Table 18	Key Financial Comparisons		57
	Table 19	General Operating Characteristics		64
	Table 20	Summary Financial Performance Ratios		65
	Table 21	Income and Expense Analysis		66
	Table 22	Yield-Cost Structure and Growth Rates		67
	Table 23	Balance Sheet Composition		68
	Table 24	Regulatory Capital, Credit Risk, and Loan Composition		69
III.	Chapter Three – MARKET VALUE ADJUSTMENTS
	Table 25	Summary of Recent North Carolina Acquisition Activity		79
	Table 26	Comparative Stock Index Performance		81
	Table 27	Summary of Recent Standard Conversion Stock Offerings		85
	Table 28	Comparative Pro Forma Market Valuation Analysis		90

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INTRODUCTION

As requested, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of Asheville Savings Bank, S.S.B. (“Asheville Savings Bank,” “ASB,” or the “Bank”) in connection with the simultaneous conversion of the Bank from the mutual to stock form of ownership, the issuance of the Bank’s capital stock to ASB Bancorp, Inc. (the “Company”), and the offering of shares of common stock of the Company for sale to certain depositors of the Bank, employee benefit plans of the Bank, and other members of the general public (collectively referred to herein as the “Conversion”). This appraisal report is furnished pursuant to the Bank’s filing of the Application for Conversion with the Federal Deposit Insurance Corporation (“FDIC”) and the North Carolina Commissioner of Bank. Our estimate of the pro forma market value of ASB is expressed in the form of a range (“Valuation Range”) based on accepted regulatory guidelines.

In the course of preparing the Appraisal, we reviewed and discussed with the Bank’s management and the Bank’s independent accountants, Dixon Hughes Goodman LLP, the audited financial statements of the Bank’s operations for the years ended December 31, 2009 and 2010. We also reviewed and discussed with management other financial matters of the Bank. Where appropriate, we considered information based upon other available public sources, which we believe to be reliable; however, we cannot guarantee the accuracy or completeness of such information. We visited the Bank’s primary market area and examined the prevailing economic conditions. We also examined the competitive environment within which the Bank operates and assessed the Bank’s relative strengths and weaknesses.

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We examined and compared the Bank’s financial performance with selected segments of the thrift industry and selected publicly traded thrift institutions. We reviewed conditions in the securities markets in general and the market for thrift institution common stocks in particular. We included in our analysis an examination of the potential effects of the Conversion on the Bank’s operating characteristics and financial performance as they relate to the estimated pro forma market value of the Bank.

In preparing the Appraisal, we have relied upon and assumed the accuracy and completeness of financial and statistical information provided by the Bank and its independent accountants. We did not independently verify the financial statements and other information provided by the Bank and its independent accountants, nor did we independently value the assets or liabilities of the Bank. The Appraisal considers the Bank only as a going concern and should not be considered as an indication of the liquidation value of the Bank.

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion. Moreover, because the Appraisal is necessarily based on estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the Conversion will thereafter be able to sell such shares at prices related to the foregoing estimate of the Bank’s pro forma market value. Feldman Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by Feldman Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.

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The Valuation Range reported in this Appraisal will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Bank’s financial performance or management policies, and current conditions in the securities market for thrift institution common stocks. Should any such developments or changes be material, in our opinion, to the valuation of the Bank, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in detail at that time.

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I. BUSINESS OF ASHEVILLE SAVINGS BANK, S.S.B.

General Overview

Asheville Savings Bank is a North Carolina chartered mutual savings bank headquartered in Asheville, North Carolina. Founded originally in 1936, the Bank operates as a community-oriented financial institution offering traditional financial services to consumer and businesses in its primary market area. At March 31, 2011, ASB had total assets of $750.7 million, net loans of $472.1 million, total deposits of $616.6 million, and equity capital of $63.3 million or 8.43% of total assets. The Bank is subject to extensive regulation by the North Carolina Commissioner of Banks, as its chartering agency, and by the Federal Deposit Insurance Corporation (“FDIC”), as its deposit insurer. The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta.

ASB is primarily engaged in the business of attracting deposits from the general public and using those funds to originate primarily one- to four-family residential mortgage loans and commercial real estate loans, and, to a lesser extent, home equity loans and lines of credit, consumer loans, construction and land development loans, and commercial and industrial loans. The Bank conducts its lending and deposit activities primarily with individuals and small businesses in its primary market area, which consists of Asheville, North Carolina and the rest of Buncombe County where it operates eight branch offices, as well as Henderson, Madison, McDowell, and Transylvania counties where it has a total of five branch offices.

The Bank has two subsidiaries. Appalachian Financial Services, Inc. was formed to engage in investment activities but is currently inactive. Wenoca, Inc. serves as the Bank’s trustee regarding deeds of trust. Both subsidiaries are organized as North Carolina corporations and do not have a material impact on the Bank’s operating performance.

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The Bank experienced significant growth over the past decade. At December 31, 1999, the Bank had total assets of $364.3 million and nine branch locations. By December 31, 2009, the Bank had expanded its total assets to $749.4 million and operated 13 branch offices. The Bank’s asset base more than doubled over this ten-year period and increased at a compound annual growth rate of 7.5%. In addition, the Bank began to diversify its loan portfolio through the increased origination of commercial real estate and consumer loans. Historically, the Bank had mainly emphasized the origination of one- to four-family residential mortgage loans, which represented 71.5% or $204.0 million of the total loan portfolio of $285.4 million at December 31, 1999. By December 31, 2009, the concentration of residential mortgage loans had declined to 31.9% of the total loan portfolio and amounted to $191.0 million of total loans of $598.1 million. The Bank’s net loan growth was fueled largely by the growth of the commercial real estate loan portfolio, which expanded from $7.5 million at December 31, 1999 to $197.2 million at December 31, 2009. The consumer loan portfolio also expanded, increasing primarily as a result of indirect automobile lending activity. Consumer loans increased from $40.3 million at December 31, 1999 to $86.8 million at December 31, 2009.

The Bank’s asset growth was funded primarily by deposit expansion, supported by increased borrowings and capital accumulation from profitable operations. The Bank reported positive earnings in each year from 2000 to 2009, although its profitability began to decline toward the latter part of the decade due to a narrowed net interest margin attributable mainly to the generally lower interest rate environment and increased provisions for loan losses. In addition, by the end of year-end 2009, the Bank had begun to experience a marked increase in non-performing assets. Total non-performing assets increased from $9.8 million (1.39% of total assets) at year-end 2008 to $20.3 million (2.71% of total assets) and $24.1 million (3.21% of total assets) at year-end 2009 and 2010, respectively.

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The Bank’s increased emphasis on commercial mortgage and commercial construction and land development loans has exposed it to losses as the recent economic recession, whose adverse effects were delayed in impacting Western North Carolina, has unfavorably affected businesses and developers in ASB’s market area. The Bank charged off $7.9 million of commercial construction and land development loans and $6.1 million of commercial mortgage loans in 2010. The Bank also suffered recent losses in its residential mortgage loan portfolio, with charge-offs totaling $1.8 million in 2010 on residential mortgage loans. Total charge-offs in the consumer loan portfolio totaled $1.1 million in 2010. The losses in the Bank’s consumer loan portfolio have been related primarily to its indirect financing of automobile loans and, as a result of such losses, ASB has suspended its indirect automobile financing activities. The Bank is continuing to emphasize its commercial mortgage lending activities. However, due to recent economic conditions, the Bank has suspended financing the construction of any properties built on a speculative basis and is emphasizing the origination of commercial mortgage loans secured by owner-occupied properties.

Because of its heightened credit risk exposure, the Bank increased it provision for loan losses to $22.4 million for the year ended December 31, 2010 as compared to $4.7 million for the year ended December 31, 2009. The increase in the provision was deemed necessary by the Bank to replenish the allowance for loan losses that was depleted due to $18.7 million in net charge-offs of non-performing loans in 2010, as well as management’s efforts to increase the allowance for loan losses in response to continued elevated levels of non-performing loans. The

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increased loan loss provision contributed to a net operating loss of $9.5 million for 2009. In addition, the Bank’s equity capital declined from $73.6 million (9.83% of total assets) at December 31, 2009 to $62.9 million (8.38% of total assets) at December 31, 2010. The Bank returned to profitability for the first quarter of 2011 with reported earnings of $585,000 for the three months ended March 31, 2011, as compared to $430,000 for the three months ended March 31, 2010.

The Bank’s primary objective is to operate and grow a profitable community-oriented financial institution serving customers in its primary market area. ASB has sought to achieve this through the adoption of a business strategy designed to maintain a strong capital position and high asset quality. The Bank has implemented a plan to resolve its current asset quality problems and has hired senior management with backgrounds in consumer and commercial banking to help diversify its product offerings, expand its commercial deposit and lending products, and expand its consumer deposit and lending products, while emphasizing high asset quality standards. The Bank’s operating strategies includes the following:

• Continuing to provide products and services to individuals and businesses in the communities served by its branch offices. ASB has operated continuously as a community-oriented financial institution since it was established in 1936. The Bank is committed to meeting the financial needs of the communities in which it operates, and it is dedicated to providing quality personal service to customers. The Bank provides a broad range of consumer and business financial services through its branch office network and plans to continually seek out ways to improve convenience, safety and service through its product offerings.

• Continuing to originate residential and commercial mortgage loans. The Bank’s primary lending focus has been and will continue to be aimed at operating as a residential and commercial mortgage lender. ASB originates fixed-rate and adjustable-rate residential and commercial mortgage loans that are retained in its loan portfolio. However, most of the fixed-rate residential mortgage loans originated by the Bank are sold into the secondary market with servicing released. At March 31, 2011, residential mortgage loans totaled $177.8 million, or 36.7% of the total loan portfolio, and commercial mortgage loans totaled $162.7 million, or 33.5% of the

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total loan portfolio. Although total residential and commercial mortgage loans have decreased from a high of $388.2 million at December 31, 2009 to $340.5 million at March 31, 2011 as the Bank addressed certain asset quality problems throughout 2009 and 2010 and experienced lower demand for commercial mortgage loans, ASB intends to continue to emphasize its residential and commercial mortgage lending activities.

• Expanding commercial and industrial lending activities and emphasizing the origination of small business loans. The Bank seeks to expand its commercial and industrial lending activities and to originate an increased number of small business loans. ASB has hired additional experienced lending officers and credit management personnel over the past several years in order to continue to prudently manage this type of lending. Although commercial and industrial lending has decreased recently as the Bank has addressed asset quality issues and experienced decreased loan demand, ASB’s goal is to expand this portion of its portfolio using conservative underwriting practices to increase the overall yield of its loan portfolio.

• Emphasizing lower cost core deposits to maintain low funding costs. ASB seeks to increase net interest income by controlling costs of funding. As a traditional thrift institution, a larger concentration of its deposit base has consisted of higher balance, higher cost certificates of deposit. Over the past several years, the Bank has attempted to reduce its dependence on traditional higher cost deposits in favor of stable, lower cost demand deposits. The Bank has utilized additional product offerings, technology, and a focus on customer service in working toward this goal. In addition, ASB intends to seek demand deposits by growing commercial banking relationships.

• Expanding market share within its primary market area. ASB intends to expand its market share in its primary market area by evaluating additional branch expansion opportunities. Subject to favorable market conditions, it is currently the Bank’s goal to continue to open additional branch offices in its primary market area in the years following the Conversion. In addition, ASB is interested in pursuing opportunities to acquire other financial institutions, including through FDIC-assisted transactions, and branches of financial institutions in its primary market area and surrounding areas. However, the Bank currently has no definitive plans or commitments regarding potential acquisition opportunities.

• Seeking to enhance fee income through investment advisory services. The Bank currently provides a full array of investment services for individuals and small businesses, including full access to financial market instruments such as mutual funds and equities, through a relationship with LPL Financial Services (formerly UVEST Investment Services). For the three months ended March 31, 2010 and 2011, commission income relating to investment advisory services totaled $49,000 and $65,000, respectively. In the future, the Bank intends to continue to enhance its fee income by providing investment advisory services to customers through its relationship with LPL Financial Services.

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While the Bank’s present equity capital level is solid at 8.43% of total assets at March 31, 2011, the Bank believes it is a prudent course of action to raise additional capital in order to facilitate its growth objectives and loan diversification, and provide a greater capital cushion in response to the heightened risk profile associated with uncertain economic conditions. The Bank’s equity position recently increased from $62.8 million or 8.38% of total assets at December 31, 2010 to $63.3 million at March 31, 2011, but remains below the level of $73.6 million or 9.82% of total assets at year-end 2009 prior to incurring the net loss in 2010.

As a stock corporation upon completion of the Conversion, the Bank will be organized in the form used by commercial banks, most major corporations, and a majority of savings institutions. The ability to raise new equity capital through the issuance and sale of capital stock will allow the Bank the flexibility to increase its equity capital position more rapidly than by accumulating earnings.

The Bank also believes that the ability to attract new capital also will help address the needs of the communities it serves and enhance its ability to expand or to make acquisitions. After the Conversion, the Bank will have increased ability to merge with or acquire other financial institutions or business enterprises. Finally, the Bank expects to benefit from its employees and directors having stock ownership in its business, since that is viewed as an effective performance incentive and a means of attracting, retaining, and compensating employees and directors.

As a stock holding company, the Company also will have greater flexibility than the Bank now has in structuring mergers and acquisitions, including the offer consideration paid in a transaction. The Bank’s current mutual savings bank structure, by its nature, limits its ability to

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offer any common stock as consideration in a merger or acquisition transactions. The stock holding company structure will enhance the ability of the Company to compete with other bidders when acquisition opportunities arise by better enabling it to offer stock or cash consideration, or a combination of the two.

In summary, the Bank’s primary reasons for implementing the Conversion and undertaking the stock offering are to:

• enhance profitability and earnings through reinvesting and leveraging the offering proceeds, primarily through traditional funding and lending activities;

• support future branching activities and/or the acquisition of financial institutions or financial services companies;

• enhance the Bank’s ability to compete in its primary market area by offering new products and services; and

• increase capital to meet anticipated industry-wide increases in regulatory capital requirements; and

• implement equity compensation plans to retain and attract qualified directors, officers, and staff and to enhance the current incentive-based compensation programs.

The remainder of Chapter I examines in more detail the trends addressed in this section, including the impact of changes in the Bank’s economic and competitive environment, and recent management initiatives. The discussion is supplemented by the exhibits in the Appendix. Exhibit II-1 summarizes the Bank’s consolidated balance sheets as of the years ended December 31, 2009 and 2010 and as of March 31, 2011. Exhibit II-2 presents the Bank’s consolidated income statements for the years ended December 31, 2009 and 2010 and the three months ended March 31, 2010 and 2011.

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Financial Condition

Table 1 presents selected data concerning the Bank’s financial position as of December 31, 2006 to 2010 and March 31, 2011. Table 2 displays relative balance sheet concentrations for the Bank as of similar fiscal year-end periods.

Table 1

Selected Financial Condition Data

As of December 31, 2006 to 2010 and March 31, 2011

(Dollars in Thousands)

	March 31, 2011		December 31,
			2010		2009		2008		2007		2006
Total assets	$	750,709	$	749,965	$	749,307	$	705,095	$	638,656	$	597,034
Cash and cash equivalents		26,436		24,234		23,176		39,384		54,789		54,006
Investment securities available-for-sale		198,596		175,445		90,057		37,362		26,996		23,930
Investment securities held-to-maturity		5,720		5,948		6,958		5,442		10,856		12,523
Federal Home Loan Bank stock		3,970		3,970		3,993		5,020		3,325		2,952
Loans receivable, net		472,097		487,327		588,607		583,692		516,080		482,000
Loans held for sale		1,263		8,386		3,890		2,926		2,548		2,107
Foreclosed real estate		10,506		10,650		3,699		6,272		—		—
Total deposits		616,586		619,757		608,538		535,640		505,290		480,296
Federal Home Loan Bank advances		60,000		60,000		60,000		60,000		50,000		40,000
Overnight and short-term borrowings		1,404		1,008		1,694		31,219		4,561		1,704
Total equity		63,295		62,881		73,649		69,921		71,059		66,822

Source: Asheville Savings Bank, preliminary prospectus.

Asset Composition

The Bank’s total assets amounted to $750.7 million at March 31, 2011, reflecting a marginal 0.2% or $1.4 million increase from total assets of $749.3 million at year-end 2009. The negligible asset growth was primarily due to shrinkage of the loan portfolio by 19.8% or $116.5 million since year-end 2009. Net loans receivable declined from $588.6 million at year-end 2009 to $472.1 million at March 31, 2011 due to reduced loan originations and increased levels of loan sales, charge-off activity, and transfer of foreclosed loans to real estate owned.

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Table 2

Relative Balance Sheet Concentrations

As of December 31, 2006 to 2010 and March 31, 2011

(Percent of Total Assets)

	March 31,		December 31,
	2011		2010		2009		2008		2007		2006
	(%)		(%)		(%)		(%)		(%)		(%)
Cash and cash equivalents		3.52		3.23		3.09		5.59		8.58		9.05
Investment securities available-for-sale		26.45		23.39		12.02		5.30		4.23		4.01
Investment securities held-to-maturity		0.76		0.79		0.93		0.77		1.70		2.10
Federal Home Loan Bank stock		0.53		0.53		0.53		0.71		0.52		0.49
Loans receivable, net		62.89		64.98		78.55		82.78		80.81		80.23
Loans held for sale		0.17		1.12		0.52		0.41		0.40		0.35
Foreclosed real estate		1.40		1.42		0.49		0.89		—		—
Other assets		4.28		4.53		3.86		3.55		3.77		3.77
Total assets		100.00		100.00		100.00		100.00		100.00		100.00
Total deposits		82.13		82.64		81.21		75.97		79.12		80.45
Federal Home Loan Bank advances		7.99		8.00		8.01		8.51		7.83		6.70
Overnight and short-term borrowings		0.19		0.13		0.23		4.43		0.71		0.29
Other liabilities		1.26		0.84		0.72		1.18		1.21		1.38
Total liabilities		91.57		91.62		90.17		90.08		88.87		88.81
Total equity		8.43		8.38		9.83		9.92		11.13		11.19
Total liabilities and equity		100.00		100.00		100.00		100.00		100.00		100.00

Source: Asheville Savings Bank, preliminary prospectus; Feldman Financial calculations.

As a result of the shrinkage of the loan portfolio, net loans receivable declined from 82.8% of total assets at December 31, 2008 to 62.9% at March 31, 2011. Conversely, the level of securities available for sale increased from 5.3% at December 31, 2008 to 26.5% at March 31, 2011. Total cash and securities increased from $87.2 million or 12.4% of total assets at December 31, 2008 to $234.7 million or 31.3% of total assets at March 31, 2011.

As presented in Exhibit II-3, the Bank’s current loan portfolio includes residential mortgages and commercial mortgage as core products. The largest component of the Bank’s loan portfolio are real estate mortgage loans, primarily one- to four-family residential mortgage loans and commercial mortgage loans, and to a lesser extent, revolving mortgage loans (which consist

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of home equity loans and lines of credit), consumer loans, construction and land development loans, and commercial and industrial loans. The Bank originates loans for investment purposes, although it generally sells fixed-rate residential mortgage loans into the secondary market with servicing released. ASB intends to continue to emphasize residential and commercial mortgage lending, while also concentrating on ways to expand its commercial and industrial lending activities with a focus on serving small businesses and emphasizing relationship banking in its primary market area. The Bank does not offer, and has not offered, subprime, Alt-A, or no-documentation mortgage loans.

Residential mortgage loans. Residential mortgage loans totaled $177.8 million or 36.7% of the Bank’s loan portfolio at March 31, 2011. The Bank’s residential lending policies and procedures generally conform to the secondary market guidelines. ASB generally offers a mix of adjustable-rate mortgage loans and fixed-rate mortgage loans with terms of up to 30 years. The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. Interest rates and payments on the Bank’s adjustable-rate mortgages generally adjust annually after an initial fixed period that typically ranges from one to seven years. Interest rates and payments on adjustable-rate mortgages generally are indexed to the one year U.S. Treasury Constant Maturity Index.

The Bank generally does not make owner-occupied one- to four-family residential real estate loans with loan-to-value ratios exceeding 95%. Loans with loan-to-value ratios in excess of 80% typically require private mortgage insurance. In addition, ASB generally does not make non-owner occupied, one- to four-family residential real estate loans with loan-to-value ratios

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exceeding 80%. The Bank requires all properties securing mortgage loans to be appraised by a Board-approved independent appraiser. The Bank also requires title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for all loans located in flood hazard areas.

Commercial mortgage loans. Commercial mortgage loans totaled $162.7 million or 33.5% of the Bank’s loan portfolio at March 31, 2011. ASB offers fixed-rate and adjustable-rate mortgage loans secured by non-residential real estate and multi-family properties. The Bank’s commercial mortgage loans are generally secured by commercial, industrial and manufacturing, small to moderately-sized office and retail properties, hotels, multi-family properties, and hospitals and churches located in its primary market area. Although ASB has historically made commercial mortgage loans that are secured by both owner-occupied and non-owner occupied properties, the Bank is currently emphasizing the origination of commercial mortgage loans that are secured by owner-occupied properties. At March 31, 2011, $35.6 million or 21.9% of the Bank’s commercial real estate loans were secured by owner-occupied properties.

The Bank originates fixed-rate and adjustable-rate commercial mortgage loans, generally with terms of three to five years and payments based on an amortization schedule of up to 25 years, resulting in “balloon” balances at maturity. For adjustable-rate commercial mortgage loans, interest rates are typically equal to the prime lending rate as reported in the Wall Street Journal plus an applicable margin. Currently, the Bank’s adjustable-rate commercial mortgage loans typically provide for an interest rate floor. Loans are secured by first mortgages, are generally originated with a maximum loan-to-value ratio of 85%, and may require specified debt service coverage ratios depending on the characteristics of the project. Rates and other terms on

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such loans generally depend on the Bank’s assessment of credit risk after considering such factors as the borrower’s financial condition, credit history, loan-to-value ratio, debt service coverage ratio and other factors, including whether the property securing the loan will be owner-occupied. At March 31, 2011, the Bank’s largest commercial mortgage loan had an outstanding balance of $7.0 million. This loan was originated in November 2009 and is secured by a multi-use property, including a warehouse and office space, located in Fletcher, North Carolina. The loan is currently performing in accordance with its original terms.

Construction and land development loans. Construction and land development loans totaled $35.7 million or 7.4% of the Bank’s loan portfolio at March 31, 2011. The Bank has originated construction and land development loans for commercial properties, such as retail shops and office units, and multi-family properties, and construction and land development loans for one-to four-family homes. At March 31, 2011, commercial construction and land development loans totaled $27.8 million and residential construction and land development loans totaled $7.9 million. Residential construction loans are typically for a term of 12 months with monthly interest only payments, and generally are followed by an automatic conversion to a 15-year to 30-year permanent loan with monthly payments of principal and interest. Except for speculative loans, residential construction loans are generally only made to homeowners and the repayment of such loans generally comes from the proceeds of a permanent mortgage loan for which a commitment is typically in place when the construction loan is originated. Interest rates on construction loans are generally tied to an index plus an applicable margin. ASB generally requires a maximum loan-to-value ratio of 80% for all construction loans. The Bank generally disburses funds on a percentage-of-completion basis following an inspection by a third party inspector.

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In the past, the Bank has originated speculative construction loans to builders who have not identified a buyer for the completed property at the time of origination. However, due to recent economic conditions, ASB is no longer emphasizing the origination of speculative construction loans. At March 31, 2011, the Bank had speculative residential construction loans of $3.1 million and speculative commercial construction loans of $9.6 million.

At March 31, 2011, the Bank’s largest construction loan secured by a project being built on speculation was an $8.6 million loan secured by a mixed-use residential condominium, commercial office and retail project located in Western North Carolina. The borrower is in Chapter 11 bankruptcy. Through the bankruptcy process, ASB made an additional loan to a third party totaling $2.3 million. That third party then made a $2.9 million “debtor in possession” loan to the original borrower to facilitate the completion of the building. An interest reserve for the $8.6 million loan was created with a portion of the proceeds of the additional $2.9 million debtor in possession loan. The $2.3 million loan to the third party debtor in possession lender is secured by an assignment of the debtor in possession note. Both of these loans are performing in accordance with their terms. The mixed-use condominium, commercial office and retail project serving as collateral for the original $8.6 million loan consists of 29 residential condominiums, of which one has been sold, 11 commercial office condominiums, of which three have been sold, and eight commercial retail spaces, of which four are currently leased.

The Bank also selectively originates loans to individuals and developers for the purpose of developing vacant land in its primary market area, typically for building an individual’s future residence or, in the case of a developer, residential subdivisions. Land development loans, which are offered for terms of up to 18 months, are generally indexed to the prime rate as reported in

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the Wall Street Journal plus an applicable margin. The Bank generally requires a maximum loan-to-value ratio to 75% of the discounted market value based upon expected cash flows upon completion of the project. ASB also originates loans to individuals secured by undeveloped land held for investment purposes. These loans are typically amortized for no more than 15 years with a three or five year balloon payment. At March 31, 2011, the Bank’s largest land development loan had an outstanding balance of $3.9 million and was performing in accordance with its original terms.

Revolving mortgages and consumer loans. The Bank offers revolving mortgage loans, which consist of home equity loans and lines of credit, and various consumer loans, including automobile loans and loans secured by deposits. At March 31, 2011, revolving mortgage loans amounted to $52.0 million, or 10.7% of total loans, and consumer loans totaled $41.1 million, or 8.5% of the overall loan portfolio. The Bank’s revolving mortgage loans consist of fixed-rate home equity loans with terms of up to 15 years and adjustable-rate lines of credit with interest rates indexed to the prime rate, as published in the Wall Street Journal, plus an applicable margin. Consumer loans typically have shorter maturities and higher interest rates than traditional one- to four-family residential loans. The Bank typically does not originate home equity loans with loan-to-value ratios exceeding 80%, including any first mortgage loan balance. Until recently, ASB originated indirect financing for automobile loans. However, this product was suspended because the Bank began experiencing substantial losses on that segment of the loan portfolio. The Bank has indicated that any future restatement of the indirect automobile lending program will be conducted in accordance with prudent underwriting standards.

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Commercial and industrial loans. Commercial and industrial loans totaled $15.8 million or 3.2% of the Bank’s loan portfolio at March 31, 2011. ASB typically offers commercial and industrial loans to small businesses located in its primary market area. Commercial and industrial loans consist of floating rate loans indexed to the prime rate as published in the Wall Street Journal plus an applicable margin and fixed-rate loans for terms of up to 25 years, depending on the collateral type. The Bank’s commercial and industrial loan portfolio consists primarily of loans that are secured by equipment, accounts receivable and inventory, but also includes a smaller amount of unsecured loans for purposes of financing expansion or providing working capital for general business purposes.

At March 31, 2011, ASB’s largest commercial and industrial loan was a $2.3 million it made to a third party to finance a debtor in possession loan in connection with its largest speculative construction loan, which is performing in accordance with its original terms. At March 31, 2011, the Bank’s second largest commercial and industrial loan had an outstanding balance of $1.4 million. This loan was originated in October 2009 and is secured by the borrower’s inventory of automobile parts. The loan is currently performing in accordance with its original terms.

As shown in Exhibit II-4, total loan originations decreased from $320.6 million in 2008 to $275.1 million in 2009 and $197.1 million for 2010. The reduction in loan originations was primarily related to decrease volumes of commercial mortgage and indirect automobile loans. Loan sales increased from $50.1 million in 2008 to $116.4 million and $97.1 million for 2009 and 2010, respectively. The Bank generally sells in the secondary market long-term, fixed-rate residential mortgage loans that it originates. The decision by the Bank to sell loans is based on

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FELDMAN FINANCIAL ADVISORS, INC.

prevailing market interest rate conditions, interest rate management, and liquidity needs. Occasionally, the Bank has purchased participation interests in commercial real estate loans to supplement its loan origination volume. At March 31, 2011, participation interests totaled $18.4 million, $11.0 million of which was secured by out-of-market properties.

Exhibit II-5 presents a summary of the Bank’s investment portfolio as of December 31, 2009 and 2010 and March 31, 2011. At March 31, 2011, the Bank’s securities portfolio consisted of securities of U.S. government agencies and corporations, securities of state and local governments, and mortgage-backed securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae. The Bank’s securities portfolio is used to invest excess funds for increased yield, manage interest rate risk, and as collateralization for public unit deposits.

At March 31, 2011, the Bank’s securities portfolio represented 27.2% of total assets ($204.3 million), compared to 6.1% of total assets ($42.8 million) at December 31, 2008 as a result of an increase in liquidity due to increased loan sales and reduced loan originations. As of March 31, 2011, $198.6 million of the securities portfolio was classified as available for sale and $5.7 million of the securities portfolio was classified as held to maturity. The securities portfolio was composed of $63.3 million of U.S. government agency securities, $133.4 million of mortgage-backed securities, and $6.9 million of state and local government securities. In addition, at March 31, 2011, the Bank had $4.0 million of other investments, at cost, which consisted solely of FHLB of Atlanta common stock. Securities increased by $22.9 million, or 12.6% to $204.3 million at March 31, 2011 from $181.4 million at December 31, 2010 primarily as a result of proceeds from loan repayments and sales being invested in securities.

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FELDMAN FINANCIAL ADVISORS, INC.

Total securities increased by $84.4 million, or 87.0%, to $181.4 million at December 31, 2010 from $97.0 million at December 31, 2009 primarily as a result of proceeds from loan repayments and sales being invested in securities. For all periods presented, the Bank’s mortgage-backed and related securities did not include any private label issues or real estate mortgage investment conduits.

Liability Composition

Deposits are the Bank’s major external source of funds for lending and investment purposes. Exhibit II-6 presents a summary of the Bank’s deposit composition as of December 31, 2009 and 2010 and March 31, 2011. Total deposits amounted to $616.6 million or 82.1% of total assets and 89.7% of total liabilities at March 31, 2011. Deposits have been held relatively steady over the past two years, totaling $608.5 million and $619.8 million at December 31, 2009 and 2010, respectively.

ASB accepts deposits primarily from individuals and businesses who are located in its primary market area or who have a pre-existing lending relationship with the Bank. ASB relies on competitive pricing, customer service, account features, and branch office locations to attract and retain deposits. Deposit accounts offered include individual and business checking accounts, money market accounts, individual NOW accounts, savings accounts, and certificates of deposit. Non-interest bearing accounts consist of free checking and commercial checking accounts.

The Bank’s deposit base at March 31, 2011 comprised $280.7 million of certificate accounts (45.5% of total deposits), $135.3 million of NOW accounts (22.0%), $133.1 million of money market accounts (21.6%), $45.0 million of non-interest bearing accounts (7.3%), and $22.5 million of savings accounts (3.6%). Jumbo certificates of deposit, which have minimum balances of $100,000, amounted to $100.7 million or 16.3% of total deposits at March 31, 2011.

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FELDMAN FINANCIAL ADVISORS, INC.

Non-interest bearing and NOW accounts increased by 37.4% and 10.1% for the years ended December 31, 2009 and 2010, respectively, and increased 0.3% during the three months ended March 31, 2011. The increases in demand deposit and NOW accounts were primarily due to customers moving funds out of certificates of deposit and the Bank’s marketing efforts to attract non-interest bearing deposit and NOW accounts. Certificates of deposit decreased by $6.7 million during the three months ended March 31, 2011 and decreased $20.9 million in 2010 from $308.3 million at December 31, 2009 to $287.4 million at December 31, 2010. The decrease reflects management’s continued focus on reducing deposit interest rates to improve the Bank’s net interest margin. A portion of these certificate accounts moved to other types of interest-bearing deposits with the Bank including money market accounts. The Bank’s need for loan funding, ability to invest these funds for a positive return, and consideration of other customer relationships influences its willingness to match competitor’s rates to retain these accounts, which ASB has not been willing to do in recent periods.

The Bank utilizes borrowings as a supplemental, cost-effective source of funds when they can be invested at a positive interest rate spread or to meet asset-liability management objectives. The Bank’s borrowings consist of FHLB advances, federal funds purchased, and other short-term borrowings. The Bank’s FHLB advances are fixed-rate borrowings that at the option of the FHLB can be converted to variable rates. If the FHLB exercises its options to convert the fixed-rate advances to variable rates, then ASB can accept the new terms or repay the advance without any prepayment penalty.

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FELDMAN FINANCIAL ADVISORS, INC.

As of March 31, 2011, the Bank had $60.0 million in FHLB advances outstanding and the ability to borrow an additional $55.3 million of FHLB advances. The average balance of FHLB advances outstanding amounted to $60.0 million for 2009, 2010, and the three months ended March 31, 2011. Also, as of March 31, 2011, the Bank had $1.4 million of borrowings through securities sold under agreements to repurchase. The weighted average interest rate of outstanding FHLB advances at March 31, 2011 was 4.03%. The weighted average interest rate of outstanding repurchase agreements at March 31, 2011 was 0.22%.

Equity Capital

ASB has historically maintained solid capital levels. Due to a net operating loss of $9.5 million for the year ended December 31, 2010, the Bank’s equity capital declined from $73.6 million or 9.83% of total assets at year-end 2010 to $62.9 million or 8.38% of total assets at year-end 2010. As of March 31, 2011, the Bank’s equity capital of $63.3 million measured 8.43% of total assets.

ASB’s capital level remains strong in comparison to minimum regulatory requirements. The Bank’s regulatory capital ratios of Tier 1 Leverage Capital, Tier 1 Risk-based Capital, and Total Risk-based Capital were 8.60%, 13.67%, and 14.94%, respectively, as of March 31, 2011. In comparison, the minimum regulatory requirements under FDIC guidelines were 4.00%, 4.00%, and 8.00%, and the threshold requirements for regulatory “well capitalized” levels were 5.00%, 6.00%, and 10.00%, respectively. Based on these regulatory capital ratios and requirements, the Bank was considered “well capitalized” as of March 31, 2011.

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FELDMAN FINANCIAL ADVISORS, INC.

Income and Expense Trends

Table 3 displays the main components of ASB’s earnings performance for the years ended December 31, 2006 to 2010 and the three months ended March 31, 2010 and 2011. Table 4 presents a summary of selected operating ratios. Table 5 displays the Bank’s principal income and expense ratios as a percent of average assets. Table 6 presents the Bank’s weighted average yields on interest-earning assets and weighted average costs of interest-bearing liabilities.

General Overview

ASB historically had exhibited a record of above-average profitability, reflecting a trend of relatively stable net interest margins, consistently high levels of non-interest income, and favorable efficiency ratios. The Bank’s return on average assets (“ROA”) indicated an average level of 0.71% for the ten-year period from 2000 to 2009. However, from 2006 to 2010, the Bank’s ROA declined continually from 0.90% in 2006 and 0.75% in 2007 to 0.37% in 2008 and 0.21% in 2009, before dropping to negative 1.25% for 2010. The Bank’s downward trend in profitability was caused by a decreasing net interest margin and increased levels of loan loss provisions. The net loss of $9.5 million sustained in 2010 was attributable to an increased provision for loan losses amounting to $22.4 million.

Three Months Ended March 31, 2010 and 2011

Net income was $585,000 for the quarter ended March 31, 2011 as compared to $430,000 for the quarter ended March 31, 2010. The annualized ROA improved to 0.32% for the first quarter of 2011 versus 0.23% for the 2010 period. The $155,000 or 36.0% earnings increase in the 2011 period was primarily due to a $1.2 million decrease in the loan loss provision, partially offset by decreases of $549,000 in net interest income and $378,000 in non-interest income.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 3

Income Statement Summary

For the Years Ended December 31, 2006 to 2010

And the Three Months Ended March 31, 2010 and 2011

(Dollars in Thousands)

	Three Months Ended March 31,				Year Ended December 31,
	2011		2010		2010			2009		2008		2007		2006
Interest and dividend income	$	7,382	$	8,678	$	32,815		$	35,654	$	36,683	$	39,091	$	35,126
Interest expense		2,304		3,051		11,444			14,772		16,745		19,116		15,751
Net interest income		5,078		5,627		21,371			20,882		19,938		19,975		19,375
Provision for loan losses		657		1,859		22,419			4,655		3,049		932		647
Net interest income (loss) after provision for loan losses		4,421		3,768		(1,048	)		16,227		16,889		19,043		18,728
Non-interest income		1,680		2,058		7,683			7,166		5,286		5,686		5,920
Non-interest expense		5,232		5,154		22,167			21,071		18,361		17,395		16,402
Income (loss) before income taxes		869		672		(15,532	)		2,322		3,814		7,334		8,246
Income tax provision (benefit)		284		242		(6,074	)		791		1,382		2,642		2,983
Net income (loss)	$	585	$	430	$	(9,458	)	$	1,531	$	2,432	$	4,692	$	5,263

Source: Asheville Savings Bank, preliminary prospectus.

Net interest income decreased by $549,000, or 9.8%, to $5.1 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. Total interest income decreased by $1.3 million, or 14.9%, to $7.4 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, primarily as a result of a 64 basis point decrease in the weighted average yield on interest-earning assets from 4.89% to 4.25%. Increased concentrations of securities versus loans in the generally lower interest rate environment contributed to the lower yield on earning assets. The average balance of investment securities and mortgage-backed securities increased $26.8 million and $56.9 million, or 77.5% and 85.5%, respectively, to $61.4 million and $123.4 million, respectively, for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, primarily as a result of the reinvestment in securities of proceeds from loan repayments and sales.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 4

Selected Operating Ratios

As of or For the Years Ended December 31, 2006 to 2010

And As of or For the Three Months Ended March 31, 2010 and 2011

	Three Months Ended March  31,						Year Ended December 31,
	2011			2010			2010			2009			2008			2007			2006
Performance Ratios (1)
Return on average assets		0.32	%		0.23	%		(1.25	)%		0.21	%		0.37	%		0.75	%		0.90	%
Return on average equity		3.73			2.32			(13.01	)		2.14			3.33			6.70			8.10
Interest rate spread (2)		2.76			2.93			2.73			2.69			2.74			2.83			3.06
Net interest margin (3)		2.92			3.17			2.95			2.98			3.15			3.33			3.49
Other expenses to average assets		2.85			2.78			2.92			2.88			2.77			2.77			2.81
Efficiency ratio (4)		77.42			66.95			76.18			75.07			72.79			67.79			64.84
Capital Ratios
Tangible capital as a percent of adjusted total assets		8.43			9.73			8.38			9.83			9.92			11.13			11.19
Tier 1 leverage capital as a percent of average adjusted total assets		8.60			10.13			8.33			10.13			10.98			11.16			11.34
Tier 1 risk-based capital as a percent of average risk-weighted assets		13.67			13.78			13.04			13.72			13.84			15.42			15.59
Total risk-based capital as a percent of average risk-weighted assets		14.94			15.03			14.31			14.98			15.03			16.51			16.67
Asset Quality Ratios
Allowance for loan losses as a percent of total loans		2.60			1.54			2.49			1.50			1.08			0.97			0.95
Allowance for loan losses as a percent of non-performing loans		89.02			51.75			94.43			54.23			180.32			103.00			192.45
Net charge-offs to average outstanding loans during the period		0.58			1.22			3.37			0.34			0.31			0.10			0.14
Non-performing loans as a percent of total loans		2.92			2.98			2.68			2.77			0.60			0.94			0.50
Non-performing assets as a percent of total assets		3.29			2.82			3.21			2.71			1.39			0.77			0.40
Other Data
Number of offices		13			13			13			13			13			12			12
Number of deposit accounts		71,389			64,965			72,297			64,623			55,572			49,614			49,654
Number of loans		10,356			12,871			10,417			13,766			15,449			21,816			21,585

(1) Performance ratios for the three months ended March 31, 2010 and 2011 are annualized.

(2) Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. Tax exempt income is reported on a tax equivalent basis using a federal marginal tax rate of 34%.

(3) Represents net interest income as a percent of average interest-earning assets. Tax exempt income is reported on a tax equivalent basis using a federal marginal tax rate of 34%.

(4) Represents other expenses divided by the sum of net interest income and other income.

Source: Asheville Savings Bank, preliminary prospectus.

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FELDMAN FINANCIAL ADVISORS, INC.

The provision for loan losses was $657,000 for the three months ended March 31, 2011 compared to $1.9 million for the three months ended March 31, 2010. The decrease in the provision was due to fewer charge-offs on the loan portfolio and lower loan balances. The allowance for loan losses had been bolstered significantly during the year ended December 31, 2010. The allowance for loan losses as a percent of total loans was 2.60% at March 31, 2011, as compared to 1.54% at March 31, 2010. The allowance for loan losses as a percent of non-performing loans was 89.0% at March 31, 2011, as compared to 51.8% at March 31, 2010.

Non-interest income decreased $378,000 to $1.7 million during the March 2011 quarter from $2.1 million for the March 2010 quarter. Factors that contributed to the decrease in non-interest income during the 2011 period were no gains on the sale of securities for the March 2011 quarter compared to gains on the sale of securities of $486,000 for the March 2010 quarter and a $96,000 decrease in fees on deposit and other service charge income, partially offset by a $33,000 increase in fees related to debit cards and a $157,000 increase in mortgage banking income resulting from an increase in refinanced mortgage loans that were sold during the period.

Non-interest expense increased $78,000 for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. Foreclosed property expenses increased $72,000 and salary and benefits expense decreased by $54,000 primarily due to a reduction in accruals under the management incentive plan. Data processing fees increased by $66,000 during the three months ended March 31, 2011 as a result of expenses related to additional data processing services, and advertising expenses decreased $103,000 during the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The annualized ratio of non-interest expense to average assets increased from 2.78% to 2.85% over the observed periods.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 5

Income Statement Ratios

For the Years Ended December 31, 2006 to 2010

And the Three Months Ended March 31, 2010 and 2011

(Percent of Average Assets)

	Three Months Ended March 31,						Year Ended December 31,
	2011(1)			2010(1)			2010			2009			2008			2007			2006
Interest and dividend income		4.02	%		4.68	%		4.32	%		4.88	%		5.53	%		6.22	%		6.02	%
Interest expense		1.25			1.65			1.51			2.02			2.52			3.04			2.70
Net interest income		2.77			3.03			2.81			2.86			2.01			3.18			3.32
Provision for loan losses		0.36			1.00			2.95			0.64			0.46			0.15			0.11
Net interest income (loss) after provision for loan losses		2.41			2.03			(0.14	)		2.22			2.55			3.03			3.21
Non-interest income		0.92			1.11			1.01			0.98			0.80			0.91			1.01
Non-interest expense		2.85			2.78			2.92			2.88			2.77			2.77			2.81
Income (loss) before income taxes		0.47			0.36			(2.05	)		0.32			0.58			1.17			1.41
Income taxes		0.15			0.13			(0.80	)		0.11			0.21			0.42			0.51
Net income (loss)		0.32	%		0.23	%		(1.25	)%		0.21	%		0.37	%		0.75	%		0.90	%

(1) Ratios for the three months ended March 31, 2010 and 2011 are annualized.

Source: Asheville Savings Bank, preliminary prospectus; Feldman Financial calculations.

Years Ended December 31, 2009 and 2010

ASB incurred a net loss of $9.5 million for the year ended December 31, 2010 compared to net income of $1.5 million for the year ended December 31, 2009, primarily due to a $17.8 million increase in the provision for loan losses to $22.4 million in 2010 versus $4.7 million in 2009. The significant increase in the provision for loan losses was due to an increase of $16.7 million in net loan charge-offs from $2.0 million in 2009 to $18.7 million in 2010. The Bank’s primary source of income during each of the years ended December 31, 2009 and 2010 was net interest income, which increased from $20.9 million at December 31, 2009 to $21.4 million at December 31, 2010. Non-interest income increased by $517,000 during the year ended December 31, 2010, while non-interest expense increased by $1.1 million during 2010.

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FELDMAN FINANCIAL ADVISORS, INC.

Net interest income increased by $489,000, or 2.3%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009, primarily due to a decrease in interest on loans, which was offset by an increase in income from securities, as well as a decrease in interest expense. Total interest income decreased by $2.8 million, or 8.0%, as loan interest income decreased by $4.2 million, or 12.8%, during the year ended December 31, 2010, due primarily to a decrease in average loan balances of $44.0 million, or 7.2%, primarily because loan charge-offs and loan repayments were not replaced by new loan originations, and a 32 basis point decrease in the yield earned on loans during fiscal 2010. Income from securities increased by $1.3 million primarily due to an increase in the average balance of investment securities and mortgage-backed and related securities of $31.4 million and $37.4 million, respectively, the effect of which was partially offset by a decrease in the yield earned on investment securities and mortgage-backed and related securities of 139 basis points and 103 basis points, respectively. The increased balance of investment securities and mortgage-backed and related securities was primarily due to the reinvestment into securities of proceeds from loan repayments and sales and as well as deposit growth. Total interest expense decreased by $3.3 million, or 22.5%, during the year ended December 31, 2010, primarily resulting from a 61 basis point decrease in the cost of interest-bearing liabilities, the effect of which was partially offset by a $22.6 million, or 3.7%, increase in average interest-bearing liabilities. Interest-bearing liabilities increased due primarily to an increase in the average balance of deposits of $25.5 million, or 4.6%, principally due to growth in NOW and money market accounts. The cost of interest bearing liabilities decreased primarily due to a decrease of 68 basis points in the cost of deposits. The decrease in the cost of deposits was due primarily to the Bank’s continued focus on reducing deposit interest rates by not aggressively competing for certificates of deposit.

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Table 6

Yield and Cost Summary

For the Years Ended December 31, 2008 to 2010

And the Three Months Ended March 31, 2010 and 2011

And as of March 31, 2011

	As of March  31, 2011			Three Mos. Ended March 31,						Year Ended December 31,
				2011			2010			2010			2009			2008
Weighted Average Yields
Interest-bearing deposits		0.25	%		0.24	%		0.26	%		0.27	%		0.24	%		2.35	%
Loans receivable (1)		4.96			5.05			5.26			5.07			5.39			6.05
Investment securities		2.51			2.56			3.90			3.13			4.52			5.77
Mortgage-backed and related securities		2.84			2.57			3.74			3.07			4.09			4.73
Other interest-earning assets		0.79			0.82			0.30			0.38			0.20			4.16
Total interest-earning assets		4.18			4.25			4.89			4.52			5.09			5.79
Weighted Average Costs
NOW accounts		0.81			0.95			1.62			1.39			1.58			1.12
Money market accounts		0.56			0.55			0.96			0.84			1.24			1.99
Savings accounts		0.31			0.32			0.38			0.35			0.40			0.50
Certificates of deposit		1.70			1.73			2.18			2.00			2.96			4.01
Total interest-bearing deposits		1.17			1.22			1.75			1.56			2.24			2.96
FHLB advances		4.04			4.03			4.03			4.03			4.03			3.77
Overnight and short-term borrowings		0.22			0.47			0.27			0.25			0.37			3.40
Total interest-bearing liabilities		1.44			1.49			1.96			1.79			2.40			3.05
Net interest spread (2)		2.74			2.76			2.93			2.73			2.69			2.74
Net interest margin (3)		NA			2.92			3.17			2.95			2.98			3.15

(1) Includes non-accrual loans for the respective periods.

(2) Difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(3) Net interest income as a percentage of average interest-earning assets.

Source: Asheville Savings Bank, preliminary prospectus.

The provision for loan losses was increased to $22.4 million for the year ended December 31, 2010 as compared to $4.7 million for the year ended December 31, 2009. The increase in the provision was necessary to replenish the allowance for loan losses that was depleted due to $18.7 million in net charge-offs of non-performing loans in 2010, as well as management’s efforts to increase the allowance for loan losses in response to continued elevated levels of non-performing loans, which increased from $3.6 million at December 31, 2008 to $16.6 million and $13.4

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FELDMAN FINANCIAL ADVISORS, INC.

million at December 31, 2009 and 2010, respectively. Net charge-offs of $2.1 million and $18.7 million were recognized in 2009 and 2010, respectively. The allowance is determined based upon management’s analysis of historical loss, as well as updated calculations for allowances needed for impaired loans. Among the qualitative risk factors that the Bank considers in determining the loss percentages include current industry conditions, unemployment rates, the levels and trends of delinquencies, percentage of classified loans to total loans, charge-offs, bankruptcy filings, and collateral values in its primary market area.

Non-interest income increased $517,000, or 7.2%, to $7.7 million in 2010 as compared to $7.2 million for 2009. The increase in non-interest income was primarily the result of an increase of $259,000 in gains realized from sales of investment securities, a $178,000 increase in income from debit card services, and a $76,000 increase in deposit and other service charge income, partially offset by a decrease of $14,000 in mortgage banking income. The ratio of non-interest income to average assets increased moderately from 0.98% in 2009 to 1.01% in 2010.

Non-interest expense increased by $1.1 million or 5.2% to $22.2 million for 2010 as compared to $21.1 million for 2009. The primary factors for the increase were a $2.0 million increase in foreclosed property expenses as a result of higher provisions for write-downs of foreclosed properties and a $126,000 increase in professional and outside services, partially offset by a $722,000 decrease in salaries and employee benefits due primarily to the decision to limit accrued payouts in 2010 under the Bank’s management incentive and long-term incentive plans, as well as a $377,000 decrease in federal deposit insurance premiums due to a special assessment in 2009. The ratio of non-interest expense to average assets increased moderately from 2.88% in 2009 to 2.92% for 2010.

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FELDMAN FINANCIAL ADVISORS, INC.

Interest Rate Risk Management

ASB seeks to manage the interest rate sensitivity of its 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 the Bank’s earnings while decreases in interest rates may beneficially affect its earnings. To reduce the potential volatility of its earnings, the Bank has sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread.

ASB’s strategy for managing interest rate risk emphasizes: (i) adjusting the maturities of borrowings; (ii) adjusting the investment portfolio mix and duration; and (iii) generally selling in the secondary market substantially all newly originated fixed-rate one- to four-family residential mortgage loans. The Bank currently does not participate in hedging programs, interest rate swaps, or other activities involving the use of derivative financial instruments.

Management actively monitors and manages the Bank’s interest rate risk exposure. The Bank has an Asset-Liability Management Committee, which includes members of management, to communicate, coordinate, and control all aspects involving asset-liability management. The committee establishes and monitors 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. The Bank’s overriding goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest and net income.

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FELDMAN FINANCIAL ADVISORS, INC.

The Bank measures its interest rate sensitivity based on the net portfolio value (“NPV”) of market equity as facilitated by the regulatory analytical framework. NPV reflects the simulated equity of the Bank as obtained by estimating the economic present value of its assets, liabilities, and off-balance sheet items under different interest rate scenarios. Table 7 summarizes the interest rate sensitivity of the Bank’s NPV and projected net interest income as of March 31, 2011, assuming instantaneous and sustained parallel shifts in the U.S. Treasury yield curve of 100 to 300 basis points either up or down in various increments. Because of the current level of interest rates, scenarios of down 200-plus basis points have not been considered.

As shown in Table 7 the Bank’s NPV and projected net interest income would be negatively impacted by an immediate increase or decrease in interest rates from current levels. Table 7 indicates that the Bank’s NPV was $89.1 million as of March 31, 2011. Based upon the assumptions utilized, an immediate 100 basis point increase in market interest rates would result in a $5.4 million decrease in the Bank’s NPV and $715,000 decrease in projected net interest income. An immediate 200 basis point increase in market interest rates would result in a $13.5 million decrease in the Bank’s NPV and a $1.5 million decrease in projected net interest income. Similarly, an immediate 100 basis point decrease in market interest rates would result in a $7.0 million decrease in the Bank’s NPV and a $919,000 decrease in projected net interest income.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 7

Interest Rate Risk Analysis

As of March 31, 2011

(Dollars in Thousands)

	Net Portfolio Value of Equity								Projected Net Interest Income
Change in Interest Rates(1) (basis points)	Estimated NPV(2)		Change from Base (000s)			Change from Base (%)			Net Interest Income (000s)		Change from Base (000s)			Change from Base (%)
+ 300 b.p.	$	68,639	$	(20,425	)		(22.9	)%	$	20,292	$	(1,992	)		(8.9	)%
+ 200 b.p.		75,529		(13,536	)		(15.2	)%		20,745		(1,539	)		(6.9	)%
+ 100 b.p.		83,679		(5,385	)		(6.0	)%		21,569		(715	)		(3.2	)%
0 b.p.		89,065		—			—			22,284		—			—
- 100 b.p.		82,107		(6,957	)		(7.8	)%		21,365		(919	)		(4.1	)%

⁽¹⁾  Assumes instantaneous and sustained parallel shifts in interest rates.

⁽²⁾  NPV is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet items.

Source: Asheville Savings Bank, preliminary prospectus.

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FELDMAN FINANCIAL ADVISORS, INC.

Asset Quality

Table 8 summarizes the Bank’s total non-performing assets (“NPAs”) as of December 31, 2006 to 2010 and March 31, 2011. Historically, ASB had exhibited an excellent record of asset quality until experiencing an upturn in NPAs during 2009. The Bank’s ratio of non-performing assets to total assets increased from 1.39% at year-end 2008 to 2.71% and 3.21% at year-end 2009 and 2010, respectively. As of March 31, 2011, the ratio of NPAs to assets was 3.29%. The Bank experienced increases in non-accrual loans and foreclosed assets in its portfolios of commercial mortgage, construction and land development, and residential mortgage loans. As of March 31, 2011, the Bank’s non-performing assets totaled $24.7 million and comprised $10.5 million of real estate owned (“REO”), $5.3 million in commercial mortgages, $4.7 million of commercial construction and land development loans, and $3.3 million of residential mortgages. In addition to non-performing assets, the Bank also had $11.6 million of performing troubled debt restructurings, which are loans that have been modified through term extensions or other concessions to help borrowers stay current and avoid foreclosure.

In order to reflect the increased risk inherent in the loan portfolio, the Bank increased its loan loss provision from $4.7 million in 2009 to $22.4 million for 2010, reflecting the increased levels of non-performing assets and loan charge-offs. Total charge-offs increased from $2.2 million in 2009 to $18.9 million in 2010, including $7.9 million of commercial construction and land development loans and $6.1 million of commercial mortgage loans. As a result, the loan loss allowance increased by $3.7 million from $9.0 million or 1.50% of total loans at year-end 2009 to $12.7 million or 2.49% of total loans at year-end 2010. At March 31, 2011, the loan loss allowance was $12.6 million, measuring 2.60% of total loans and 89.0% of non-performing loans.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 8

Non-performing Assets Summary

As of December 31, 2006 to 2010 and March 31, 2011

(Dollars in Thousands)

	March 31,			December 31,
	2011			2010			2009			2008			2007			2006
Non-accrual loans
Commercial:
Construction and land development	$	4,744		$	5,205		$	438		$	—		$	2,949		$	93
Commercial mortgage		5,319			3,810			6,666			—			—			787
Other commercial real estate		—			—			—			—			—			—
Commercial and industrial		308			377			1,408			—			—			—
Total non-accrual commercial loans		10,371			9,392			8,512			—			2,949			880
Non-commercial:
Construction and land development		280			553			456			—			—			—
Residential		3,259			3,194			5,558			—			—			—
Revolving mortgage		239			191			489			—			—			—
Consumer		41			94			1,463			—			37			33
Total non-accrual non-commercial loans		3,819			4,032			7,966			—			37			33
Total non-accrual loans		14,190			13,424			16,478			—			2,986			913
Accruing loans past due 90 days or more
Commercial:
Construction and land development		—			—			—			12			13			550
Commercial mortgage		—			—			—			—			—			38
Other commercial real estate		—			—			—			—			—			—
Commercial and industrial		—			—			—			68			3			9
Total accruing comm. loans past due 90+ days		—			—			—			80			16			597
Non-commercial:
Construction and land development		—			—			—			374			—			—
Residential		—			—			91			1,790			849			301
Revolving mortgage		—			—			—			525			456			168
Consumer		—			—			15			782			619			431
Total accruing non-comm. past due 90+ days		—			—			106			3,471			1,924			900
Total accruing loans past due 90+ days		—			—			106			3,551			1,940			1,497
Total non-performing loans (non-accrual and 90 days or more past due)		14,190			13,424			16,584			3,551			4,926			2,410
Real estate owned		10,506			10,650			3,699			6,272			—			—
Other non-performing assets		—			—			—			—			—			—
Total non-performing assets		24,696			24,074			20,283			9,823			4,926			2,410
Performing troubled debt restructurings (1)		11,575			18,246			21,216			—			199			513
Performing troubled debt restructurings and total non-performing assets	$	36,271		$	42,230		$	41,499		$	9,823		$	5,125		$	2,923
Total non-performing loans to total loans		2.92	%		2.68	%		2.77	%		0.60	%		0.94	%		0.50	%
Total non-performing loans to total assets		1.89	%		1.79	%		2.21	%		0.50	%		0.77	%		0.40	%
Total non-performing assets and troubled debt restructurings to total assets		3.29	%		3.21	%		2.71	%		1.39	%		0.77	%		0.40	%
Performing troubled debt restructurings and total non-performing assets to total assets		4.83	%		5.64	%		5.54	%		1.39	%		0.80	%		0.49	%

(1) Performing troubled debt restructurings do not include troubled debt restructurings that remain on non-accrual status and are included in non-accrual loans above.

Source: Asheville Savings Bank, preliminary prospectus.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 9

Allowance for Loan Loss Summary

For the Years Ended December 31, 2006 to 2010

And the Three Months Ended March 31, 2011

(Dollars in Thousands)

	Three Months Ended March  31,						Year Ended December 31,
	2011			2010			2010			2009			2008			2007			2006
Allowance for loan losses at beginning of period	$	12,676		$	8,994		$	8,994		$	6,403		$	5,074		$	4,638		$	4,640
Provision for loan losses		657			1,859			22,419			4,655			3,049			931			647
Charge-offs
Commercial:
Construction and land development		23			930			7,926			—			488			—			—
Commercial mortgage		109			—			6,074			—			—			—			—
Commercial and industrial		14			160			692			214			—			—			—
Total commercial loans		146			1,090			14,692			214			488			—			—
Non-commercial:
Constr. and land dev. (1-4 family residential)		78			148			351			94			—			—			—
Residential mortgage		181			131			1,767			82			—			—			17
Revolving mortgage		274			120			919			199			—			—			—
Consumer		125			328			1,134			1,604			1,405			681			899
Total non-commercial loans		658			727			4,171			1,979			1,405			681			916
Total charge-offs		804			1,817			18,863			2,193			1,893			681			916
Recoveries
Commercial:
Construction and land development		—			—			—			—			31			—			—
Commercial mortgage		—			—			—			—			—			—			—
Other commercial real estate		—			—			—			—			—			—			—
Commercial and industrial		66			2			12			9			—			—			—
Total commercial loans		66			2			12			9			31			—			—
Non-commercial:
Constr. and land dev. (1-4 family residential)		1			—			—			—			—			—			—
Residential mortgage		1			—			—			—			—			—			—
Revolving mortgage		7			—			—			1			—			—			—
Consumer		28			36			115			120			142			185			237
Total non-commercial loans		37			36			115			121			142			185			237
Total recoveries		103			38			127			130			173			185			237
Net charge-offs		701			1,779			18,737			2,064			1,720			496			679
Allowance for loan losses at end of period	$	12,632		$	9,074		$	12,676		$	8,994		$	6,403		$	5,074		$	4,638
Allowance for loan losses to non-performing Loans		89.02	%		51.75	%		94.43	%		54.23	%		180.32	%		103.00	%		192.45	%
Allowance for loan losses to total loans outstanding at the end of the period		2.60	%		1.54	%		2.49	%		1.50	%		1.08	%		0.97	%		0.95	%
Net charge-offs to average loans outstanding during the period		0.58	%		1.22	%		3.37	%		0.34	%		0.31	%		0.10	%		0.13	%

Source: Asheville Savings Bank, preliminary prospectus.

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FELDMAN FINANCIAL ADVISORS, INC.

Office Properties

ASB currently conducts business from its 13 branch offices. Exhibit II-8 provides certain information relating to the Bank’s office properties as of March 31, 2011. A map of the Bank’s branch office network is presented below. Six branch offices are located in Buncombe County, two in Henderson County, and one each in Madison, McDowell, and Transylvania counties.

Table 10 provides deposit data for the Bank’s branch offices from June 30, 2005 to June 30, 2010. The Bank’s deposits increased by a compound annual growth rate (“CAGR”) of 7.0% over this period with the bulk of the deposit increase occurring in Buncombe and Henderson counties. Approximately 69% of the Bank’s deposits as of June 30, 2010 were maintained in Buncombe County branches, followed by approximately 11% in Henderson County branches and 9% in the McDowell County branch.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 10

Branch Office Deposit Data

		June 30,						‘09-‘10			‘05-‘10
		2005		2009		2010		CAGR			CAGR
Address	City	($000s)		($000s)		($000s)		(%)			(%)
Buncombe County
11 Church Street	Asheville	$	59,183	$	84,627	$	96,621		14.17			10.30
1879 Hendersonville Road	Asheville		47,906		69,133		67,390		(2.52	)		7.06
300 West State Street	Asheville		47,262		56,356		59,861		6.22			4.84
10 South Tunnel Road	Asheville		44,994		54,068		54,836		1.42			4.04
778 Merrimon Avenue	Asheville		43,241		57,035		59,696		4.67			6.66
1012 Patton Avenue	Asheville		48,265		50,839		50,702		(0.27	)		0.99
5 Old Eastwood Village Blvd.	Asheville		13,099		26,538		25,630		(3.42	)		14.37
907 Smoky Park Highway	Candler		7,771		23,183		27,129		17.02			28.41
Henderson County
601 North Main Street	Hendersonville		34,630		51,882		55,683		7.33			9.96
3551 Hendersonville Road	Fletcher		—		7,284		9,368		28.61			NA
Madison County
105 North Main Street	Mars Hill		29,212		36,874		38,045		3.18			5.43
McDowell County
162 North Main Street	Marion		48,847		55,979		54,694		(2.30	)		2.29
Transylvania County
2 Market Street	Brevard		12,014		29,482		28,355		(3.82	)		18.74
Deposits By County ($000s)
Buncombe County			303,950		398,596		414,736		4.05			6.41
Henderson County			34,630		59,166		65,051		9.95			13.44
Madison County			29,212		36,874		38,045		3.18			5.43
McDowell County			48,847		55,979		54,694		(2.30	)		2.29
Transylvania County			12,014		29,482		28,355		(3.82	)		18.74
Total Deposits		$	428,653	$	580,097	$	600,881		3.58			6.99
Deposits By County (%)
Buncombe County			70.91		68.71		69.02
Henderson County			8.08		10.20		10.83
Madison County			6.81		6.36		6.33
McDowell County			11.40		9.65		9.10
Transylvania County			2.80		5.08		4.72
Total Deposits			100.00		100.00		100.00

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Market Area

Overview of Market Area

ASB is headquartered in Asheville, North Carolina, the county seat of Buncombe County, and considers its primary market area to comprise Buncombe, Madison, McDowell, Henderson, and Transylvania counties in Western North Carolina and the surrounding areas. Asheville is the largest city in Western North Carolina based on population and Asheville and Buncombe County are the principal city and county, respectively, in the Asheville Metropolitan Statistical Area (“MSA”), which is composed of Buncombe, Haywood, Henderson, and Madison counties. In addition to the Asheville MSA, the Greater Asheville Area is generally considered to include Jackson, McDowell, Polk, Rutherford, Transylvania, and Yancey counties. ASB operates a branch network encompassing 13 offices located in the Asheville MSA. The Bank has eight branch offices in Buncombe County, two branches in Henderson County, and one branch each in Madison, McDowell, and Transylvania counties.

Asheville is located in the heart of the Blue Ridge Mountains, which are part of the Appalachian Mountain range. The city is positioned at the confluence of the French Broad River and the Swannanoa River, and situated on a plateau in the Blue Ridge Mountains. Asheville is both a valley and mountain town, and its climate is mild and temperate with four distinct seasons. The surrounding mountains insulate the valley and are responsible for the moderate weather, which allows residents to enjoy outdoor activities year round. In addition, the Asheville metropolitan area has a vibrant cultural and arts community that parallels that of many larger cities in the United States and is home to a number of historical attractions, the most prominent of which is the Biltmore Estate, a historic mansion with gardens and a winery that draws

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FELDMAN FINANCIAL ADVISORS, INC.

approximately 900,000 tourists each year. Due to its scenic location and diverse cultural and historical offerings, the Asheville MSA has become a popular destination for tourists, which has historically positively impacted the local economy. Furthermore, affordable housing prices, combined with the region’s favorable climate, scenic surroundings and cultural attractions, have also made the Asheville MSA an increasingly attractive destination for retirees seeking to relocate from other parts of the United States.

Table 11 presents comparative demographic data for the United States, the state of North Carolina, and the Asheville MSA. Also included in Table 11 is demographic information for McDowell and Transylvania counties. The Asheville MSA had a population of approximately 421,000 in 2010, which represented an increase of 14.0% over the prior decade and surpassed the nationwide population growth rate of 10.6%. Over the five-year period from 2010 to 2015, the population in the Asheville MSA is projected to increase by 5.5% to approximately 444,000. The population growth has been fueled by in-migration of residents from the retiring baby-boom generation. The median age in the Asheville MSA is 43.3 years as compared to the national median of 37.0 years. Within the Asheville MSA, the most populous county is Buncombe County with a total of approximately 235,000 residents, followed by Henderson County with nearly 107,000 residents. Buncombe County’s population increased by 13.9% from 2000 to 2010 and is projected to expand by 5.7% from 2010 to 2015. Henderson County’s population increased by 19.9% over the past decade and is forecast to increase by 7.8% from 2010 to 2015. At the present time, ASB is emphasizing expansion of its operations in Henderson County, where it operates two branch offices. Smaller population totals were evident in McDowell County (45,000), Transylvania County (31,000), and Madison County (21,000) with projected growth rates over the next five years in the 2% to 3% range.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 11

Selected Demographic Data

	United			North			Asheville			McDowell			Transylvania
	States			Carolina			MSA			County			County
Total Population
2010 - Current		311,212,863			9,552,054			420,918			44,846			31,327
2015 - Projected		323,209,391			10,345,227			444,059			45,775			32,234
% Change 2000-10		10.59	%		18.67	%		14.02	%		6.39	%		6.79	%
% Change 2010-15		3.85	%		8.30	%		5.50	%		2.07	%		2.90	%
Age Distribution, 2010
0 - 14 Age Group		20.08	%		19.59	%		16.81	%		18.40	%		14.80	%
15 - 34 Age Group		27.22	%		26.71	%		22.12	%		23.23	%		20.65	%
35 - 54 Age Group		28.03	%		29.08	%		28.52	%		29.56	%		25.03	%
55- 69 Age Group		15.54	%		15.96	%		19.72	%		18.13	%		22.96	%
70+ Age Group		9.12	%		8.66	%		12.83	%		10.67	%		16.56	%
Median Age (years)		37.0			37.6			43.3			40.6			47.9
Total Households
2010 - Current		116,761,140			3,761,099			179,985			18,045			13,543
2015 - Projected		121,359,607			4,088,898			191,081			18,530			14,046
% Change 2000-10		10.69	%		20.09	%		16.65	%		8.68	%		9.93	%
% Change 2010-15		3.94	%		8.72	%		6.16	%		2.69	%		3.71	%
Median Household Income
2010 - Current	$	54,442		$	50,887		$	45,954		$	40,053		$	49,512
2015 - Projected	$	61,189		$	57,697		$	53,092		$	45,345		$	55,171
% Change 2000-10		29.12	%		29.85	%		26.51	%		23.53	%		27.83	%
% Change 2010-15		12.39	%		13.38	%		15.53	%		13.21	%		11.43	%
Average Household Income
2010 - Current	$	70,173		$	63,346		$	55,978		$	47,313		$	56,794
2015 - Projected	$	79,340		$	70,818		$	61,889		$	51,854		$	62,425
% Change 2000-10		23.88	%		23.66	%		19.16	%		17.27	%		17.87	%
% Change 2010-15		13.06	%		11.80	%		10.56	%		9.60	%		9.91	%
Per Capita Income
2010 - Current	$	26,739		$	25,349		$	24,288		$	19,483		$	25,015
2015 - Projected	$	30,241		$	28,417		$	27,010		$	21,487		$	27,712
% Change 2000-10		23.87	%		24.83	%		21.06	%		20.94	%		20.46	%
% Change 2010-15		13.10	%		12.10	%		11.21	%		10.29	%		10.78	%

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FELDMAN FINANCIAL ADVISORS, INC.

Table 11 (continued)

Selected Demographic Data

	United States			North Carolina			Asheville MSA			McDowell County			Transylvania County
Household Net Worh
Median	$	93,084		$	79,981		$	75,541		$	47,003		$	105,140
Average	$	418,865		$	385,990		$	361,236		$	231,217		$	376,037
Current Household Net Worth
$0 - $35,000		34.96	%		37.22	%		37.36	%		43.98	%		31.82	%
$35,000 - $100,000		16.38	%		17.00	%		18.60	%		22.80	%		16.92	%
$100,000 - $250,000		19.13	%		18.58	%		19.67	%		17.17	%		21.62	%
$250,000 - $500,000		12.97	%		12.28	%		11.12	%		8.19	%		16.12	%
$500,000+		16.56	%		14.92	%		13.25	%		7.85	%		13.52	%
Total Number of Owner
Occupied Housing Units
2010 - Current		76,868,769			2,607,757			132,724			13,940			10,718
2015 - Projected		80,072,859			2,839,374			141,113			14,318			11,130
% Change 2000-10		10.10	%		20.04	%		16.65	%		8.72	%		9.58	%
% Change 2010-15		4.17	%		8.88	%		6.32	%		2.71	%		3.84	%
Value of Owner Occupied
Housing Units
2007 - Median	$	201,000		$	150,700		$	190,200		$	100,700		$	173,400
2009 - Median	$	185,200		$	155,500		$	193,000		$	115,300		$	178,400
% Change 2007-09		-7.9	%		3.2	%		1.5	%		14.5	%		2.9	%
Current Value of Owner
Occupied Housing Units
$0 - $100,000		27.39	%		32.58	%		34.37	%		46.15	%		25.20	%
$100,000 - $200,000		34.48	%		40.15	%		33.47	%		40.11	%		37.72	%
$200,000 - $300,000		17.08	%		15.70	%		17.24	%		9.38	%		19.72	%
$300,000 - $500,000		12.49	%		7.81	%		10.17	%		3.09	%		11.89	%
$500,000 +		8.56	%		3.76	%		4.75	%		1.27	%		5.47	%
Unemployment Rates
2009 Annual Average		9.3	%		10.8	%		9.0	%		14.8	%		9.0	%
2010 Annual Average		9.6	%		10.6	%		8.5	%		12.7	%		9.2	%
March 2011		8.8	%		9.7	%		8.1	%		12.3	%		9.0	%

Source: SNL Financial, ESRI, and U.S. Census Bureau.

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FELDMAN FINANCIAL ADVISORS, INC.

The economy of the Asheville MSA constitutes a diverse cross section of employment sectors, with a mix of educational and health services, retail and wholesale trade, leisure and hospitality, and manufacturing. There is no single employer or industry upon which a significant concentration of the labor force is dependent. Table 12 provides comparative employment sector data for the United States, North Carolina, and the Asheville MSA. Table 13 presents a summary of the largest employers in the Asheville MSA.

The Asheville MSA labor force comprised nearly 165,000 workers with the largest concentration in the educational and health services sector, numbering approximately 43,000 employees of 26.1% of total employment as compared to the national level of 21.6%. The Asheville MSA is home to University of North Carolina at Asheville, Montreat College, Warren Wilson College, Mars Hill College, and Asheville-Buncombe Technical Community College. Mission Health System Inc., based in Asheville, is the state’s sixth largest health system and the tertiary care regional referral center for western North Carolina. The health care sector has especially been a targeted growth area, along with advanced manufacturing technology. The leisure and hospitality industry remains an important sector in the Asheville MSA with The Biltmore Company and The Grove Park Inn Resort and Spa serving as the primary employers.

The unemployment rate in the Asheville MSA has hovered below the national and state rates in recent years, while the North Carolina rate has slightly exceeded the national rate. The unemployment rate for the Asheville MSA measured 8.1% in March 2011, below the national and state rates of 8.8% and 9.7%, respectively. Buncombe County and Henderson County reported March 2011 unemployment rates of 8.1% and 8.3%, respectively, as compared to 9.8% for Transylvania County, 10.2% for Madison County, and 12.3% for McDowell County.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 12

Comparative Employment Concentrations

Average for the Quarter Ended September 30, 2010

Industry Sector	United States			North Carolina			Asheville MSA
Number Employed
Educational and Health Services		27,101,257			873,681			42,986
Retail and Wholesale Trade		20,009,725			605,478			27,365
Professional and Business Services		17,075,069			495,101			15,511
Leisure and Hospitality		13,997,471			412,827			23,505
Manufacturing		11,625,614			434,019			18,225
Public Administration		7,621,682			243,725			9,719
Financial Activities		7,422,070			196,699			5,505
Construction		5,832,636			179,646			7,809
Transportation and Utilities		5,524,448			135,852			5,482
Other Services		4,434,131			94,110			4,791
Information		2,849,791			69,383			1,924
Natural Resources and Mining		1,942,826			35,165			1,696
Unclassified		169,887			1,789			65
Total Employment		125,606,605			3,777,475			164,583
Percent of Total
Educational and Health Services		21.6	%		23.1	%		26.1	%
Retail and Wholesale Trade		15.9	%		16.0	%		16.6	%
Professional and Business Services		13.6	%		13.1	%		9.4	%
Leisure and Hospitality		11.1	%		10.9	%		14.3	%
Manufacturing		9.3	%		11.5	%		11.1	%
Public Administration		6.1	%		6.5	%		5.9	%
Financial Activities		5.9	%		5.2	%		3.3	%
Construction		4.6	%		4.8	%		4.7	%
Transportation and Utilities		4.4	%		3.6	%		3.3	%
Other Services		3.5	%		2.5	%		2.9	%
Information		2.3	%		1.8	%		1.2	%
Natural Resources and Mining		1.5	%		0.9	%		1.0	%
Unclassified		0.1	%		0.0	%		0.0	%
Total Employment		100.0	%		100.0	%		100.0	%

Source: U.S. Department of Labor, Bureau of Labor Statistics;

Employment Security Commission of North Carolina.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 13

Major Employers in the Asheville Area

Company / Organization	Industry Description	Employees
Buncombe County Public Schools	Educational Services		3,000+
Mission Health System and Hospital	Hospitals		3,000+
City of Asheville	Executive, Legislative, & Other General Govt.		1,000-2,999
The Biltmore Company	Museums, Historical Sites & Similar Institutions		1,000-2,999
Buncombe County Government	Executive, Legislative, & Other General Govt.		1,000-2,999
The Grove Park Inn Resort & Spa	Accommodation		1,000-2,999
Ingles Markets, Inc. (Home Office Buncombe County)	Food & Beverage Stores		1,000-2,999
VA Medical Center-Asheville Dept. of Veterans Affairs	Hospitals		1,000-2,999
BorgWarner Turbo & Emissions Systems	Transportation Equip. Manufacturing		750-999
CarePartners	Nursing & Residential Care Facilities		750-999
Eaton Corporation - Electrical Division	Electrical Equip., Appliance & Component Mfg.		750-999
Asheville City Schools	Educational Services		500-749
Arvato Digital Services	Computer & Electronic Product Manufacturing		500-749
Sitel, A Subsidiary of Onex Corp.	Administrative & Support Services		500-749
Thermo Fisher Scientific, Inc.	Machinery Manufacturing		500-749
University of North Carolina at Asheville	Educational Services		500-749
Asheville-Buncombe Technical Community College	Educational Services		400-499
Black Mountain Neuro-Medical Treatment Center	Nursing & Residential Care Facilities		400-499
Kearfott Guidance & Navigation Corp.	Computer & Electronic Product Manufacturing		400-499
Wal-Mart Stores, Inc.	General Merchandise Stores		400-499
YMCA of Western NC	Religious, Civic, Professional Organizations		400-499
Burger King Restaurants (Carrols Corp.)	Food Services & Drinking Places		300-399
Flint Group	Machinery Manufacturing		300-399
Givens Estates United Methodist Retirement Community	Nursing & Residential Care Facilities		300-399
MB Haynes Corp. (Division Offices)	Construction of Buildings		300-399
McDonald’s Corp., Corporate Office	Food Services & Drinking Places		300-399
Unison Engine Components	Transportation Equip. Manufacturing		300-399
Taylor & Murphy Construction Company, Inc.	Heavy & Civil Engineering Construction		300-399
CPU2	Administrative & Support Services		300-399
Advantage Care Services	Ambulatory Health Care Services		200-299
Asheville Radiology Associates, P.A.	Ambulatory Health Care Services		200-299
Biltmore Estate Winery	Beverage & Tobacco Product Manufacturing		200-299
Colbond, Inc.	Chemical Manufacturing		200-299
Deerfield Episcopal Retirement Community	Nursing & Residential Care Facilities		200-299
Eaton Corporation - Electrical Division	Electrical Equip., Appliance & Component Mfg.		200-299
Genova Diagnostics	Ambulatory Health Care Services		200-299
Highland Farms Retirement Community	Nursing & Residential Care Facilities		200-299
HomeTrust Bank	Credit Intermediation & Related Activities		200-299
Inn on Biltmore Estate	Accommodation		200-299
J & S Cafeteria (Buncombe County)	Food Services & Drinking Places		200-299
J. Crew Group	Clothing & Clothing Accessories Stores		200-299
Medical Action Industries, Inc.	Misc. Manufacturing		200-299
Milkco, Inc.	Food Manufacturing		200-299
Mills Manufacturing Corp.	Textile Product Manufacturing		200-299
NC State Alcohol & Drug Abuse Treatment Ctr.	Hospitals		200-299
Nypro Asheville, Inc.	Plastics & Rubber Products Manufacturing		200-299
Pisgah Valley Retirement Community	Nursing & Residential Care Facilities		200-299
Sam’s Club (A Division of Wal-Mart Stores, Inc.)	General Merchandise Stores		200-299
Swannanoa Valley Youth Development Center	Justice, Public Order & Safety Activities		200-299
Tyco Electronics Corp.	Electrical Equip., Appliance & Component Mfg.		200-299
United Parcel Service (Asheville)	Couriers & Messengers		200-299
United States Postal Service - Asheville Facility	Postal Service		200-299
Volvo Construction Equipment North America, Inc.	Merchant Whols., Durable Goods		200-299
Warren Wilson College	Educational Services		200-299

Source: Asheville Metro Business & Industry Directory 2009-2010.

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FELDMAN FINANCIAL ADVISORS, INC.

Market Share Analysis

Table 14 displays branch deposit data for the top 25 financial institutions in the Asheville MSA as of June 30, 2010 (with deposit data adjusted for completed and pending mergers). ASB ranked fourth in the Asheville MSA out of 36 financial institutions with total deposits of $545.0 million and a market share of 7.4%. Previously, as of June 30, 2009, the Bank ranked fourth in the Asheville MSA with total deposits of $517.8 and a market share of 7.2% million. ASB’s deposits increased by 5.2% between June 30, 2009 and 2010, while the total deposits in the Asheville MSA increased by 3.1% from $7.2 billion to $7.4 billion over the same period.

The top three financial institutions (Wells Fargo & Company, First Citizens BancShares, and HomeTrust Bank) held $3.2 billion or 43.1% of the deposit market in the Asheville MSA. The deposit market in the local area has been altered by recent acquisition activity. Wells Fargo entered the market and seized the top deposit share position through its acquisition of Wachovia Bank in October 2008. TD Bank acquired Carolina First Bank in May 2010. Through a failed bank acquisition, First Bancorp assumed the operations of Bank of Asheville in January 2011.

Table 15 displays branch deposit data for the top 25 financial institutions as of June 30, 2010 in the Greater Asheville Area, which includes Buncombe, Haywood, Henderson, Madison, Jackson, McDowell, Polk, Rutherford, Transylvania, and Yancey counties. ASB ranked fifth in the Greater Asheville Area out of 50 financial institutions with total deposits of $628.0 million as of June 30, 2010 and a market share of 6.1%. The top three deposit market leaders in the Greater Asheville Area were the same financial institutions (Wells Fargo, First Citizens, and HomeTrust Bank) as in the Asheville MSA. However, BB&T Corp. surpassed ASB to occupy the fourth position in the Greater Asheville Area with deposits of $698.6 million and a market share of 6.8%.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 14

Deposit Market Share in the Asheville MSA

Data as of June 30, 2010

(Adjusted for Completed and Pending Mergers)

Rank	Financial Institution	Type	Branch Count		Deposit Market Share (%)		Total Deposits ($000)
1	Wells Fargo & Co. (CA)	Bank		17		19.14		1,413,860
2	First Citizens BancShares Inc. (NC)	Bank		22		15.34		1,133,067
3	HomeTrust Bank (NC)	Thrift		8		8.65		638,772
4	Asheville Savings Bank, S.S.B. (NC)	Thrift		11		7.38		544,961
5	SunTrust Banks Inc. (GA)	Bank		15		6.89		508,797
6	1st Financial Services Corp. (NC)	Bank		6		5.84		431,696
7	BB&T Corp. (NC)	Bank		9		5.44		402,085
8	Bank of America Corp. (NC)	Bank		9		5.22		385,811
9	TD Bank (Canada)	Bank		10		5.02		370,427
10	RBC Bank (Canada)	Bank		8		3.00		221,693
11	First Bancorp (NC)	Bank		5		2.73		201,409
12	United Community Banks, Inc. (GA)	Bank		3		2.04		150,641
13	Mountain Credit Union (NC)	Credit Union		7		2.02		149,158
14	Champion Credit Union (NC)	Credit Union		2		1.71		126,200
15	Macon Bancorp (NC)	Thrift		2		1.54		113,675
16	Capital Bank Corporation (NC)	Bank		4		1.28		94,525
17	Blue Ridge Savings Bank, Inc. (NC)	Thrift		5		1.17		86,704
18	Telco Community Credit Union (NC)	Credit Union		1		0.89		65,916
19	Forest Commercial Bank (NC)	Bank		1		0.83		60,987
20	Oldtown Bank (NC)	Bank		1		0.78		57,372
21	Pisgah CommunityBank (NC)	Bank		1		0.76		55,780
22	WNC Community Credit Union	Credit Union		1		0.67		49,472
23	Black Mountain Svgs. Bank, S.S.B. (NC)	Thrift		1		0.44		32,217
24	Southern Community Financial (NC)	Bank		1		0.34		25,299
25	Oteen VA Federal Credit Union (NC)	Credit Union		1		0.31		22,874
	Total (36 financial institutions)			193		100.00		7,386,024

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 15

Deposit Market Share in the Greater Asheville Area

Data as of June 30, 2010

(Adjusted for Completed and Pending Mergers)

						Deposit
						Market		Total
				Branch		Share		Deposits
Rank	Financial Institution	Type		Count		(%)		($000)
1	Wells Fargo & Co. (CA)		Bank		24		18.38		1,879,790
2	First Citizens BancShares Inc. (NC)		Bank		31		14.18		1,450,096
3	HomeTrust Bank (NC)		Thrift		11		8.33		852,521
4	BB&T Corp. (NC)		Bank		16		6.83		698,614
5	Asheville Savings Bank, S.S.B. (NC)		Thrift		13		6.14		628,010
6	1st Financial Services Corp. (NC)		Bank		10		5.96		609,204
7	TD Bank (Canada)		Bank		18		5.61		574,152
8	SunTrust Banks Inc. (GA)		Bank		15		5.29		540,897
9	Bank of America Corp. (NC)		Bank		12		4.84		495,003
10	RBC Bank (Canada)		Bank		13		3.86		394,831
11	United Community Banks, Inc. (GA)		Bank		10		3.80		388,653
12	Macon Bancorp (NC)		Thrift		7		3.61		368,968
13	First Bancorp (NC)		Bank		5		1.97		201,409
14	Mountain Credit Union (NC)		Credit Union		7		1.46		149,158
15	Blue Ridge Savings Bank, Inc. (NC)		Thrift		6		1.34		136,821
16	Champion Credit Union (NC)		Credit Union		2		1.23		126,200
17	Fifth Third Bancorp (OH)		Bank		5		1.12		114,234
18	Capital Bank Corporation (NC)		Bank		4		0.92		94,525
19	Telco Community Credit Union (NC)		Credit Union		1		0.64		65,916
20	Forest Commercial Bank (NC)		Bank		1		0.60		60,987
21	Oldtown Bank (NC)		Bank		1		0.56		57,372
22	Pisgah CommunityBank (NC)		Bank		1		0.55		55,780
23	First National Bank of Shelby (NC)		Bank		1		0.50		50,780
24	WNC Community Credit Union (NC)		Credit Union		1		0.48		49,472
25	Ecusta Credit Union (NC)		Credit Union		1		0.40		40,901
	Total (50 financial institutions)				291		100.00		10,229,621

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 16 provides residential mortgage market share data for the top 25 lenders in the Asheville MSA as ranked by loans funded in 2009. Wells Fargo (Wachovia) and HomeTrust Bank ranked among the top two leading residential lenders in the local market area, funding $374.1 million (13.3% market share) and $304.8 million (10.8% market share) in residential loans, respectively. Bank of America, BB&T Corp., and State Employees’ Credit Union were included in the top five residential lenders. ASB ranked sixth in the Asheville MSA with $136.5 million of residential loans funded and a market share of 4.9%. The top six lenders, including ASB, accounted for 50.5% of the residential loan originations in the Ashville MSA for 2009.

Previously, the Bank ranked 12^th with a market share of 3.2% based on total residential mortgage loans funded of $79.6 million in 2008. Total residential mortgage originations in the Asheville MSA increased 14.1% from $2.5 billion in 2008 to $2.8 billion in 2009. The average residential mortgage loan funded in the Asheville MSA was approximately $190,500 in 2009 compared to $188,900 in 2008. The Bank’s average residential mortgage loan funded in the Asheville MSA was approximately $190,100 in 2009 compared to $197,900 in 2008.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 16

Residential Mortgage Lending Market Share in the Asheville MSA

Data for 2009

(Adjusted for Completed and Pending Mergers)

					Total		Total
			No. of		Market		Funded
			Funded		Share		Loans
Rank	Company	Type	Loans		(%)		($000)
1	Wells Fargo & Co. (CA)	Bank		1,932		13.30		374,100
2	HomeTrust Bank (NC)	Thrift		1,526		10.83		304,830
3	Bank of America Corp. (NC)	Bank		1,365		9.26		260,407
4	BB&T Corp. (NC)	Bank		927		6.69		188,168
5	State Employees’ Credit Union (NC)	Credit Union		948		5.61		157,762
6	Asheville Savings Bank, S.S.B. (NC)	Thrift		718		4.85		136,499
7	SunTrust Banks, Inc. (GA)	Bank		611		4.56		128,321
8	Cunningham & Company, Inc. (NC)	Mortgage Bank		468		3.40		95,698
9	First Citizens BancShares, Inc. (NC)	Bank		395		3.23		91,014
10	1st Financial Services Corp. (NC)	Bank		353		2.30		64,688
11	TD Bank (Canada)	Bank		277		1.94		54,480
12	JPMorgan Chase & Co. (NY)	Bank		304		1.88		52,899
13	Quicken Loans, Inc. (MI)	Mortgage Bank		244		1.52		42,825
14	Fifth Third Bancorp (OH)	Bank		202		1.40		39,447
15	WR Starkey Mortgage, LLP (TX)	Mortgage Bank		215		1.39		39,231
16	United Community Banks, Inc. (GA)	Bank		221		1.37		38,486
17	USAA Federal Savings Bank (TX)	Thrift		194		1.30		36,457
18	RBC Bank (Canada)	Bank		161		1.21		34,069
19	New York Community Bancorp (NY)	Thrift		133		0.94		26,508
20	Carolina Bank Holdings, Inc. (NC)	Bank		120		0.89		24,944
21	U.S. Bancorp (MN)	Bank		132		0.81		22,889
22	Flagstar Bank, FSB (MI)	Thrift		109		0.76		21,343
23	Champion Credit Union (NC)	Credit Union		246		0.67		18,724
24	Citigroup Inc. (NY)	Bank		122		0.63		17,761
25	Provident Funding Assoc. L.P. (CA)	Mortgage Bank		88		0.63		17,690
	Total			14,765		100.00		2,813,503

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

II. COMPARISONS WITH PUBLICLY TRADED THRIFTS

General Overview

The comparative market approach provides a sound basis for determining estimates of going-concern valuations where a regular and active market exists for the stocks of peer institutions. The comparative market approach was utilized in determining the estimated pro forma market value of the Bank because: (i) reliable market and financial data are readily available for comparable institutions; (ii) the comparative market method is accepted by the applicable regulatory guidelines; and (iii) other alternative valuation methods (such as income capitalization, liquidation analysis, or discounted cash flow) are unlikely to produce a valuation relevant to the future trading patterns of the related equity interest. The generally employed valuation method in initial public offerings, where possible, is the comparative market approach, which also can be relied upon to determine pro forma market value in a thrift stock conversion.

The comparative market approach derives valuation benchmarks from the trading patterns of selected peer institutions which, due to certain factors such as financial performance and operating strategies, enable the appraiser to estimate the potential value of the subject institution in a stock conversion offering. The pricing and trading history of recent initial public offerings of thrifts are also examined to provide evidence of the “new issue discount” that must be considered. In Chapter II, our valuation analysis focuses on the selection and comparison of the Bank with a comparable group of publicly traded thrift institutions (the “Comparative Group”). Chapter III will detail any additional discounts or premiums that we believe are appropriate to the Bank’s pro forma market value.

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FELDMAN FINANCIAL ADVISORS, INC.

Selection Criteria

Selected market price and financial performance data for all public thrifts listed on major stock exchanges are shown in Exhibit III. The list excludes companies that are subject to being acquired under a pending transaction and companies that have a majority ownership interest controlled by a mutual holding company (“MHC”). Several criteria, discussed below, were used to select the individual members of the Comparative Group from the overall universe of publicly traded thrifts.

• Operating characteristics – An institution’s operating characteristics are the most important factors because they affect investors’ expected rates of return on a company’s stock under various business/economic scenarios, and they influence the market’s general perception of the quality and attractiveness of a given company. Operating characteristics, which may vary in importance during the business cycle, include financial variables such as profitability, balance sheet growth, capitalization, asset quality, and other factors such as lines of business and management strategies.

• Degree of marketability and liquidity – Marketability of a stock reflects the relative ease and promptness with which a security may be sold when desired, at a representative current price, without material concession in price merely because of the necessity of sale. Marketability also connotes the existence of buying interest as well as selling interest and is usually indicated by trading volumes and the spread between the bid and asked price for a security. Liquidity of the stock issue refers to the organized market exchange process whereby the security can be converted into cash. We attempted to limit our selection to companies that have access to a regular trading market or price quotations, and therefore only considered companies listed on major stock exchanges. We eliminated from the Comparative Group companies with market prices that were materially influenced by announced acquisitions or other unusual circumstances. However, the expectation of continued industry consolidation is currently embedded in thrift equity valuations.

• Geographic Location – The region of the country where a company operates is also of importance in selecting the comparative group. The operating environment for thrift institutions varies from region to region with respect to business and economic environments, real estate market conditions, speculative takeover activity, and investment climates. Economic and investor climates can also vary greatly within a region, particularly due to takeover activity.

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FELDMAN FINANCIAL ADVISORS, INC.

The operations of the Bank fit the general profile of a diversifying thrift institution, concentrating primarily on real estate lending in its local market and relying significantly on certificates of deposit and other interest-bearing deposit accounts as funding sources. Residential mortgage loans remain as a core product in the Bank’s loan portfolio. However, the Bank has diversified its loan mix through the origination of commercial real estate and consumer loans and, to a lesser extent, commercial business and construction and land development loans.

In determining the Comparative Group composition, we focused chiefly on ASB’s asset size, capital level, credit risk profile, and geographic location. Attempting to concentrate on the Bank’s performance characteristics and to develop a meaningful number of comparables for valuation purposes, we expanded the geographic criterion for comparable thrifts beyond the South region of the United States. As with any composition of a group of comparable companies, the selection criteria were broadened sufficiently to assemble a meaningful number of members. Specifically, we applied the following selection criteria:

• Publicly traded thrift – stockholder-owned thrift whose shares are traded on the New York, NYSE Amex, or NASDAQ stock markets.

• Non-acquisition target – company is not subject to a pending acquisition.

• Excludes mutual holding companies – company’s majority ownership interest is not held by an MHC.

• Seasoned trading issue – company has been publicly traded for a minimum of one full year.

• Asset size – total assets between $500.0 million and $1.25 billion.

• Capitalization –tangible equity to assets ratio greater than or equal to 8.0%.

• Credit risk exposure – ratio of total non-performing assets to total assets less than or equal to 8.0%.

• Geographic location – preference for companies based in the South, with consideration also granted to companies in Mid-Atlantic or Midwest states.

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FELDMAN FINANCIAL ADVISORS, INC.

As a result of applying the stated criteria, the screening process produced a reliable representation of publicly traded thrifts. A general operating summary of the ten companies included in the Comparative Group is presented in Table 17. All of the selected companies except one are traded on the NASDAQ market; Teche Holding Company is listed on the NYSE Amex. The Comparative Group ranged in asset size from $512.8 million at First Savings Financial Group, Inc. to approximately $1.1 billion at CFS Bancorp, Inc. and HopFed Bancorp, Inc. The median and average asset sizes of the Comparative Group were $662.6 million and $756.5 million, respectively, compared to ASB’s total assets of $750.7 million at March 31, 2011.

Six of the comparables are located in Southern states (Citizens South Banking Corp. in North Carolina, Community Financial Corporation in Virginia, HopFed Bancorp in Kentucky, Jefferson Bancshares, Inc. in Tennessee, and Home Bancorp, Inc. and Teche Holding Company in Louisiana). Citizens South Banking Corp. is based in Gastonia, North Carolina, approximately 100 miles southeast east of Asheville. Three companies are located in Midwestern states (Citizens Community Bancorp, Inc. in Wisconsin and CFS Bancorp, Inc. and First Savings Financial Group in Indiana). Headquartered in Baltimore, Maryland, BCSB Bancorp, Inc. is located in the Mid-Atlantic region.

In comparison to recent performance trends of the aggregate public thrift industry, the Comparative Group generally exhibited lower profitability returns, moderately lower capital levels, and more favorable asset quality ratios. While some differences inevitably may exist between ASB and the individual companies, we believe that the chosen Comparative Group on the whole provides a meaningful basis of financial comparison for valuation purposes.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 17

Comparative Group Operating Summary

As of March 31, 2011

Company	City	State	No. of Offices		Conversion Offering Date	Total Assets ($Mil.)		Tang. Equity/ Assets (%)
Asheville Savings Bank, S.S.B.	Asheville	NC		13	NA	$	750.7		8.43
Comparative Group
BCSB Bancorp, Inc.	Baltimore	MD		18	04/11/08		624.8		8.07
CFS Bancorp, Inc.	Munster	IN		22	07/24/98		1,144.0		9.94
Citizens Community Bancorp (1)	Eau Claire	WI		27	11/01/06		580.3		8.81
Citizens South Banking Corp.	Gastonia	NC		21	04/13/98		1,041.4		8.72
Community Financial Corp. (1)	Staunton	VA		11	03/30/88		527.7		9.29
First Savings Financial Group	Clarksville	IN		12	10/07/08		512.8		9.48
Home Bancorp, Inc.	Lafayette	LA		18	10/03/08		700.5		18.73
HopFed Bancorp, Inc.	Hopkinsville	KY		18	02/09/98		1,074.0		10.02
Jefferson Bancshares, Inc.	Morristown	TN		12	07/02/03		577.5		9.34
Teche Holding Company	New Iberia	LA		19	04/19/95		782.2		9.49

(1) As of December 31, 2010.

Source: Asheville Savings Bank; SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Recent Financial Comparisons

Table 18 summarizes certain key financial comparisons between ASB and the Comparative Group. Tables 19 through 24 contain the detailed financial comparisons of the Bank with the individual Comparative Group companies based on measures of profitability, income and expense components, yield-cost structure, capital levels, balance sheet composition, asset quality, and growth rates. Financial data for the Bank, the Comparative Group, and All Public Thrift aggregate were utilized for the latest available period as of for the last twelve months (“LTM”) ended March 31, 2011.

ASB’s LTM ROA was negative 1.22%, reflecting a profitability measure below the Comparative Group median of positive 0.26% and the All Public Thrift median of positive 0.43%. The Bank’s lower ROA was attributable mainly to a lower net interest margin and higher level of loan loss provisions The Bank’s LTM return on average equity (“ROE”) was negative 13.60% and positioned below the Comparative Group median of positive 2.71%. Three members of the Comparative Group reported losses for the LTM period, while the remaining seven exhibited positive earnings. Similar to ASB, the Comparative Group companies reporting negative earnings displayed elevated levels of loan loss provisions for the LTM period.

Based on core earnings as adjusted to exclude intangibles amortization expense and non-recurring income and expense items, ASB’s core profitability ratios also lagged behind those of the Comparative Group. The Bank’s core earnings for the LTM period excluded $312,000 of pre-tax gains on sales of investment securities. The Bank’s core ROA of negative 1.25% was below the Comparative Group median of positive 0.25% and the All Public Thrift median of positive 0.46%.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 18

Key Financial Comparisons

Asheville Savings Bank and the Comparative Group

As of For the Last Twelve Months Ended March 31, 2011

(Ratios in Percent)

	Asheville Savings Bank			Comparative Group Median		All Public Thrift Median
Profitability
LTM Return on Average Assets (ROA)		(1.22	)		0.26		0.43
LTM Return on Average Equity (ROE)		(13.60	)		2.71		3.50
Core Return on Avg. Assets (Core ROA)		(1.25	)		0.25		0.46
Core Return on Avg. Equity (Core ROE)		(13.90	)		2.59		3.79
Income and Expense (% of avg. assets)
Total Interest Income		4.14			4.80		4.54
Total Interest Expense		1.41			1.35		1.45
Net Interest Income		2.74			3.47		3.13
Provision for Loan Losses		2.79			0.71		0.48
Other Operating Income		0.92			0.71		0.60
Net Secs. Gains and Non-rec. Income		0.04			0.02		0.01
General and Administrative Expense		2.93			2.89		2.84
Intangibles Amortization Expense		0.00			0.03		0.00
Non-recurring Expense		0.00			0.01		0.00
Pre-tax Core Earnings		(2.06	)		0.29		0.67
Efficiency Ratio		79.98			70.38		69.82
Yield-Cost Data
Yield on Interest-earning Assets		4.36			5.34		4.93
Cost of Interest-bearing Liabilities		1.67			1.62		1.75
Net Interest Spread		2.69			3.57		3.39
Net Interest Margin		2.88			3.73		3.41
Asset Utilization (% of avg. total assets)
Avg. Interest-earning Assets		95.08			90.66		93.63
Avg. Interest-bearing Liabilities		84.09			82.78		81.80
Avg. Net Interest-earning Assets		10.99			8.88		10.96

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FELDMAN FINANCIAL ADVISORS, INC.

Table 18 (continued)

Key Financial Comparisons

Asheville Savings Bank and the Comparative Group

As of For the Last Twelve Months Ended March 31, 2011

(Ratios in Percent)

	Asheville Savings Bank			Comparative Group Median			All Public Thrift Median
Balance Sheet Composition (% of total assets)
Cash and Securities		31.27			23.39			23.22
Loans Receivable, net		63.06			67.34			68.38
Real Estate		1.40			0.80			0.40
Intangible Assets		0.00			0.14			0.05
Other Assets		4.28			6.47			4.85
Total Deposits		82.13			79.04			73.20
Borrowed Funds		8.18			9.16			13.09
Other Liabilities		1.26			0.70			0.95
Total Equity		8.43			9.79			10.98
Loan Portfolio (% of total loans)
Residential First Mortgage Loans		36.66			31.50			41.55
Other Real Estate Mortgage Loans		51.61			53.17			47.48
Non-mortgage Loans		11.73			13.91			8.18
Growth Rates
Total Assets		(1.38	)		2.26			0.03
Total Loans		(18.33	)		(4.36	)		(3.43	)
Total Deposits		(0.37	)		1.96			2.30
Regulatory Capital Ratios
Tier 1 Leverage Ratio		8.60			9.24			9.75
Tier 1 Risk-based Capital		13.67			12.51			15.27
Total Risk-based Capital		14.94			13.76			16.17
Credit Risk Ratios
Non-performing Loans / Total Loans		2.92			2.98			3.46
Non-performing Assets / Total Assets		4.83			2.44			3.42
Reserves / Total Loans		2.60			1.72			1.63
Reserves / Non-performing Loans		89.02			39.91			44.26

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

As shown in Table 18, the Bank’s net interest margin of 2.88% significantly trailed the Comparative Group median of 3.73% and the All Public Thrift median of 3.41%. The Bank’s net interest margin has been hampered by its increased level of liquidity as its loan portfolio has shrunk due to a combination of loan sales and reduced loan originations. The Bank’s level of cash and securities amounted to 31.3% of total assets and surpassed the Comparative Group median of 21.8% and All Public Thrift median of 23.2%. The Bank’s lower equity position also places its net interest margin at a slight disadvantage. None of the Comparative Group companies exhibited a net interest margin below 3.00% with HopFed Bancorp reporting the lowest net interest margin at 3.12%. Similar to the Bank, HopFed Bancorp also held a relatively large concentration of cash and securities on its balance sheet.

While its cost of interest-bearing liabilities was comparable to the Comparative Group median, the Bank’s yield on interest-earning assets was much lower. The Bank’s 1.67% cost of interest-bearing liabilities was slightly higher than the Comparative Group median of 1.62%. However, the Bank’s 4.36% yield on interest-earning assets was 98 basis points lower than the Comparative Group median of 5.34%. Generally, yields on investment securities are lower than yields on loans and the Bank’s higher concentration of securities places its overall yield on interest-earning assets at a comparative disadvantage.

The Bank’s non-interest operating income totaled 0.92% of average assets, noticeably exceeding the Comparative Group and All Public Thrift medians of 0.71% and 0.60%, respectively. The Bank has consistently generated a stable stream of non-interest revenue from mortgage banking operations, service charges on deposit accounts, debit card services, and other fee income sources. The Bank’s recent level of non-interest operating income at 0.92% of

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FELDMAN FINANCIAL ADVISORS, INC.

average assets for the LTM period surpassed the reported levels for all of the Comparative Group companies except for Teche Holding Company. The Bank also generated gains on sale of investment securities, which amounted to 0.04% of average assets for the LTM period and exceeded the Comparative Group and All Public Thrift medians of 0.02% and 0.01%, respectively.

The Bank’s operating expense ratio at 2.93% of average assets was slightly higher than the Comparative Group median of 2.89% and All Public Thrift median of 2.84%. The Bank’s operating expense ratio increased in recent periods as the amount of absolute expense has risen at a greater pace than average assets, which have been held relatively constant over the past two years due to loan portfolio shrinkage. In addition, the Bank’s operating expense total was inflated by higher foreclosed property expenses of $2.1 million for the recent LTM period. Excluding the foreclosed property expenses, the Bank’s operating expense ratio would have measured 2.65% for the LTM ended March 31, 2011.

The Bank’s efficiency ratio (non-interest expense less intangibles amortization expense as a percent of net interest income before provision plus non-interest operating income) was higher at 80.0% versus the Comparative Group and All Public Thrift medians of 70.4% and 69.8%, respectively. Although the operating expense levels are comparable and the Bank has a higher level of non-interest income, the Bank is disadvantaged by a lower level of net interest income at 2.74% of average assets in contrast to the Comparative Group median of 3.47%. For the recent LTM period, the Bank’s net interest income was not sufficient to cover the amount of operating expenses. Only two members of the Comparative Group (CFS Bancorp and Teche Holding Company) exhibited a similar imbalance of net interest income versus operating expenses.

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FELDMAN FINANCIAL ADVISORS, INC.

Prior to 2010, the Bank had increased its provision for loan losses gradually to reflect the overall growth of the loan portfolio. However in 2010, ASB increased the provision significantly due to increased levels of loan charge-offs and heightened credit risk exposure. For the LTM period, the Bank’s provision for loan losses amounted to 2.79% of average assets and exceeded the Comparative Group and All Public Thrift medians of 0.71% and 0.48%, respectively. Several members of the Comparative Group also reported elevated levels of loan loss provisions that contributed to negative earnings or very low profitability.

Table 23 profiles the overall balance sheet composition of the Bank versus that of the Comparative Group. The Bank’s net total loans amounted to 63.1% of total assets as of March 31, 2011, below the median of 67.3% for the Comparative Group. Conversely, the Bank’s ratio of cash and securities to total assets was 31.3% and surpassed the median of 21.8% for the Comparative Group. As noted previously, the Bank’s increased level of cash and securities has contributed to its lower net interest margin in the current interest rate environment. The Bank had no goodwill or other intangible assets on its balance sheet as of March 31, 2011. The Bank’s real estate owned measured 1.4% of total assets and was slightly higher than the 0.1% level reflected by the Comparative Group median. The Bank’s ratio of other assets to total assets measured 4.8% and was lower than the Comparative Group median of 6.9%. The Bank’s category of other assets largely consisted of fixed assets and deferred tax assets.

The Bank’s borrowings level at 8.2% of assets primarily reflected its usage of FHLB advances as a supplemental funding source, and was similar to the Comparative Group’s median borrowings level of 9.2%. The Bank’s deposit level at 82.1% of total assets was similar to the Comparative Group’s median deposit level of 79.0%. The Bank’s equity level before the Conversion was 8.43% relative to total assets, which was slightly lower than the Comparative Group and All Public Thrift medians of 9.79% and 10.98%, respectively.

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FELDMAN FINANCIAL ADVISORS, INC.

The Bank had made considerable strides toward diversifying its loan portfolio away from the traditional thrift model’s reliance on residential mortgages as evidenced by the loan composition data displayed in Table 24. The Bank’s level of residential first mortgage loans measured 36.7% of total loans based on regulatory financial data as of March 31, 2011, compared to the Comparative Group and All Public Thrift medians of 31.5% and 41.6%, respectively. The Bank’s concentration of other real estate mortgage loans, which include commercial mortgages, revolving mortgages, and construction and land development loans, measured 51.6% of total loans and was comparable to the Comparative Group median of 53.2%. The Bank’s ratio of non-mortgage loans, which include consumer loans and commercial and industrial loans, amounted to 11.7% of total loans and was positioned slightly below the Comparative Group median of 13.9%.

The Bank’s restrained balance sheet growth in recent periods is reflected in the comparative growth rates. The Bank’s asset growth rate measured negative 1.4% over the recent LTM period and trailed the Comparative Group median of positive 2.3%. The Bank also exhibited negative growth rates of loans and deposits, while the Comparative Group reported median growth rates that were negative for loans and slightly positive for deposits. The sluggish economy and mounting credit-related losses have forced many financial institutions to emphasize capital preservation and credit remediation over growth objectives.

The Bank’s 2.92% ratio of non-performing loans to total loans was comparable to the Comparative Group median of 2.98% and below the All Public Thrift median of 3.42%.

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FELDMAN FINANCIAL ADVISORS, INC.

However, the Bank’s ratio of total non-performing assets to total assets was higher at 4.83% versus the Comparative Group and All Public Thrift medians of 2.44% and 3.42%, respectively. For comparative purposes, total non-performing assets include restructured or renegotiated loans in addition to non-performing loans and real estate owned. The Bank’s ratio of reserves to non-performing loans compared favorably to the aggregate medians and reflected the substantial additions to reserves made by the Bank in 2010. The Bank’s 2.60% ratio of reserves to total loans surpassed the Comparative Group and All Public Thrift medians of 1.72% and 1.63%, respectively, and exceeded the high ratios of 2.36% and 2.34% reported by CFS Bancorp and HopFed Bancorp, respectively. Additionally, the Bank’s 89.0% ratio of reserves to non-performing was higher than the Comparative Group and All Public Thrift medians of 39.9% and 44.3%, respectively.

In summary, the Bank’s recent earnings performance trailed the results exhibited by the Comparative Group and All Public Thrift segments. The Bank’s profitability is characterized by a lower net interest margin and, more recently, increased provisions for loan losses. The Bank’s net interest margin has been restrained by the yield potential of its balance sheet structure including comparatively higher levels of investment securities. While the Bank exhibited a higher level of non-interest income and comparable level of non-interest expense, these factors did not offset the Bank’s lower net interest margin. ASB’s earnings growth outlook will depend largely on the Bank’s ability to sustain satisfactory loan quality as its manages and grows the portfolio, improve the net interest margin across movements in the interest rate environment, and control non-interest expense as it expands operations.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 19

General Operating Characteristics

As of March 31, 2011

	City	State	Ticker	Exchange	No. of Offices	Conversion Offering Date	Total Assets ($000s)		Net Loans ($000s)		Total Deposits ($000s)		Total Equity ($000s)
Asheville Savings Bank, S.S.B.	Asheville	NC	NA	NA	13	NA		750,709		473,360		616,586		63,295
Comparative Group Average								756,525		505,274		605,170		78,764
Comparative Group Median								662,620		462,964		543,417		66,819
Comparative Group
BCSB Bancorp, Inc.	Baltimore	MD	BCSB	NASDAQ	18	04/11/08		624,764		374,037		543,215		50,451
CFS Bancorp, Inc.	Munster	IN	CITZ	NASDAQ	22	07/24/98		1,144,041		707,128		980,517		113,764
Citizens Community Bancorp (1)	Eau Claire	WI	CZWI	NASDAQ	27	11/01/06		580,338		446,306		482,393		51,801
Citizens South Banking Corp.	Gastonia	NC	CSBC	NASDAQ	21	04/13/98		1,041,444		713,904		832,803		92,276
Community Financial Corp. (1)	Staunton	VA	CFFC	NASDAQ	11	03/30/88		527,684		479,622		386,129		49,028
First Savings Financial Group, Inc.	Clarksville	IN	FSFG	NASDAQ	12	10/07/08		512,789		341,059		368,991		56,059
Home Bancorp, Inc.	Lafayette	LA	HBCP	NASDAQ	18	10/03/08		700,475		438,541		543,619		132,574
HopFed Bancorp, Inc.	Hopkinsville	KY	HFBC	NASDAQ	18	02/09/98		1,074,043		580,729		833,903		108,294
Jefferson Bancshares, Inc.	Morristown	TN	JFBI	NASDAQ	12	07/02/03		577,524		393,711		469,237		55,818
Teche Holding Company	New Iberia	LA	TSH	NYSE Amex	19	04/19/95		782,152		577,701		610,892		77,578

(1) As of December 31, 2010.

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 20

Summary Financial Performance Ratios

As of or For the Last Twelve Months Ended March 31, 2011

	Total Assets ($000s)		Total Equity/ Assets (%)		Tang. Equity/ Assets (%)		Total NPAs/ Assets (%)		Net Interest Margin (%)		Effcy. Ratio (%)		LTM ROA (%)			LTM ROE (%)			Core ROA (%)			Core ROE (%)
Asheville Savings Bank, S.S.B.		750,709		8.43		8.43		4.83		2.88		79.98		(1.22	)		(13.60	)		(1.25	)		(13.90	)
Comparative Group Average		756,525		10.46		10.19		3.32		3.81		72.35		(0.21	)		(2.73	)		0.24			1.89
Comparative Group Median		662,620		9.79		9.41		2.44		3.73		70.38		0.26			2.71			0.25			2.59
All Public Thrift Average		2,790,311		11.90		11.21		4.27		3.33		72.02		0.03			(3.68	)		0.04			(5.43	)
All Public Thrift Median		870,061		10.98		10.00		3.19		3.41		69.82		0.43			3.50			0.46			3.79
Comparative Group
BCSB Bancorp, Inc.		624,764		8.08		8.07		1.81		3.18		83.10		0.23			2.36			0.24			2.47
CFS Bancorp, Inc.		1,144,041		9.94		9.94		7.90		3.59		82.42		0.29			2.86			0.28			2.72
Citizens Community Bancorp (1)		580,338		8.93		8.81		2.65		3.87		69.67		(1.29	)		(13.94	)		(0.38	)		(4.07	)
Citizens South Banking Corp.		1,041,444		8.86		8.72		3.19		3.41		71.09		(0.24	)		(2.68	)		(0.22	)		(2.44	)
Community Financial Corp. (1)		527,684		9.29		9.29		7.56		4.19		61.88		0.26			2.86			0.26			2.86
First Savings Financial Group, Inc.		512,789		10.93		9.48		1.49		4.45		67.65		0.61			5.66			0.83			7.69
Home Bancorp, Inc.		700,475		18.93		18.73		0.32		4.72		72.17		0.66			3.50			0.85			4.49
HopFed Bancorp, Inc.		1,074,043		10.08		10.02		1.41		3.12		68.64		0.26			2.57			0.06			0.65
Jefferson Bancshares, Inc.		577,524		9.67		9.34		4.67		3.30		78.43		(3.75	)		(39.57	)		(0.43	)		(4.54	)
Teche Holding Company		782,152		9.92		9.49		2.22		4.25		68.47		0.92			9.07			0.92			9.08

(1) As of for the LTM ended December 31, 2010.

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 21

Income and Expense Analysis

For the Last Twelve Months Ended March 31, 2011

	As a Percent of Average Assets
	Interest Income		Interest Expense		Net Interest Income		Other Oper. Income		Non-rec. Income			Loan Loss Prov.		Gen. & Admin. Expense		Amort. & Imp. Intang,		Non-rec. Expense		Pretax Core Earnings
Asheville Savings Bank, S.S.B.		4.14		1.41		2.74		0.92		0.04			2.79		2.93		0.00		0.00		(2.06	)
Comparative Group Average		4.79		1.35		3.46		0.77		0.02			0.77		3.09		0.48		0.05		0.36
Comparative Group Median		4.80		1.35		3.47		0.71		0.02			0.71		2.89		0.03		0.01		0.29
All Public Thrift Average		4.54		1.48		3.07		0.87		0.03			0.76		2.90		0.06		0.03		0.28
All Public Thrift Median		4.54		1.45		3.13		0.60		0.01			0.48		2.84		0.00		0.00		0.67
Comparative Group
BCSB Bancorp, Inc.		4.45		1.50		2.95		0.42		(0.02	)		0.23		2.80		0.00		0.00		0.34
CFS Bancorp, Inc.		4.10		0.87		3.22		0.76		0.07			0.27		3.40		0.00		0.04		0.32
Citizens Community Bancorp (1)		5.61		1.89		3.72		0.36		(0.39	)		1.33		2.84		1.02		0.00		(0.10	)
Citizens South Banking Corp.		4.19		1.31		2.91		0.73		0.05			1.30		2.75		0.05		0.03		(0.41	)
Community Financial Corp. (1)		5.15		1.15		4.00		0.75		0.00			1.55		2.94		0.00		0.00		0.26
First Savings Financial Group, Inc.		5.15		1.13		4.05		0.59		0.03			0.26		3.21		0.06		0.31		1.17
Home Bancorp, Inc.		4.94		0.82		4.12		0.86		(0.19	)		0.09		3.59		0.04		0.06		1.30
HopFed Bancorp, Inc.		4.67		1.96		2.82		0.68		0.34			0.90		2.45		0.03		0.01		0.16
Jefferson Bancshares, Inc.		4.33		1.44		2.89		0.44		0.32			1.25		2.83		3.55		0.00		(0.75	)
Teche Holding Company		5.27		1.39		3.88		2.09		0.00			0.52		4.09		0.00		0.00		1.37

(1) For the LTM ended December 31, 2010.

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 22

Yield-Cost Structure and Growth Rates

For the Last Twelve Months Ended March 31, 2011

	Avg. Int. Earn. Assets/ Assets		Avg. Int.-Bear. Liabs./ Assets		Avg. Net Earning Assets/ Assets			Avg. Equity/ Assets		Yield on Int-Earn. Assets		Cost of Int-Bear. Liabs.		Net Interest Spread		Asset Growth Rate			Loan Growth Rate			Deposit Growth Rate
Asheville Savings Bank, S.S.B.		95.08		84.09		10.99			8.99		4.36		1.67		2.69		(1.38	)		(18.33	)		(0.37	)
Comparative Group Average		90.67		81.72		8.95			10.63		5.29		1.64		3.65		(0.34	)		(5.26	)		3.09
Comparative Group Median		90.66		82.78		8.88			9.81		5.34		1.62		3.57		2.26			(4.36	)		1.96
All Public Thrift Average		93.06		81.24		11.32			11.43		4.91		1.72		3.25		0.83			(1.99	)		4.39
All Public Thrift Median		93.63		81.80		10.96			10.53		4.93		1.75		3.39		0.03			(3.43	)		2.30
Comparative Group
BCSB Bancorp, Inc.		92.63		84.18		8.45			9.62		4.80		1.78		3.02		4.00			(5.72	)		4.97
CFS Bancorp, Inc.		89.82		80.55		9.27			10.13		4.56		1.09		3.48		4.75			(4.87	)		10.53
Citizens Community Bancorp (1)		96.14		86.83		9.31			9.28		5.83		2.18		3.65		2.42			0.26			18.83
Citizens South Banking Corp.		85.34		87.29		(1.95	)		8.82		4.94		1.50		3.44		(8.05	)		(8.29	)		(5.81	)
Community Financial Corp. (1)		95.40		84.38		11.02			9.06		5.39		1.36		4.03		(2.45	)		(3.43	)		(3.98	)
First Savings Financial Group, Inc.		90.94		82.46		8.48			10.81		5.69		1.37		4.32		3.75			(3.85	)		1.92
Home Bancorp, Inc.		87.13		66.80		20.33			18.94		5.67		1.23		4.44		0.54			(2.34	)		0.68
HopFed Bancorp, Inc.		90.37		83.10		7.27			9.99		5.29		2.35		2.93		2.11			(9.61	)		2.00
Jefferson Bancshares, Inc.		87.46		81.93		5.54			9.47		4.95		1.76		3.19		(12.91	)		(12.25	)		(2.32	)
Teche Holding Company		91.47		79.70		11.77			10.13		5.77		1.75		4.02		2.42			(2.46	)		4.12

(1) For the LTM ended December 31, 2010.

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 23

Balance Sheet Composition

As of March 31, 2011

	As a Percent of Total Assets
	Cash & Securities		Net Loans		Real Est. Owned		Intang. Assets		Other Assets		Total Deposits		Borrowed Funds		Other Liabs.		Total Liabs.		Total Equity
Asheville Savings Bank, S.S.B.		31.27		63.06		1.40		0.00		4.28		82.13		8.18		1.26		91.57		8.43
Comparative Group Average		23.67		68.32		0.98		0.30		6.72		79.55		9.08		0.91		89.54		10.46
Comparative Group Median		23.39		67.34		0.80		0.14		6.47		79.04		9.16		0.70		90.21		9.79
All Public Thrift Average		26.04		66.33		0.84		0.71		5.31		73.25		13.73		1.05		88.16		11.84
All Public Thrift Median		23.22		68.38		0.40		0.05		4.85		73.20		13.09		0.95		89.02		10.98
Comparative Group
BCSB Bancorp, Inc.		33.77		59.87		0.35		0.01		6.00		86.95		2.72		2.25		91.92		8.08
CFS Bancorp, Inc.		28.32		61.81		2.06		0.01		7.80		85.71		3.55		0.80		90.06		9.94
Citizens Community Bancorp (1)		19.63		76.90		0.09		0.13		3.25		83.12		7.38		0.58		91.07		8.93
Citizens South Banking Corp.		21.84		68.55		1.59		0.15		7.87		79.97		10.34		0.84		91.14		8.86
Community Financial Corp. (1)		2.27		90.89		1.58		0.00		5.26		73.17		16.93		0.60		90.71		9.29
First Savings Financial Group, Inc.		26.76		66.51		0.26		1.61		4.86		71.96		16.59		0.52		89.07		10.93
Home Bancorp, Inc.		24.93		62.61		0.77		0.25		11.45		77.61		3.00		0.47		81.07		18.93
HopFed Bancorp, Inc.		40.47		54.07		0.84		0.07		4.55		77.64		11.67		0.61		89.92		10.08
Jefferson Bancshares, Inc.		20.25		68.17		1.96		0.36		9.26		81.25		7.98		1.11		90.33		9.67
Teche Holding Company		18.47		73.86		0.26		0.47		6.94		78.10		10.69		1.29		90.08		9.92

(1) As of December 31, 2010.

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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Table 24

Regulatory Capital, Credit Risk, and Loan Composition

As of or For the Last Twelve Months Ended March 31, 2011

	Tier 1 Leverage Capital Ratio		Tier 1 Risk- based Capital		Total Risk- based Capital		NPLs/ Loans		Total NPAs/ Assets		Resrvs./ NPLs		Resrvs./ Loans		Resid. First Mtgs./ Loans		Other Real Est. Mtgs./ Loans		Non-mtg. Loans/ Loans
Asheville Savings Bank, S.S.B.		8.60		13.67		14.94		2.92		4.83		89.02		2.60		36.66		51.61		11.73
Comparative Group Average		9.83		14.18		15.24		3.62		3.32		55.23		1.64		37.87		46.76		15.36
Comparative Group Median		9.24		12.51		13.76		2.98		2.44		39.91		1.72		31.50		53.17		13.91
All Public Thrift Average		10.31		16.61		17.71		5.05		4.47		59.12		1.89		44.19		45.39		10.42
All Public Thrift Median		9.75		15.27		16.17		3.46		3.42		44.26		1.63		41.55		47.48		8.18
Comparative Group
BCSB Bancorp, Inc.		10.91		17.24		18.26		2.41		1.81		54.91		1.32		41.24		55.38		3.38
CFS Bancorp, Inc.		8.94		12.18		13.22		9.23		7.90		25.57		2.36		27.68		62.21		10.11
Citizens Community Bancorp (1)		9.16		10.74		11.50		3.30		2.65		29.66		0.98		58.53		0.16		41.31
Citizens South Banking Corp.		9.89		15.44		16.70		3.42		3.19		21.68		1.65		25.06		66.82		8.12
Community Financial Corp. (1)		9.32		11.03		12.28		6.45		7.56		29.69		1.92		31.89		49.83		18.28
First Savings Financial Group, Inc.		8.26		11.94		13.03		1.63		1.49		67.44		1.20		48.06		38.37		13.57
Home Bancorp, Inc.		15.46		22.85		23.65		0.59		0.32		186.32		0.91		30.98		52.38		16.64
HopFed Bancorp, Inc.		9.37		15.37		16.22		2.65		1.41		34.52		2.34		31.11		57.00		11.89
Jefferson Bancshares, Inc.		8.45		12.32		13.58		4.24		4.67		45.29		1.96		29.95		53.96		16.09
Teche Holding Company		8.54		12.69		13.94		2.23		2.22		57.26		1.78		54.24		31.51		14.25

(1) As of or for the LTM ended December 31, 2010.

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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III. MARKET VALUE ADJUSTMENTS

General Overview

This concluding chapter of the Appraisal identifies certain additional adjustments to the Bank’s estimated pro forma market value relative to the Comparative Group selected in Chapter II. The adjustments discussed in this chapter are made from the viewpoints of potential investors, which would include depositors holding subscription rights and unrelated parties who may purchase stock in a community offering. It is assumed that these potential investors are aware of all relevant and necessary facts as they would pertain to the value of the Bank relative to other publicly traded thrift institutions and relative to alternative investments.

Our appraised value is predicated on a continuation of the current operating environment for the Bank and thrift institutions in general. Changes in the Bank’s operating performance along with changes in the local and national economy, the stock market, interest rates, the regulatory environment, and other external factors may occur from time to time, often with great unpredictability, which could impact materially the pro forma market value of the Bank or thrift stocks in general. Therefore, the Valuation Range provided herein is subject to a more current re-evaluation prior to the actual completion of the Conversion.

In addition to the comparative operating fundamentals discussed in Chapter II, it is important to address additional market value adjustments based on certain financial and other criteria, which include, among other factors:

(1) Earnings Prospects

(2) Financial Condition

(3) Market Area

(4) Management

(5) Dividend Policy

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(6) Liquidity of the Issue

(7) Subscription Interest

(8) Recent Acquisition Activity

(9) Effect of Government Regulations and Regulatory Reform

(10) Stock Market Conditions

(11) New Issue Discount

Earnings Prospects

Earnings prospects are dependent upon the sensitivity of asset yields and liability costs to changes in market rates, the credit quality of assets, the stability of non-interest components of income and expense, and the ability to leverage the balance sheet. Each of the foregoing is an important factor for investors in assessing earnings prospects. The Bank’s profitability in recent years has declined steadily due to a combination of earnings fundamentals reflecting a narrowing net interest margin and increased loan loss provisions.

ASB’s core earnings compared unfavorably to the Comparative Group for the recent LTM period. The Bank’s core earnings amounted to negative 1.25% of average assets versus the Comparative Group median of positive 0.25%. The Bank’s lower net interest margin and higher level of loan loss provisions were the chief factors contributing to the Bank’s earnings disadvantage. As discussed earlier, the Bank’s net interest margin has been restrained by the increased liquidity on its balance sheet. The Bank’s yield on earning assets was 4.36% for the LTM ended March 31, 2011, markedly lower than the Comparative Group median of 5.34%. The earning asset yield limitation contributed to the Bank’s net interest spread of 2.69% trailing the Comparative Group median of 3.57%. The Bank intends to continue to emphasize residential and commercial mortgage lending as a means of increasing its ratio of loans to assets and improving its earnings potential. However, this objective is challenged by the current economic

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environment, existing credit quality issues that must be resolved, and persistently low loan demand. The Bank has taken steps to strengthen its ability to compete for loan opportunities and increase its market share. Simultaneously, the Bank is monitoring its interest rate risk exposure to rising rates as it seeks to deploy excess liquidity into loans or higher yielding investments.

Asset expansion over the past decade allowed the Bank to leverage its operating structure and reap the benefits of improved efficiency in the form of a declining operating expense ratio. However, as asset growth stalled due to loan portfolio shrinkage, the Bank’s operating expenses continued to grow on the same level of assets. In addition, Bank’s operating expenses will increase following the Conversion as result of the stock-benefit plans.

Generation of fee income has been a historical strength of the Bank. ASB derives steady non-interest revenue from overdraft protection, mortgage banking operations, debit card interchange fees, deposit service charges, and investment advisory income. Recent regulatory changes will place increased pressure on the ability to expand its non-interest revenue at historical growth rates.

The Bank reported profitable operations for the quarter ended March 31, 2011, registering net income of $585,000 for an annualized ROA of 0.32%. An important challenge confronting the Bank is returning to consistent profitability in the face of the credit quality issues it is currently addressing. In 2009 and 2010, the Bank’s net interest income did not exceed its non-interest expense. Thus, with such a narrow net interest margin, the Bank’s profitability is very susceptible to adverse interest rate movements or elevated credit-related losses in the near term given its current balance sheet structure. Additionally, in an effort to expand its lending activity and improve its franchise penetration in local and other contiguous markets, the Bank is likely to

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encounter increased competition which will place additional pressure on operating margins. The Bank’s increased capital position following the Conversion will help to improve its net interest margin across changing interest rate and business cycles and provide additional leverage capacity to grow the balance sheet. However, based on the Bank’s current earnings fundamentals and recent operating results, we believe that a slight downward adjustment is warranted to the Bank’s pro forma market value for fundamental earnings prospects relative to the Comparative Group.

Financial Condition

As discussed and summarized in Chapter I, the Bank’s overall loan composition reflects a solid concentration of residential and commercial mortgage loans. Because of unfavorable credit performance experience, the Bank has suspended its speculative construction lending and indirect automobile financing. In addition to continuing to emphasize its residential and commercial mortgage lending activity, the Bank seeks to expand its commercial and industrial loan portfolio. The shrinkage of the overall loan portfolio has contributed to a buildup of investment securities on the balance sheet. The Bank’s ratio of net loans to assets measured 63.1% of assets at March 31, 2011, compared to the Comparative Group median of 67.3%. The Bank’s ratio of cash and securities to assets measured 31.3% of assets at March 31, 2011, compared to the Comparative Group median of 23.4%. Based on the financial comparisons reviewed in the prior chapter, we note that the Bank’s balance sheet structure is very similar to that of the Comparative Group on the whole, with the notable exception of the larger liquidity concentration.

The Bank’s ratio of non-performing loans to total loans was comparable to the Comparative Group median; however, its ratio of total non-performing assets (including

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restructured loans) was higher than the Comparative Group median. The Bank’s level of reserves has been fortified by the sizable provision for loan losses during 2010 and reflects higher coverage ratios in relation to total loans and non-performing versus that of the Comparative Group. Before the infusion of net capital proceeds, the Bank’s equity ratio at 8.43% of assets was in range of the Comparative Group median of 9.79% and should likely surpass this median on a pro forma basis.

The selection criteria for the Comparative Group ensured a collection of companies with solid capital positions and generally satisfactory asset quality, similar to the Bank. We believe that the balance sheet, asset quality, and funding structure fundamentals of the Bank are largely similar to that of the Comparative Group. Therefore, on the whole, we believe that no additional adjustment is warranted for the Bank’s financial condition relative to the Comparative Group.

Market Area

The members of the Comparative Group were drawn from the Southern, Midwestern, and Mid-Atlantic regions of the country. The selection criteria parameters produced one public thrift operating in the Bank’s home state of North Carolina (Citizens South Banking Corp. based in Gastonia), along with five other companies from Southern states (Community Financial in Virginia, HopFed Bancorp in Kentucky, and Home Bancorp and Teche Holding Company in Louisiana). The Comparative Group companies are characterized by a cross-section of market areas that encompass smaller to mid-sized metropolitan areas with relatively stable economies, steady housing values, and moderate population growth prospects, very similar to that experienced by the Bank’s market area. In recognition of these factors, we believe that no adjustment is warranted for market area.

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Management

Management’s principal challenges are to generate profitable results, monitor credit risks, and control operating costs while the Bank competes in an increasingly challenging financial services environment. The normal challenges facing the Bank in attempting to deliver earnings growth and enhance its competitiveness remain paramount as it attempts to leverage the stock offering proceeds. The Bank has assembled a senior management team led by individuals who have been promoted from within and recruited externally where specific competencies were targeted. As reflected by its historical operating results, we believe that investors will take into account that the Bank is professionally and capably managed by an experienced management team. Investors will likely rely upon actual earnings results as the means of evaluating the future performance of ASB’s management as the Bank pursues its earnings and growth objectives following the Conversion. Therefore, based on these considerations, we believe no adjustment is warranted relative to the Comparative Group for this factor.

Dividend Policy

Following the Conversion, the Board of Directors of ASB will consider adopting a policy of paying cash dividends. However, there is no guarantee that the Company will pay dividends or that, if paid, dividends will not be reduced or eliminated in the future. The Board of Directors may declare and pay periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the Board of Directors will take into account the Company’s and Bank’s financial condition and operating results, tax considerations, capital requirements, industry standards, applicable regulatory guidelines, and economic conditions.

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Payment of cash dividends has become commonplace among publicly traded thrifts with relatively high capital levels. Of the ten members of the Comparative Group, four currently pay regular cash dividends and another three companies previously paid regular cash dividends but have suspended the practice at the present time. The average dividend yield of the Comparative Group was 0.94% and the median was 0.00% as of May 9, 2011. The average dividend yield of the All Public Thrift aggregate was 1.59% and the median was 1.06% as of May 9, 2011. Although ASB has yet to establish a policy of paying regular cash dividends, we believe that investors will take note of its solid dividend-paying capacity as evidenced by strong pro forma capital ratios. Therefore, we have concluded that no adjustment was warranted for purposes of dividend policy.

Liquidity of the Issue

With the increased number of market makers and institutional investors following thrift stocks, the majority of thrift stock conversions are able to develop a public market for their new stock issues. Most publicly traded thrift stocks continue to be traded on the NASDAQ market. Nine of the ten members of the Comparative Group are listed on the NASDAQ market, with Teche Holding Company listed on the NYSE Amex exchange. In conjunction with the Conversion, ASB will apply to have its common stock listed on the NASDAQ market.

The number of active buyers and sellers of shares of common stock at any particular time may be limited, which may have an adverse effect on the price at which shares of common stock can be sold. In order to list its shares on NASDAQ, the Company must have at least three broker-dealers who will make a market in the common stock following the Conversion. The development of a public market having the desirable characteristics of depth, liquidity and

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orderliness is facilitated by trading on an active exchange such as the NASDAQ market. Therefore, we have concluded the no adjustment to the Bank’s pro forma market value is warranted for anticipated liquidity of its common stock issue.

Subscription Interest

ASB has retained the services of Keefe, Bruyette & Woods, Inc. to assist in the marketing and sale of the stock offering. The Bank’s employee stock ownership plan (“ESOP”) plans to purchase 8.0% of the amount of stock to be sold in the stock offering. ASB expects its directors, executive officers and their associates, to purchase 160,500 shares of common stock in the offering for an aggregate amount of approximately $1.6 million based on a $10.00 offering price per share. Except for the ESOP, no person may purchase in the aggregate more than $300,000 of the common stock, or 30,000 shares sold in the offering. No person, either alone or together with associates of or persons acting in concert with such person, may purchase more than $500,000 of the common stock, or 50,000 shares sold in the offering. The minimum purchase in the offering will be 25 shares or an aggregate amount of $250.

Recent subscription interest in thrift stock conversion offerings has been solid and broad-based. Three thrift stock conversion offerings were completed in the month of April 2011 and each offering was oversubscribed and closed at the adjusted maximum of the valuation range. Until recently over the prior twelve months, while a few conversion offering experienced robust interest and received orders above the maximum offering amount, most converting thrifts had moderately exceeded the minimum of offering ranges and two conversion transactions had been deferred due to an inability to sell sufficient shares. As evident, subscription interest is cyclical and influenced by general stock market conditions and the overall economic outlook. As shown

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later in Table 27, the after-market performance of recently converted thrifts has also been mixed with the NASDAQ issues outperforming the over-the-counter (“OTC”) issues. We are not currently aware of any meaningful market evidence or characteristics that may help predict the likely level of interest in ASB’s subscription offering. Accordingly, absent actual results of the subscription offering, we believe that subscription interest is currently a neutral factor and at present requires no further adjustment.

Recent Acquisition Activity

Table 25 summarizes recent acquisition activity involving banks and thrifts based in North Carolina. HomeTrust Bank, a mutual thrift based in Asheville, has continued to expand through mergers with other mutual thrifts. The largest recent acquisition of a North Carolina bank or thrift involved the purchase in December 2008 of Wachovia Corporation by Wells Fargo & Company. Several mid-sized banks, ranging in asset size from $500 million to $2 billion, have also been acquired.

Many of the recent bank acquisition transactions were characterized by sellers experiencing financial difficulties and subsequently being acquired or recapitalized in change of control transactions at prices below book value. However, this profile of the merger and acquisition environment is occurring nationwide as premiums in bank and thrift acquisitions have been pushed downward to historically low levels. The articles of incorporation and bylaws of the Company and certain regulations may prevent or make more difficult an involuntary acquisition of the Company. Accordingly, at the present time, we do not believe that acquisition premiums are a significant factor to consider in determining the Company’s pro forma market value.

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Table 25

Summary of Recent North Carolina Acquisition Activity

Transactions Announced Since January 1, 2008

						Seller’s Prior Financial Data																Offer Value to
Buyer	State		Seller	B/T (1)		Total Assets ($Mil.)		Equity/ Assets (%)		YTD ROA (%)			YTD ROE (%)			Date Anncd.		Status (2)		Offer Value ($Mil.)		Book Value (%)		Tang. Book (%)		LTM EPS (x)		Total Assets (%)
Average							58,428.9		13.20		(2.01	)		(12.18	)		NA		NA		1,400.4		82.7		88.9		42.4		9.89
Median							163.7		9.31		(0.80	)		(9.26	)		NA		NA		30.6		79.0		79.5		51.5		9.64
FNB United Corp.		NC	Bank of Granite Corporation		B		875.8		2.78		(2.40	)		(64.11	)		04/26/11		P		13.0		53.4		53.4		NM		1.49
Piedmont Community Bank		NC	Crescent Financial Corp.		B		973.0		8.12		(1.00	)		(11.18	)		02/23/11		P		30.6		77.3		77.7		NM		11.36
American National Bankshares		VA	MidCarolina Financial Corp.		B		552.3		7.60		0.21			2.88			12/15/10		P		38.7		104.1		104.1		52.3		7.00
Piedmont Community Bank		NC	Community Bank of Rowan		B		149.5		6.87		(0.60	)		(8.13	)		11/19/10		C		10.0		97.8		97.8		NM		7.92
North American Fin’l Holdings		NC	Capital Bank Corporation		B		1,694.3		7.41		(2.19	)		(27.23	)		11/03/10		C		41.3		80.7		81.4		NM		11.67
HomeTrust Bank		NC	Cherryville Federal S&LA (3)		T		100.7		14.36		0.55			3.84			05/20/10		C		NA		NA		NA		NA		NA
HomeTrust Bank		NC	Industrial FSB (3)		T		168.4		24.79		1.01			4.02			10/13/09		C		NA		NA		NA		NA		NA
Piedmont Community Bank		NC	VantageSouth Bank		B		96.4		7.58		(1.46	)		(18.96	)		06/10/09		C		NA		84.6		84.6		NM		12.40
Carolina Trust Bank		NC	Carolina Commerce Bank		B		103.5		9.49		(1.67	)		(17.47	)		06/03/09		C		5.2		53.4		53.4		NM		5.06
Four Oaks Fincorp, Inc.		NC	Nuestro Banco		B		16.8		54.66		(20.28	)		(30.50	)		04/29/09		C		2.7		29.1		29.1		NM		15.90
First Community Bancshares		VA	TriStone Community Bank		B		152.4		9.37		(0.19	)		(1.76	)		04/02/09		C		8.3		58.2		58.2		NM		5.45
Wells Fargo & Company		CA	Wachovia Corporation		B		812,433.0		9.25		(1.03	)		(10.40	)		10/03/08		C		15,127.2		23.1		57.3		NM		1.86
Yadkin Valley Fin’l Corp.		NC	American Community Bancshs		B		529.9		10.34		0.57			5.34			09/09/08		C		94.4		167.5		206.2		23.4		17.82
First Community Bancshares		VA	Coddle Creek Financial Corp.		T		158.9		12.25		0.38			3.16			07/31/08		C		33.0		163.3		163.3		51.5		20.79

(1) B=bank; T=thrift.

(2) P=pending; C=completed.

(3) Merger involving two mutual thrift institutions.

Source: SNL Financial.

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Effect of Government Regulations and Regulatory Reform

In response to the financial crisis of 2008 and early 2009, Congress has taken actions that are intended to strengthen confidence and encourage liquidity in financial institutions. The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted on July 21, 2010, and provides for new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies. The legislation also provides for the creation of a consumer financial protection bureau that will have broad authority to issue regulations governing the services and products provided by financial institutions. The implemented legislation could increase compliance costs, raise regulatory capital requirements, alter loan loss provisioning practices, and otherwise adversely impact operations of banks and thrifts. The potential also exists for additional federal or state laws and regulations, or changes in policy, affecting lending and funding practices and liquidity standards.

As a fully converted stock thrift insured by the FDIC and supervised by its primary regulators, ASB will continue to operate in the same regulatory environment that is substantially similar to that faced by the Comparative Group companies. As of March 31, 2011, the Bank was considered well capitalized, similar to all the members of the Comparative Group. Therefore, given these factors, we believe that no specific adjustment is necessary for the effect of government regulations and regulatory reform.

Stock Market Conditions

Table 26 displays the performance of the SNL All Public Thrift, SNL All Southeast Thrift, SNL $500 Million to $1 Billion-Asset Thrift indexes, as compared to the Dow Jones Industrials Average Standard & Poor’s 500-Stock Index (“S&P 500”) over various periods.

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Following the stock market turmoil in 2008 related to the systemic financial crisis, the overall market rebounded in 2009 and 2010 while the various public thrift indexes were generally more sluggish. The All Public Thrift Index declined by 38.2% in 2008, parallel with the 38.5% decline in the S&P 500. The All Public Thrift Index declined further by 10.2% in 2009, while the S&P 500 rebounded firmly and advanced 23.5% in 2009. While the broader market staged a strong rally in 2009, the financial sector continued to suffer due to intensifying credit losses and mounting failures of distressed institutions.

The All Public Thrift Index stabilized in 2010 with a change of 0.9%, while the SNL $500 Million-$1 Billion-Asset Thrift Index increased by 7.4%. The Southeast Thrift Index continued to decline in 2010, as many of the region’s financial institutions were beset with asset quality problems related to widespread collapses of real estate construction and development markets.

Table 26

Comparative Stock Index Performance

Index	12/31/08- 12/31/09			12/31/09- 12/31/10			12/31/10- 05/09/11			12/31/08- 05/09/11
SNL All Public Thrifts		-10.2	%		0.9	%		-5.2	%		-14.2	%
SNL Thrifts $500 Mil.-$1 Bil. Assets		-8.3	%		7.4	%		7.7	%		6.1	%
SNL Southeast Thrifts		-39.2	%		-8.9	%		5.8	%		-41.4	%
SNL NASDAQ Thrifts		-12.0	%		-4.2	%		-3.8	%		-18.8	%
Dow Jones Industrials Average		18.8	%		11.0	%		9.6	%		44.5	%
S&P 500 Stock Index		23.5	%		12.8	%		7.1	%		49.1	%

Source: SNL Financial.

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As the banking industry showed increased signs of stabilizing into 2010, the public thrift indexes fared better through the first of half of 2010. However, commencing in the month of July 2010, there was a major sell-off in financial stocks. Trading prices of banks and thrifts fell on the lack of consensus regarding the prospects for economic growth and increased uncertainty about the Federal Reserve’s capacity to revive the stumbling economic recovery. The declining market in the summer months also reflected concerns of a potential “double dip” in the U.S. economy, as growth in consumer spending slowed and unemployment remained at historically high levels. Trading prices of bank and thrift stocks turned weaker again in October 2010 on the heels of negative industry news concerning improper mortgage foreclosure practices and fraudulent documentation. Through the first quarter of calendar 2011, financial stocks staged a rally, spurred by more favorable industry earnings developments. However, concerns about the sustainability of the economic recovery, underpinned by rising oil prices, stalled the rally in the spring and most thrift stock indexes have turned negative based on year-to-date performance.

The FDIC recently reported that the thrift industry reported positive earnings of $1.86 billion for the first quarter of 2011. The first quarter profit of $1.86 billion was down from $2.18 billion in the previous quarter and from $2.05 billion in the first quarter one year earlier. Profitability as measured by ROA was 0.59% in the first quarter, as compared to 0.70% in the fourth quarter of 2010, and 0.65% in the first quarter a year ago. While net interest margins were higher and provisions for loan losses were lower, these benefits were offset by increased operating expenses for the first quarter of 2011. Slight improvements in asset quality were apparent as total non-performing assets (non-current loans, restructured loans, and real estate owned) decreased to 3.81% of assets at the end of the first quarter from 3.95% at the end of the previous quarter and from 3.86% from one year earlier.

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Thrift industry earnings results for the first quarter of 2011 were sustained by improving net interest margins, but continue to be dampened by loan loss provisions. The thrift industry continued to prepare for future asset quality challenges by building its provision for loan losses. Simultaneously, the industry also managed to maintain a solid capital cushion, with equity capital measuring 11.58% of assets at the end of the first quarter, up from 11.09% a year earlier. Nonetheless, industry challenges remain as the number of “problem” institutions (including both banks and thrifts) as reported by the FDIC increased to 888, the highest since March 31, 1993, when there were 928. Therefore, we continue to believe the uncertain industry environment and the volatile swings in the market for bank and thrift stocks warrant a downward adjustment.

New Issue Discount

A “new issue” discount that reflects investor concerns and investment risks inherent in all initial public offerings (“IPOs”) is a factor to be considered for purposes of valuing converting thrifts. The magnitude of the new issue discount typically expands during periods of declining thrift stock prices as investors require larger inducements, and narrows during strong market conditions. The thrift conversion market continues to respond to the after-market performance of recent offerings. Table 27 presents a summary of standard full conversion offerings since January 1, 2010.

Thrift stock conversion activity had diminished considerably in the wake of the sharp marked downturn in market conditions. There were only four standard conversion offerings in 2008, followed by three such transactions in 2009. Thrift conversion activity accelerated in 2010 as improved market conditions in the first half of the year, increased regulatory uncertainty, and mounting capital pressures converged to stimulate interest in the conversion market. Twelve

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standard thrift conversions were completed in 2010, followed by five such offerings thus far in 2011. The recent after-market price performance of standard thrift conversion IPOs has been mixed. Of the 17 standard conversion offerings completed since January 1, 2010, the average and median one-week price changes were 7.6% and 7.5%, respectively. The after-market performance for thrift conversions traded on NASDAQ exhibited average and median one-week price changes of 9.9% and 14.0%, respectively, while the OTC conversion issues displayed average and median one-week price changes of 5.0% and 0.0%, respectively. As shown in Table 27, the cumulative price changes for all conversion issues were an average of 30.2% and median of 35.3%

The pro forma pricing ratios for the recent standard conversion offerings indicated an average and median price-to-book value ratios of 51.5% and 53.6%, respectively. The average and median pro forma price-to-tangible book value ratios were 52.1% and 54.2%, respectively. The average and median pro forma price-to-LTM earnings ratios were 25.7x and 23.7x, respectively. However, approximately half of the companies reported not meaningful (“NM”) ratios on a P/E basis due to negative or extremely low levels of pro forma earnings.

Accordingly, thrift conversions continue to be priced at discounts to publicly traded companies. This is due to the relatively high pro forma equity ratios, expected low returns on equity, and the uncertainty regarding the prospects of an institution to leverage the balance sheet prudently and effectively in the current low interest rate environment and against the backdrop of unsteady real estate market conditions. Moreover, the uneven after-market price performance of thrift IPOs provides added reason to continue to factor in a new issue discount for valuation of current thrift IPOs.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 27

Summary of Recent Standard Conversion Stock Offerings

Transactions Completed Since January 1, 2010

									Pro Forma Ratios										After-Market Trading Price Change
Company	State	Stock Exchange	IPO Conv. Date		Total Assets ($Mil.)		Gross Offering Proceeds ($Mil.)		Price/ Book Value (%)		Price/ Tang. Book (%)		Price/ LTM EPS (x)		IPO Price ($)		5/09/11 Closing Price ($)		One Day (%)			One Week (%)			One Month (%)			Change Through 5/09/11 (%)
Average - All Standard Offerings	NA	NA		NA		319.1		33.2		51.5		52.1		25.7		NA		NA		7.3			7.6			8.5			30.2
Median - All Standard Offerings	NA	NA		NA		233.9		17.3		53.6		54.2		23.7		NA		NA		3.9			7.5			7.5			35.3
Average - NASDAQ	NA	NA		NA		504.2		55.5		54.0		54.9		22.7		NA		NA		11.1			9.9			10.9			34.0
Median - NASDAQ	NA	NA		NA		395.8		34.8		58.0		58.0		20.8		NA		NA		16.0			14.0			7.2			39.9
Average - OTC	NA	NA		NA		110.9		8.1		48.8		48.9		28.1		NA		NA		3.1			5.0			6.1			25.9
Median - OTC	NA	NA		NA		90.7		6.1		44.0		44.0		22.5		NA		NA		0.0			0.0			5.0			12.5
Franklin Financial Corporation	VA	NASDAQ		04/28/11		980.7		138.9		58.0		58.0		NM		10.00		11.88		19.7			18.5			NA			18.8
Sunshine Financial Inc.	FL	OTC		04/06/11		149.9		12.3		49.5		50.0		49.4		10.00		11.25		12.5			13.5			15.0			12.5
Fraternity Community Bancorp, Inc.	MD	OTC		04/01/11		169.7		15.9		53.6		53.6		NM		10.00		10.55		12.6			11.7			10.0			5.5
Anchor Bancorp	WA	NASDAQ		01/26/11		522.2		25.5		37.7		37.7		38.5		10.00		10.00		0.0			0.0			4.5			0.0
Wolverine Bancorp, Inc.	MI	NASDAQ		01/20/11		307.6		25.1		40.2		40.2		NM		10.00		14.50		24.5			20.0			35.0			45.0
SP Bancorp, Inc.	TX	NASDAQ		11/01/10		233.9		17.3		55.9		55.9		NM		10.00		11.99		(6.0	)		(6.2	)		(9.9	)		19.9
Madison Bancorp, Inc.	MD	OTC		10/07/10		150.7		6.1		44.0		44.0		NM		10.00		10.00		0.0			0.0			0.0			0.0
Standard Financial Corp.	PA	NASDAQ		10/07/10		395.8		34.8		49.4		57.0		10.7		10.00		15.34		19.0			18.5			29.5			53.4
Century Next Financial Corp.	LA	OTC		10/01/10		90.7		10.6		61.5		61.5		21.4		10.00		16.00		0.0			15.0			10.0			60.0
United-American Savings Bank	PA	OTC		08/06/10		60.2		3.0		54.2		54.2		23.7		10.00		13.05		0.0			(5.0	)		5.0			30.5
Peoples Federal Bancshares, Inc.	MA	NASDAQ		07/07/10		487.7		66.1		65.2		65.2		27.8		10.00		13.99		4.0			7.5			4.2			39.9
Fairmount Bancorp, Inc.	MD	OTC		06/03/10		67.3		4.4		44.0		44.0		10.1		10.00		16.00		0.0			5.0			10.0			60.0
Harvard Illinois Bancorp, Inc.	IL	OTC		04/09/10		157.2		7.8		43.1		43.1		NM		10.00		9.90		0.0			0.0			(1.0	)		(1.0	)
OBA Financial Services, Inc.	MD	NASDAQ		01/22/10		357.9		46.3		59.4		59.4		NM		10.00		14.75		3.9			1.5			3.0			47.5
OmniAmerican Bancorp, Inc.	TX	NASDAQ		01/21/10		1,006.3		119.0		62.0		62.0		NM		10.00		14.58		18.5			14.0			9.9			45.8
Versailles Financial Corporation	OH	OTC		01/11/10		41.6		4.3		40.5		40.5		36.0		10.00		14.00		0.0			0.0			0.0			40.0
Athens Bancshares Corporation	TN	NASDAQ		01/07/10		246.0		26.8		58.0		58.8		13.9		10.00		13.53		16.0			15.0			10.6			35.3

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Adjustments Conclusion

It is our opinion that the Bank’s pro forma market value should be discounted relative to the Comparative Group because of factors associated with earnings prospects, stock market conditions, and the new issue discount. Individual discounts and premiums are not necessarily additive and may, to some extent, offset or overlay each other. Currently, converting thrifts are often valued at meaningful discounts to peer institutions relative to price-to-book and price-to-earnings ratios. It is the judgment of the appraiser to balance the relative dynamics of price-to-book and price-to-earnings discounts or premiums.

Valuation Approach

In determining the estimated pro forma market value of ASB, we have employed the comparative company approach and considered the following pricing ratios: price-to-earnings per share (“P/E”), price-to-book value per share (“P/B”), price-to-tangible book value per share (“P/TB”), and price-to-assets (“P/A”). Table 28 presents the trading market valuation ratios of the Comparative Group and All Public Thrift averages and medians as of May 9, 2011. As shown in Table 28, the average and median P/B ratios for the Comparative Group were 66.6% and 67.2%, respectively. The average and median P/TB ratios for the Comparative Group were 68.8% and 72.5%, respectively. The average and median P/E ratios for the Comparative Group were 17.2x and 18.3x, respectively. On a core earnings basis, average and median core P/E ratios of the Comparative Group were 22.5x and 19.0x, respectively. Four of the Comparative Group companies reported P/E ratios that were either negative due to losses or distortedly high due to low levels of profitability. Such ratios are represented as not meaningful and were not utilized for comparative valuation analysis.

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FELDMAN FINANCIAL ADVISORS, INC.

Investors continue to make decisions to purchase thrift conversion stocks and more seasoned thrift issues based upon consideration of core earnings profitability and P/B comparisons. The P/E ratio remains an important valuation ratio in the current thrift stock market environment. However, as noted above, the P/E ratio is not useful for companies reporting negative earnings such as ASB. The Bank’s LTM earnings for the period ended March 31, 2011 amounted to negative $9.3 million. On a core earnings basis, which excludes the Bank’s gain on sales of investments, the Bank’s LTM core earnings amounted to negative $9.5 million. Therefore, in the absence of meaningful earnings results, more reliance is on placed on the P/B and P/TB ratios to determine trading valuation benchmarks.

Based on our comparative financial and valuation analyses, we concluded that the Bank should be discounted relative to the trading valuation ratios of the overall Comparative Group. In consideration of the foregoing factors along with the additional adjustments discussed in this chapter, we have determined a pro forma P/B and P/TB ratio of 53.9% for the Bank, which reflects an aggregate midpoint value of $63.0 million based on the assumptions summarized in Exhibit IV. Employing a range of 15% above and below the midpoint, the resulting minimum value of approximately $53.6 million reflects a 49.3% P/B ratio and the resulting maximum value of approximately $72.5 million reflects a 57.9% P/B ratio. The adjusted maximum, computed as an additional 15.0% above the maximum, is positioned at approximately $83.3 million and a P/B ratio of 62.0%. The Bank’s pro forma P/B and P/TB ratios are equivalent due to the absence of any intangible assets on the Bank’s balance sheet.

The Bank’s pro forma midpoint P/B ratio of 53.9% reflects a discount of 19.8% to the Comparative Group average P/B ratio of 66.6% and a discount of 19.1% to the Comparative

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FELDMAN FINANCIAL ADVISORS, INC.

Group median P/B ratio of 67.2%. At the adjusted maximum, the Bank’s pro forma P/B ratio of 62.0% is positioned at a 6.9% discount to the Comparative Group average and 7.7% discount to the Comparative Group median. Also, at the adjusted maximum, the Bank’s pro forma P/TB ratio of 62.0% is positioned at a 9.9% discount to the corresponding Comparative Group average of 68.8% and 14.5% discount to the Comparative Group median of 72.5%. Based on the Valuation Range as indicated above, the Bank’s pro forma P/E ratios reflected negative values represented as NM or not meaningful due to the Bank’s negative earnings position.

Based on the price-to-assets valuation metric, the Bank’s pro forma midpoint of $63.0 million reflects a corresponding P/A ratio of 7.83%, ranging from 6.73% at the pro forma valuation minimum to 8.92% and 10.14% at the maximum and adjusted maximum, respectively. The Bank’s stronger capitalization level on a pro forma basis resulted in P/A ratio premiums range in contrast to the Comparative Group average P/A ratio of 6.85% and median P/A ratio of 5.53%.

On a pro forma basis, the Company’s ratio of equity to assets ranges from 13.64% at the valuation minimum and 14.52% at the midpoint to 15.39% and 16.36% at the maximum and adjusted maximum, respectively. However, we note that the Bank’s higher pro forma P/A valuation ratios are also indicative of the challenge facing the Bank in generating a competitive ROA and ROE and advancing the other valuation metrics to trading market levels.

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FELDMAN FINANCIAL ADVISORS, INC.

Valuation Conclusion

It is our opinion that, as of May 9, 2011, the aggregate estimated pro forma market value of the Bank on a fully converted basis was within a Valuation Range of $53,550,000 to $72,450,000 with a midpoint of $63,000,000. The Valuation Range was based upon a 15% decrease from the midpoint to determine the minimum and a 15% increase to establish the maximum. An additional 15% increase above the maximum results in an adjusted maximum of $83,317,500.

Exhibit IV-1 displays the assumptions utilized in calculating the pro forma financial consequences of the stock offering. Exhibit IV-2 displays the pro forma financial data at each level of the Valuation Range. Exhibit IV-3 provides more detailed data at the maximum valuation. Exhibit IV-4 compares the Bank’s pro forma valuation ratios with the averages and medians reported by the Comparative Group and All Public Thrifts.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 28

Comparative Pro Forma Market Valuation Analysis

Asheville Saving Bank, S.S.B. and the Comparative Group

Computed from Market Price Data as of May 9, 2011

Company	Current Stock Price ($)		Total Market Value ($Mil.)		Price/ LTM EPS (x)		Price/ Core EPS (x)		Price/ Book Value (%)		Price/ Tang. Book (%)		Price/ Total Assets (%)		Total Equity/ Assets (%)		Tang. Equity/ Assets (%)		Current Dividend Yield (%)
Asheville Savings Bank, S.S.B.(1)
Pro Forma Minimum		10.00		53.6		NM		NM		49.3		49.3		6.73		13.64		13.64		0.00
Pro Forma Midpoint		10.00		63.0		NM		NM		53.9		53.9		7.83		14.52		14.52		0.00
Pro Forma Maximum		10.00		72.5		NM		NM		57.9		57.9		8.92		15.39		15.39		0.00
Pro Forma Adj. Maximum		10.00		83.3		NM		NM		62.0		62.0		10.14		16.36		16.36		0.00
Comparative Group Average		NA		51.4		17.2		22.5		66.6		68.8		6.85		10.46		10.19		0.94
Comparative Group Median		NA		48.7		18.3		19.0		67.2		72.5		5.53		9.79		9.41		0.00
All Public Thrift Average(2)		NA		339.1		20.7		24.7		80.8		87.2		9.37		11.85		11.15		1.59
All Public Thrift Median(2)		NA		63.3		17.9		17.1		82.3		85.1		8.66		10.98		10.00		1.06
Comparative Group
BCSB Bancorp, Inc.		13.37		42.7		NM		NM		84.6		84.7		6.83		8.08		8.07		0.00
CFS Bancorp, Inc.		5.49		59.7		18.3		19.3		52.5		52.5		5.22		9.94		9.94		0.73
Citizens Community Bancorp, Inc.		5.25		26.8		NM		NM		51.8		52.6		4.63		8.93		8.81		0.00
Citizens South Banking Corporation		4.75		54.7		NM		NM		76.2		77.8		5.35		8.86		8.72		0.84
Community Financial Corporation		3.14		13.7		20.9		20.9		37.3		37.3		2.66		9.29		9.29		0.00
First Savings Financial Group, Inc.		16.00		37.9		11.3		8.3		67.6		79.2		7.39		10.93		9.48		0.00
Home Bancorp, Inc.		14.79		119.6		23.9		18.6		90.2		91.4		17.08		18.93		18.73		0.00
HopFed Bancorp, Inc.		8.20		60.2		18.2		57.2		66.7		67.2		5.70		10.08		10.02		3.90
Jefferson Bancshares, Inc.		3.45		22.9		NM		NM		41.0		42.6		3.96		9.67		9.34		0.00
Teche Holding Company		36.41		75.9		10.9		10.9		97.8		102.7		9.70		9.92		9.49		3.95

⁽¹⁾ Pro forma ratios assume sale of 100% of the to-be-outstanding common stock, reflecting gross proceeds of $53.6 million at the minimum, $63.0 million at the midpoint, $72.5 million at the maximum, and $83.3 million at the adjusted maximum of the valuation range.

⁽²⁾ Excludes companies subject to mutual holding company ownership or pending acquisition.

Source: Asheville Savings Bank; SNL Financial; Feldman Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Exhibit I

Background of Feldman Financial Advisors, Inc.

Overview of Firm

Feldman Financial Advisors provides consulting and advisory services to financial institutions and mortgage companies in the areas of corporate valuations, mergers and acquisitions, strategic planning, branch sales and purchases, developing and implementing regulatory business and capital plans, and expert witness testimony and analysis. Our senior staff members have been involved in the stock conversion process since 1982 and have valued more than 350 converting institutions.

Feldman Financial Advisors was incorporated in February 1996 by a group of consultants who were previously associated with Credit Suisse First Boston and Kaplan Associates. Each of the principals at Feldman Financial Advisors has more than 10 years experience in consulting and all were officers of their prior firm. Our senior staff collectively has worked with more than 1,000 banks, thrifts and mortgage companies nationwide. The firm’s office is located in Washington, D.C.

Background of Senior Professional Staff

Trent Feldman - President. Trent is a nationally recognized expert in providing strategic advice to and valuing service companies, and advising on mergers and acquisitions. Trent was with Kaplan Associates for 14 years and was one of three founding principals at that firm. Trent also has worked at the Federal Home Loan Bank Board and with the California State Legislature. Trent holds Bachelors and Masters Degrees from the University of California at Los Angeles.

Peter Williams - Principal. Peter specializes in merger and acquisition analysis, stock and other corporate valuations, strategic business plans and retail delivery analysis. Peter was with Kaplan Associates for 13 years. Peter also served as a Corporate Planning Analyst with the Wilmington Trust Company in Delaware. Peter holds a BA in Economics from Yale University and an MBA in Finance and Investments from George Washington University.

Michael Green - Principal. Mike is an expert in mergers and acquisition analysis, financial institution and corporate valuations, and strategic and business plans. During Mike’s 10 years at Kaplan Associates, his experience also included business restructurings, litigation support, mark-to-market analysis, and goodwill valuations. Mike holds a BA in Finance and Economics from Rutgers College.

Greg Izydorczyk - Senior Vice President. Greg specializes in merger and acquisition analysis and corporate valuations and also has experience in mark-to-market analysis and business plans. Greg was with Kaplan Associates for three years. Previous, Greg worked as a Senior Auditor for First Virginia Bank and Integra Financial and as a Financial Analyst with Airbus Industrie of N.A. Greg holds a BS in Finance from Pennsylvania State University and an MBA in Finance from the Katz Graduate School, University of Pittsburgh.

I-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-1

Consolidated Balance Sheets

Asheville Savings Bank, S.S.B.

As of December 31, 2009 and 2010 and March 31, 2011

(Dollars in Thousands)

	March 31, 2011			December 31,
				2010			2009
ASSETS
Cash and due from banks	$	8,399		$	7,836		$	10,316
Interest-bearing deposits with banks		18,037			16,398			12,860
Investment securities, available for sale		198,596			175,445			90,057
Investment securities, held to maturity		5,720			5,948			6,958
Federal Home Loan Bank stock		3,970			3,970			3,993
Loans receivable		484,729			500,003			597,601
Allowance for loan losses		(12,632	)		(12,676	)		(8,994	)
Loans receivable, net		472,097			487,327			588,607
Loans held for sale		1,263			8,386			3,890
Foreclosed real estate, net		10,506			10,650			3,699
Premises and equipment, net		14,624			14,844			14,980
Other assets		17,497			19,161			13,947
TOTAL ASSETS	$	750,709		$	749,965		$	749,307
LIABILITIES AND EQUITY
Total deposits	$	616,586		$	619,757		$	608,538
Federal Home Loan Bank advances		60,000			60,000			60,000
Overnight and short-term borrowings		1,404			1,008			1,694
Other liabilities		9,424			6,319			5,426
Total liabilities		687,414			687,084			675,658
Retained earnings		67,107			66,522			75,950
Accumulated other comprehensive loss, net		(3,812	)		(3,641	)		(2,331	)
Total equity		63,295			62,881			73,649
TOTAL LIABILITIES AND EQUITY	$	750,709		$	749,965		$	749,307

Source: Asheville Savings Bank, financial statements.

II-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-2

Consolidated Income Statements

Asheville Savings Bank, S.S.B.

For the Years Ended December 31, 2009 and 2010

And the Three Months Ended March 31, 2010 and 2011

(Dollars in Thousands)

	Three Months Ended March 31,				Year Ended December 31,
	2011		2010		2010			2009
Total interest and dividend income	$	7,382	$	8,678	$	32,815		$	35,654
Total interest expense		2,304		3,051		11,444			14,772
Net interest income		5,078		5,627		21,371			20,882
Provision for loan losses		657		1,859		22,419			4,655
Net interest income (loss) after provision		4,421		3,768		(1,048	)		16,227
Deposit and other service charge income		846		942		3,688			3,612
Income from debit card services		295		262		1,176			998
Mortgage banking income		367		210		1,419			1,433
Gain on sale of investment securities		—		486		798			539
Other non-interest income		172		158		602			584
Total non-interest income		1,680		2,058		7,683			7,166
Salaries and employee benefits		2,530		2,584		9,652			10,374
Occupancy expense, net		753		761		3,099			3,018
Foreclosed property expenses		98		19		2,014			(20	)
Data processing fees		418		352		1,511			1,557
Federal deposit insurance premiums		—		253		1,037			1,414
Advertising		139		42		805			834
Professional and outside services		238		158		778			652
Other expenses		809		785		3,271			3,242
Total non-interest expense		5,232		5,154		22,167			21,071
Income (loss) before income tax provision		869		672		(15,532	)		2,322
Income tax provision (benefit)		284		242		(6,074	)		791
Net income (loss)	$	585	$	430	$	(9,458	)	$	1,531

Source: Asheville Savings Bank, financial statements.

II-2

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-3

Loan Portfolio Composition

As of December 31, 2009 and 2010 and March 31, 2011

(Dollars in Thousands)

	March 31, 2011					December 31,
						2010					2009
	Amount		Percent			Amount		Percent			Amount		Percent
Commercial
Commercial mortgage	$	162,675		33.53	%	$	164,553		32.88	%	$	197,239		32.98	%
Construction & land development		27,830		5.74			28,473		5.68			30,158		5.04
Commercial and industrial		15,764		3.25			17,656		3.53			22,794		3.81
Total		206,269		42.52			210,682		42.10			250,191		41.83
Non-commercial
Residential mortgage	$	177,846		36.65		$	180,439		36.06		$	190,965		31.93
Construction & land development 1-4 family residential		7,864		1.62			8,670		1.73			15,141		2.53
Revolving mortgage		52,042		10.73			53,432		10.68			55,038		9.20
Consumer		41,315		8.48			47,212		9.43			86,768		14.51
Total		278,887		57.48			289,753		57.90			347,912		58.17
Total loans		485,156		100.00	%		500,435		100.00	%		598,103		100.00	%
Less:
Deferred loan origination fees		427					432					502
Allowance for loan losses		12,632					12,676					8,994
Loans receivable, net	$	472,097				$	487,327				$	588,607

Source: Asheville Savings Bank, preliminary prospectus.

II-3

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-4

Net Loan Activity

For the Years Ended December 31, 2009 and 2010

And the Three Months Ended March 31, 2010 and 2011

(Dollars in Thousands)

	Three Months Ended						Year Ended
	March 31,						December 31,
	2011			2010			2010			2009
Total loans at beginning of period	$	495,713		$	592,497		$	592,497		$	586,618
Loans originated
Commercial loans:
Commercial mortgage		1,520			1,161			43,547			74,382
Commercial and land development		586			54			—			—
Commercial and industrial		450			881			7,737			10,742
Non-commercial loans:
Residential mortgage		29,463			28,715			121,439			131,017
Commercial and land development		618			—			15,845			12,142
Revolving mortgage		208			1,433			7,966			20,524
Consumer		88			123			523			26,248
Total loans originated		32,933			32,367			197,057			275,055
Loans purchased
Commercial loans:
Commercial mortgage		—			18			2,191			6,209
Commercial and land development		104			26			41			—
Total loans purchased		104			44			2,232			6,209
Deduct:
Loan principal repayments		28,966			28,021			163,910			151,368
Loan sales		25,468			15,958			97,103			116,352
Foreclosed loans transferred to REO		200			688			12,585			2,968
Charge-offs		804			1,817			18,863			2,193
Deductions for other items (1)		(48	)		70			3,612			2,504
Net loan activity		(22,353	)		(14,143	)		(96,784	)		5,879
Total loans at end of period	$	473,360		$	578,354		$	495,713		$	592,497

(1) Other items consist of fees, allowance for loan losses, and loans in process.

Source: Asheville Savings Bank, preliminary prospectus.

II-4

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-5

Investment Portfolio Composition

As of December 31, 2009 and 2010 and March 31, 2011

(Dollars in Thousands)

	March 31,				December 31,
	2011				2010				2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale
U.S. government agencies and corporations	$	62,732	$	62,250	$	50,254	$	50,043	$	25,048	$	25,108
Mortgage-backed securities and related securities		131,734		131,216		121,896		121,449		60,880		61,338
State and local government		4,494		4,460		3,379		3,287		1,026		1,030
Other debt securities		—		—		—		—		2,070		1,944
Other equity securities		669		670		664		666		641		637
		199,629		198,596		176,193		175,445		89,665		90,057
Securities held to maturity
U.S. government agencies and corporations	$	1,087	$	1,151	$	1,090	$	1,168	$	1,102	$	1,096
Mortgage-backed securities and related securities		2,223		2,362		2,449		2,598		3,452		3,590
State and local government		2,410		2,484		2,409		2,432		2,404		2,498
Other debt securities		—		—		—		—		—		—
Other equity securities		—		—		—		—		—		—
		5,720		5,997		5,948		6,198		6,958		7,184
Total investment securities	$	205,349	$	204,593	$	182,141	$	181,643	$	96,623	$	97,241

Source: Asheville Savings Bank, preliminary prospectus.

II-5

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-6

Deposit Account Distribution

As of December 31, 2009 and 2010 and March 31, 2011

(Dollars in Thousands)

	March 31,					December 31,
	2011					2010					2009
	Amount		Percent			Amount		Percent			Amount		Percent
Non-interest bearing deposits	$	45,039		7.30	%	$	44,996		7.26	%	$	37,715		6.20	%
Interest-bearing deposits:
NOW accounts		135,347		21.95			134,836		21.76			125,648		20.65
Money market accounts		133,075		21.58			131,138		21.16			117,866		19.37
Savings accounts		22,461		3.64			21,384		3.45			18,973		3.12
Certificates of deposit		280,664		45.53			287,403		46.37			308,336		50.67
Total interest-bearing deposits		571,547		92.70			574,761		92.74			570,823		93.80
Total deposits	$	616,586		100.00	%	$	619,757		100.00	%	$	608,538		100.00	%

Source: Asheville Savings Bank, preliminary prospectus.

II-6

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-7

Borrowed Funds Distribution

As of or For the Years Ended December 31, 2009 and 2010

And As of or For the Three Months Ended March 31, 2011

(Dollars in Thousands)

	Three Months Ended March 31, 2011
				Year Ended December 31,
				2010			2009
FHLB Advances
Average balance outstanding	$	60,000		$	60,000		$	60,000
Maximum outstanding at any month-end		60,000			60,000			60,000
Balance outstanding at period-end		60,000			60,000			60,000
Weighted average rate during period		4.03	%		4.03	%		4.03	%
Weighted average rate at end of period		4.03	%		4.03	%		4.02	%
Overnight and short-term borrowings
Average balance outstanding	$	1,737		$	1,189		$	4,051
Maximum outstanding at any month-end		1,617			1,638			30,783
Balance outstanding at period-end		1,404			1,008			1,694
Weighted average rate during period		0.47	%		0.25	%		0.37	%
Weighted average rate at end of period		0.22	%		0.33	%		0.28	%

Source: Asheville Savings Bank, preliminary prospectus.

II-7

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-8

Office Properties

As of March 31, 2011

Location	Year Opened		Square Footage		Owned/ Leased		Lease Expiration Date		Net Book Value ($000s)
Banking Centers
Downtown Asheville (Main Office) 11 Church Street Asheville, North Carolina 28801		1936		24,124		Owned		—	$	3,662
Black Mountain 300 West State Street Black Mountain, North Carolina 28711		1960		4,500		Owned		—		322
Mars Hill 105 North Main Street Mars Hill, North Carolina 28754		1974		2,500		Owned		—		1,373
Skyland 1879 Hendersonville Road Asheville, North Carolina 28803		1976		3,108		Owned		—		706
East Asheville 10 South Tunnel Road Asheville, North Carolina 28805		1978		3,570		Owned		—		133
North Asheville 778 Merrimon Avenue Asheville, North Carolina 28804		1979		9,846		Owned		—		447
West Asheville 1012 Patton Avenue Asheville, North Carolina 28806		1981		3,670		Owned		—		383
Marion 162 North Main Street Marion, North Carolina 28752		1981		6,000		Owned		—		197
Hendersonville 601 North Main Street Hendersonville, North Carolina 28792		1992		4,000		Owned		—		660
Brevard 2 Market Street Brevard, North Carolina 28712		1995		2,100		Owned		—		869
Reynolds 5 Olde Eastwood Village Boulevard Asheville, North Carolina 28803		2001		3,500		Owned		—		1,069
Enka-Candler 907 Smoky Park Highway Candler, North Carolina 28715		2003		3,500		Owned		—		1,080
Fletcher 3551 Hendersonville Road Fletcher, North Carolina 28732		2008		3,415		Lot Leased Structure Owned		1/31/2027		1,017
Other Offices
Operations Center 901 Smoky Park Highway Candler, North Carolina 28715		2003		46,000		Leased		4/30/2017		465
Commercial Lending 11 Church Street Asheville, North Carolina 28801		1998		1,940		Owned		—		—	(1)

(1) Net book value is reflected in net book value for main office location.

Source: Asheville Savings Bank, preliminary prospectus.

II-8

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III

Financial and Market Data for All Public Thrifts

Company	State		Ticker		Total Assets ($Mil.)		Total Equity/ Assets (%)			Tang. Equity/ Assets (%)			LTM ROA (%)			LTM ROE (%)			Closing Price 5/09/11 ($)		Total Market Value ($Mil.)		Price/ LTM EPS (x)		Price/ Core EPS (x)		Price/ Book Value (%)		Price/ Tang. Book (%)		Price/ Total Assets (%)		Div. Yield (%)
All Public Thrifts(1)
Alliance Bancorp, Inc.		PA		ALLB		472		18.15			18.15			0.34			2.93			10.92		59.8		39.0		NA		NA		NA		NA		1.47
Anchor Bancorp		WA		ANCB		510		12.18			12.18			NA			NA			10.00		25.5		NA		NA		41.0		41.0		5.00		0.00
Anchor BanCorp Wisconsin Inc.		WI		ABCW		3,581		(0.27	)		(0.27	)		(1.22	)		(185.57	)		0.72		15.6		NM		NM		NM		NM		0.45		0.00
Astoria Financial Corporation		NY		AF		17,707		7.14			6.16			0.46			7.14			14.22		1,400.6		15.1		14.9		110.8		129.8		7.91		3.66
Athens Bancshares Corporation		TN		AFCB		284		17.56			17.44			0.63			3.51			13.53		37.6		19.9		20.0		75.4		76.1		13.25		1.48
Atlantic Coast Financial Corporation		FL		ACFC		810		6.77			6.76			(1.70	)		(27.55	)		9.73		25.6		NM		NA		NA		NA		NA		0.00
Bank Mutual Corporation		WI		BKMU		2,529		12.47			10.58			(2.29	)		(19.83	)		3.76		172.9		NM		NM		55.1		66.5		6.82		1.06
BankAtlantic Bancorp, Inc.		FL		BBX		4,471		(0.20	)		(0.52	)		(3.19	)		(206.35	)		0.93		57.6		NM		NM		NM		NM		1.31		0.00
BankFinancial Corporation		IL		BFIN		1,531		16.55			15.15			(0.28	)		(1.64	)		8.74		184.2		NM		NM		72.7		80.8		12.03		3.20
BankUnited, Inc.		FL		BKU		10,808		13.29			12.74			NA			NA			27.89		2,712.0		45.7		NA		188.7		198.2		25.09		2.01
BCSB Bancorp, Inc.		MD		BCSB		625		8.08			8.07			0.23			2.36			13.37		42.7		NM		NM		84.6		84.7		6.83		0.00
Beacon Federal Bancorp, Inc.		NY		BFED		1,034		10.77			10.77			0.53			5.18			14.29		91.7		15.5		13.7		82.3		82.3		8.87		1.40
Berkshire Hills Bancorp, Inc.		MA		BHLB		2,885		13.52			8.02			0.47			3.39			21.13		354.5		22.0		17.6		76.5		137.0		10.34		3.03
BofI Holding, Inc.		CA		BOFI		1,736		8.19			8.19			1.29			14.76			16.29		168.6		9.0		9.4		123.0		123.0		9.74		0.00
Broadway Financial Corporation		CA		BYFC		484		6.79			6.79			0.37			5.85			2.25		3.9		5.1		5.1		23.4		23.4		0.84		0.00
Brookline Bancorp, Inc.		MA		BRKL		3,058		16.36			14.90			1.06			5.76			8.87		524.0		18.9		18.7		105.3		117.7		17.15		3.83
Cape Bancorp, Inc.		NJ		CBNJ		1,062		13.29			11.37			1.10			8.79			10.39		138.3		10.9		10.8		98.0		117.1		13.03		0.00
Capitol Federal Financial, Inc.		KS		CFFN		9,798		20.61			20.61			0.42			3.59			10.98		1,839.1		52.3		29.5		91.1		91.1		18.77		2.73
Carver Bancorp, Inc.		NY		CARV		744		4.42			4.40			(4.56	)		(62.62	)		0.58		1.5		NM		NA		15.5		15.7		0.20		0.00
Central Bancorp, Inc.		MA		CEBK		488		9.66			9.25			0.33			3.74			18.85		31.7		27.7		30.1		84.7		90.1		6.63		1.06
Central Federal Corporation		OH		CFBK		275		5.81			5.77			(2.41	)		(35.52	)		1.07		4.4		NM		NM		49.5		50.2		1.65		0.00
CFS Bancorp, Inc.		IN		CITZ		1,144		9.94			9.94			0.29			2.86			5.49		59.7		18.3		19.3		52.5		52.5		5.22		0.73
Chicopee Bancorp, Inc.		MA		CBNK		582		15.82			15.82			0.10			0.59			14.37		85.9		NM		184.1		93.4		93.4		14.77		0.00
Citizens Community Bancorp, Inc.		WI		CZWI		580		8.93			8.81			(1.29	)		(13.94	)		5.25		26.8		NM		NM		51.8		52.6		4.63		0.00
Citizens South Banking Corporation		NC		CSBC		1,041		8.86			8.72			(0.24	)		(2.68	)		4.75		54.7		NM		NM		76.2		77.8		5.35		0.84
CMS Bancorp, Inc.		NY		CMSB		246		8.78			8.78			0.07			0.73			8.92		16.6		NM		NM		77.1		77.1		6.77		0.00
Colonial Financial Services, Inc.		NJ		COBK		590		11.76			11.76			0.67			6.83			12.72		53.3		13.1		12.9		76.8		76.8		9.02		0.00
Community Financial Corporation		VA		CFFC		528		9.29			9.29			0.26			2.86			3.14		13.7		20.9		20.9		37.3		37.3		2.66		0.00
Dime Community Bancshares, Inc.		NY		DCOM		4,143		8.14			6.88			1.05			13.32			14.54		504.3		11.4		NA		149.6		179.2		12.17		3.85
Eagle Bancorp Montana, Inc.		MT		EBMT		335		15.82			15.82			0.75			4.94			11.25		45.9		17.9		17.9		86.8		86.8		13.73		2.49

III-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

Company	State	Ticker	Total Assets ($Mil.)		Total Equity/ Assets (%)		Tang. Equity/ Assets (%)		LTM ROA (%)			LTM ROE (%)			Closing Price 5/09/11 ($)		Total Market Value ($Mil.)		Price/ LTM EPS (x)		Price/ Core EPS (x)		Price/ Book Value (%)		Price/ Tang. Book (%)		Price/ Total Assets (%)		Div. Yield (%)
Elmira Savings Bank, FSB	NY	ESBK		494		11.50		9.13		0.98			8.62			17.15		33.7		10.0		10.3		NA		NA		NA		4.66
ESB Financial Corporation	PA	ESBF		1,925		8.79		6.73		0.80			9.02			12.85		191.1		12.9		12.9		112.0		149.3		9.88		2.59
ESSA Bancorp, Inc.	PA	ESSA		1,094		14.86		14.86		0.40			2.50			11.86		151.6		32.1		37.9		NA		NA		NA		1.69
FedFirst Financial Corporation	PA	FFCO		339		17.50		17.18		0.16			1.04			14.65		43.8		NM		NA		NA		NA		NA		0.82
FFD Financial Corporation	OH	FFDF		211		8.89		8.89		0.69			7.78			14.25		14.4		10.0		NA		NA		NA		NA		4.77
Fidelity Bancorp, Inc.	PA	FSBI		685		7.29		NA		0.07			1.00			9.38		28.7		NM		14.8		66.7		NA		4.24		0.85
First Advantage Bancorp	TN	FABK		345		19.33		19.33		0.49			2.48			13.16		61.0		33.7		35.1		81.0		81.0		15.66		1.52
First Bancshares, Inc.	MO	FBSI		204		10.05		10.00		(1.54	)		(14.31	)		6.05		9.4		NM		NM		45.7		45.9		4.59		0.00
First Capital, Inc.	IN	FCAP		449		NA		NA		0.83			NA			16.50		46.0		12.2		12.1		NA		NA		NA		4.61
First Clover Leaf Financial Corp.	IL	FCLF		575		13.45		11.53		0.65			4.88			6.99		55.0		14.3		15.0		71.3		85.0		9.59		3.43
First Community Bank Corporation	FL	FCFL		471		6.11		6.11		(3.62	)		(48.79	)		0.27		2.3		NM		NM		14.4		14.4		0.33		0.00
First Defiance Financial Corp.	OH	FDEF		2,062		12.76		10.00		0.45			3.85			14.30		139.0		16.3		14.1		61.4		85.2		6.87		0.00
First Federal Bancshares of Arkansas	AR	FFBHD		578		6.02		6.02		(1.01	)		(15.78	)		10.44		171.2		NM		NM		54.7		54.7		1.80		0.00
First Federal of North. Mich. Bancp.	MI	FFNM		215		10.91		10.68		0.09			0.84			3.38		9.7		48.3		NM		41.5		42.5		4.52		0.00
First Financial Holdings, Inc.	SC	FFCH		3,302		9.43		8.39		(0.37	)		(3.88	)		10.32		170.6		NM		NM		69.2		81.6		5.27		1.94
First Financial Northwest, Inc.	WA	FFNW		1,184		14.91		14.91		(2.78	)		(19.17	)		6.20		116.6		NM		NM		66.1		66.1		9.85		0.00
First PacTrust Bancorp, Inc.	CA	FPTB		835		16.25		16.25		0.30			2.33			14.33		124.6		62.3		NM		102.8		102.8		16.70		2.93
First Place Financial Corp.	OH	FPFC		3,153		8.01		7.75		(0.97	)		(11.45	)		1.94		33.6		NM		NM		18.0		18.9		1.07		0.00
First Savings Financial Group, Inc.	IN	FSFG		513		10.93		9.48		0.61			5.66			16.00		37.9		11.3		8.3		67.6		79.2		7.39		0.00
Flagstar Bancorp, Inc.	MI	FBC		13,017		9.50		9.50		(2.34	)		(27.39	)		1.42		786.5		NM		NM		79.7		79.7		6.16		0.00
Flushing Financial Corporation	NY	FFIC		4,317		9.13		8.76		0.91			10.13			14.21		446.0		11.2		10.6		113.1		118.3		10.32		3.66
Fox Chase Bancorp, Inc.	PA	FXCB		1,071		19.31		19.31		0.30			1.84			13.34		194.1		53.4		84.7		93.8		93.8		18.12		0.60
Franklin Financial Corporation	VA	FRNK		NA		NA		NA		NA			NA			11.88		169.9		NA		NA		NA		NA		NA		0.00
Hampden Bancorp, Inc.	MA	HBNK		575		16.15		16.15		0.33			2.03			13.25		90.1		45.7		44.1		NA		NA		NA		0.91
Harleysville Savings Financial Corp.	PA	HARL		856		6.42		6.42		0.58			9.27			14.89		55.6		11.2		NA		101.0		101.0		6.49		5.10
Heritage Financial Group, Inc.	GA	HBOS		952		12.75		12.31		0.25			2.22			12.24		106.6		53.2		NM		87.9		91.4		11.20		0.98
HF Financial Corp.	SD	HFFC		1,207		7.91		7.58		0.31			4.06			11.05		77.1		20.1		19.0		80.7		84.6		6.39		4.07
Hingham Institution for Savings	MA	HIFS		1,033		7.26		7.26		1.09			15.06			51.24		108.8		10.1		10.1		145.1		145.1		10.54		1.87
HMN Financial, Inc.	MN	HMNF		879		7.92		7.92		(2.87	)		(31.81	)		3.00		13.2		NM		NM		29.1		29.1		1.54		0.00
Home Bancorp, Inc.	LA	HBCP		700		18.93		18.73		0.66			3.50			14.79		119.6		23.9		18.6		90.2		91.4		17.08		0.00
Home Federal Bancorp, Inc.	ID	HOME		1,336		14.84		14.61		(0.39	)		(2.30	)		10.89		180.4		NM		NA		91.0		92.7		13.50		2.02

III-2

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

Company	State	Ticker	Total Assets ($Mil.)		Total Equity/ Assets (%)		Tang. Equity/ Assets (%)		LTM ROA (%)			LTM ROE (%)			Closing Price 5/09/11 ($)		Total Market Value ($Mil.)		Price/ LTM EPS (x)		Price/ Core EPS (x)		Price/ Book Value (%)		Price/ Tang. Book (%)		Price/ Total Assets (%)		Div. Yield (%)
Home Federal Bancorp, Inc.	LA	HFBL		218		23.17		23.17		0.98			4.84			13.06		39.8		19.8		NA		NA		NA		NA		1.84
HopFed Bancorp, Inc.	KY	HFBC		1,074		10.08		10.02		0.26			2.57			8.20		60.2		18.2		57.2		66.7		67.2		5.70		3.90
Hudson City Bancorp, Inc.	NJ	HCBK		52,429		9.02		8.75		(0.28	)		(3.02	)		9.41		4,956.2		NM		NM		104.8		108.4		9.45		3.40
Jacksonville Bancorp, Inc.	IL	JXSB		308		11.89		11.10		0.77			7.08			12.74		24.5		10.5		11.7		NA		NA		NA		2.35
Jefferson Bancshares, Inc.	TN	JFBI		578		9.67		9.34		(3.75	)		(39.57	)		3.45		22.9		NM		NM		41.0		42.6		3.96		0.00
Kaiser Federal Financial Group, Inc.	CA	KFFG		902		17.22		NA		0.95			7.11			12.27		117.3		13.9		13.9		NA		NA		NA		1.63
Louisiana Bancorp, Inc.	LA	LABC		324		18.79		18.79		0.79			3.96			15.20		55.1		20.8		NA		90.3		90.3		16.97		0.00
LSB Financial Corp.	IN	LSBI		372		9.57		9.57		0.56			6.09			15.60		24.2		11.5		11.5		68.1		68.1		6.52		0.00
Mayflower Bancorp, Inc.	MA	MFLR		245		8.51		8.51		0.54			6.53			9.00		18.7		13.8		16.4		89.6		89.6		7.62		2.67
Meta Financial Group, Inc.	IA	CASH		1,130		6.26		6.16		1.14			16.36			14.35		44.7		3.7		3.5		63.1		64.2		3.95		3.62
MutualFirst Financial, Inc.	IN	MFSF		1,447		9.05		8.78		0.31			3.40			8.04		56.2		20.6		12.9		56.7		59.2		3.97		2.99
NASB Financial, Inc.	MO	NASB		1,337		12.70		12.53		0.49			4.20			13.78		108.4		15.5		17.9		63.8		64.8		8.11		0.00
New Hampshire Thrift Bancshares, Inc.	NH	NHTB		1,002		9.35		6.67		0.83			8.93			12.90		74.5		9.7		11.8		89.0		135.6		7.51		4.03
New York Community Bancorp, Inc.	NY	NYB		41,047		13.50		7.87		1.32			10.03			16.16		7,067.5		13.0		NA		127.6		232.9		17.22		6.19
Newport Bancorp, Inc.	RI	NFSB		450		11.17		11.17		0.44			4.00			14.35		50.1		24.3		25.1		99.7		99.7		11.14		0.00
North Central Bancshares, Inc.	IA	FFFD		452		10.87		10.74		0.37			3.47			16.64		22.5		19.1		19.2		57.6		58.6		5.09		0.24
Northwest Bancshares, Inc.	PA	NWBI		8,122		15.85		13.99		0.76			4.72			12.25		1,299.6		21.5		20.4		102.5		118.7		16.25		3.59
OBA Financial Services, Inc.	MD	OBAF		354		22.75		22.75		(0.08	)		(0.42	)		14.75		68.3		NA		NA		84.7		84.7		19.27		0.00
Ocean Shore Holding Co.	NJ	OSHC		861		11.81		11.81		0.63			5.29			12.55		91.6		16.1		15.9		90.0		90.0		10.63		1.91
OceanFirst Financial Corp.	NJ	OCFC		2,263		9.10		9.10		0.94			10.73			14.01		264.0		12.1		12.1		128.2		128.2		11.66		3.43
OmniAmerican Bancorp, Inc.	TX	OABC		1,335		14.86		14.86		0.14			0.82			14.58		172.6		NM		107.0		87.0		87.0		12.93		0.00
Oneida Financial Corp.	NY	ONFC		683		12.70		9.36		0.74			5.95			8.84		63.3		13.8		12.8		NA		NA		NA		5.43
Oritani Financial Corp.	NJ	ORIT		2,557		25.28		25.28		0.71			3.10			12.14		682.3		37.9		38.0		105.6		105.6		26.68		3.29
Park Bancorp, Inc.	IL	PFED		212		8.51		8.51		(2.48	)		(24.52	)		3.65		4.4		NM		NM		24.2		24.2		2.06		0.00
Parkvale Financial Corporation	PA	PVSA		1,801		6.88		5.42		(0.83	)		(12.20	)		10.42		58.2		NM		8.5		63.2		90.5		3.29		0.77
Peoples Federal Bancshares, Inc.	MA	PEOP		529		22.04		22.04		(0.02	)		(0.09	)		13.99		99.9		NA		NA		85.8		85.8		18.90		0.00
People’s United Financial, Inc.	CT	PBCT		24,962		20.67		13.94		0.54			2.32			13.48		4,847.5		38.5		31.1		92.7		149.2		19.17		4.67
Provident Financial Holdings, Inc.	CA	PROV		1,339		10.42		10.42		1.04			10.84			8.10		92.5		6.5		6.8		66.3		66.3		6.91		0.49
Provident Financial Services, Inc.	NJ	PFS		6,794		13.63		NA		0.76			5.60			13.98		839.3		15.4		14.5		90.6		NA		12.35		3.43
Provident New York Bancorp	NY	PBNY		2,919		14.40		9.31		0.70			4.80			9.17		348.8		17.0		22.0		83.1		136.1		11.96		2.62
Pulaski Financial Corp.	MO	PULB		1,338		8.87		8.59		0.75			8.94			7.19		79.0		8.9		8.8		90.4		94.8		6.05		5.29

III-3

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

Company	State	Ticker	Total Assets ($Mil.)		Total Equity/ Assets (%)		Tang. Equity/ Assets (%)		LTM ROA (%)			LTM ROE (%)			Closing Price 5/09/11 ($)		Total Market Value ($Mil.)		Price/ LTM EPS (x)		Price/ Core EPS (x)		Price/ Book Value (%)		Price/ Tang. Book (%)		Price/ Total Assets (%)		Div. Yield (%)
PVF Capital Corp.	OH	PVFC		777		9.58		9.58		(1.17	)		(12.22	)		1.90		48.8		NM		NM		65.5		65.5		6.28		0.00
River Valley Bancorp	IN	RIVR		387		8.34		8.32		0.62			7.52			15.65		23.7		11.8		NA		86.9		87.1		6.20		5.37
Riverview Bancorp, Inc.	WA	RVSB		859		12.50		9.79		0.51			4.29			3.16		71.0		13.2		13.0		66.4		87.5		8.27		0.00
Rockville Financial, Inc.	CT	RCKB		1,678		9.92		9.86		0.76			7.48			9.61		283.5		21.8		22.1		164.1		165.2		16.27		1.78
Severn Bancorp, Inc.	MD	SVBI		968		10.98		10.94		0.22			2.01			4.45		44.8		NM		NA		56.7		56.9		4.76		0.00
SI Financial Group, Inc.	CT	SIFI		929		13.87		13.49		0.30			3.11			10.10		106.8		38.8		42.7		82.9		85.6		11.49		1.19
SP Bancorp, Inc.	TX	SPBC		239		13.44		13.44		0.23			2.65			11.99		20.7		NM		115.4		64.4		64.4		8.66		0.00
Standard Financial Corp.	PA	STND		436		17.35		15.50		0.53			3.72			15.34		53.3		NA		NA		70.6		80.8		12.25		0.00
Teche Holding Company	LA	TSH		782		9.92		9.49		0.92			9.07			36.41		75.9		10.9		10.9		97.8		102.7		9.70		3.95
Territorial Bancorp Inc.	HI	TBNK		1,488		15.29		15.29		0.87			5.56			20.29		243.1		18.3		18.5		107.3		107.3		16.40		1.77
TF Financial Corporation	PA	THRD		684		10.85		10.26		0.46			4.39			21.99		62.1		18.2		18.2		83.6		89.0		9.07		0.91
Timberland Bancorp, Inc.	WA	TSBK		744		11.77		11.04		0.43			3.62			5.91		41.6		19.7		16.6		58.1		63.5		5.72		0.00
TrustCo Bank Corp NY	NY	TRST		4,008		6.45		6.44		0.77			11.59			5.75		444.9		14.7		16.0		171.8		172.2		11.08		4.57
United Community Financial Corp.	OH	UCFC		2,115		8.39		8.37		(1.29	)		(14.58	)		1.31		40.5		NM		NM		22.9		22.9		1.92		0.00
United Financial Bancorp, Inc.	MA	UBNK		1,600		14.01		13.54		0.69			4.80			15.97		257.2		22.5		21.9		114.7		119.3		16.07		2.00
ViewPoint Financial Group, Inc.	TX	VPFG		2,796		14.30		14.26		0.77			6.01			12.49		435.1		18.4		20.4		108.8		109.1		15.56		1.60
Washington Federal, Inc.	WA	WFSL		13,389		13.73		NA		0.58			4.29			15.40		1,725.9		22.0		24.0		93.9		NA		12.89		1.56
Wayne Savings Bancshares, Inc.	OH	WAYN		409		9.28		8.83		0.54			5.83			8.40		25.2		11.1		10.9		66.4		70.2		6.16		2.86
Westfield Financial, Inc.	MA	WFD		1,241		17.68		NA		0.24			1.26			8.82		247.4		NM		NM		112.8		NA		19.94		2.72
Wolverine Bancorp, Inc.	MI	WBKC		314		13.35		13.35		(1.16	)		(8.23	)		14.50		36.4		NA		NA		NA		NA		NA		0.00
WSB Holdings, Inc.	MD	WSB		409		12.79		12.79		(0.96	)		(7.46	)		3.10		24.8		NM		NA		47.3		47.3		6.06		0.00
WSFS Financial Corporation	DE	WSFS		3,952		9.39		NA		0.46			5.08			42.79		367.8		23.0		28.1		115.4		NA		9.43		1.12
WVS Financial Corp.	PA	WVFC		247		11.46		11.46		0.20			2.22			8.75		18.0		29.2		29.2		63.5		63.5		7.28		1.83
Average	NA	NA		2,794		11.85		11.15		0.03			(3.69	)		NA		339.1		20.7		24.7		80.8		87.2		9.37		1.59
Median	NA	NA		890		10.98		10.00		0.43			3.50			NA		63.3		17.9		17.1		82.3		85.1		8.66		1.06

⁽¹⁾  Public thrifts traded on NYSE, NYSE Amex, and NASDAQ; excludes companies subject to pending acquisitions or mutual holding company ownership.

Source: SNL Financial; Feldman Financial.

III-4

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-1

Pro Forma Assumptions for Conversion Stock Offering

1. The total amount of the net offering proceeds was fully invested at the beginning of the applicable period.

2. The net offering proceeds are invested to yield a return of 0.80%, which represented the yield on two-year U.S. Treasury securities at March 31, 2011. The effective combined federal and state corporate income tax rate was assumed to be 38.0%, resulting in a net after-tax yield of 0.50%.

3. It is assumed that 8.0% of the total shares of common stock to be sold in the offering will be acquired by the Bank’s employee stock ownership plan (“ESOP”). Pro forma adjustments have been made to earnings and equity to reflect the impact of the ESOP. The annual expense is estimated based on a 15-year loan to the ESOP from the Company. No re-investment is assumed on proceeds used to fund the ESOP.

4. It is assumed that that the Bank’s restricted stock plan (“RSP”) will purchase in the open market a number of shares equal to 4.0% of the total shares sold in the offering. Also, it is assumed that these shares are acquired at the initial public offering price of $10.00 per share. Pro forma adjustments have been made to earnings and equity to reflect the impact of the RSP. The annual expense is estimated based on a five-year vesting period. No re-investment is assumed on proceeds used to fund the RSP.

5. It is assumed that an additional 10.0% of the total shares sold in the offering will be reserved for issuance by the Bank’s stock option plan. Pro forma net income has been adjusted to reflect the expense associated with the granting of options at an assumed options value of $4.11 per share. It is further assumed that options for all shares reserved under the plan were granted to plan participants at the beginning of the period, 25% of the options granted were non-qualified options for income tax purposes, the options would vest at a rate of 20% per year, and compensation expense will be recognized on a straight-line basis over the five-year vesting period

6. The fair value of stock options has been estimated at $4.11 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; dividend yield of 0.00%; an expected option life of 10 years; a risk-free interest rate of 3.47%; and a volatility rate of 22.56% based on an index of publicly traded thrift institutions.

7. Total fixed offering expenses, excluding marketing agent fees, are estimated at $1.36 million. The marketing agent will receive a success fee equal to 1.0% of the aggregate dollar amount of common stock sold in the subscription and community offerings, excluding shares purchased by the ESOP or by the Bank’s officers, directors, employees, and their family members.

8. No effect has been given to withdrawals from deposit accounts for the purpose of purchasing common stock in the offering.

9. No effect has been given in the pro forma equity calculation for the assumed earnings on the net proceeds.

IV-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-2

Pro Forma Conversion Valuation Range

Asheville Savings Bank, S.S.B.

Historical Financial Data as of March 31, 2011

(Dollars in Thousands, Except Per Share Data)

	Minimum			Midpoint			Maximum			Adj. Max.
Shares sold		5,355,000			6,300,000			7,245,000			8,331,750
Offering price	$	10.00		$	10.00		$	10.00		$	10.00
Gross proceeds	$	53,550		$	63,000		$	72,450		$	83,318
Less: estimated offering expenses		(1,837	)		(1,924	)		(2,010	)		(2,110	)
Net offering proceeds		51,713			61,076			70,440			81,207
Less: ESOP purchase		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: RSP purchase		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Net investable proceeds	$	45,287		$	53,516		$	61,746		$	71,209
Net Income:
Historical LTM ended 3/31/11	($	9,303	)	($	9,303	)	($	9,303	)	($	9,303	)
Pro forma income on net proceeds		226			268			309			356
Pro forma ESOP adjustment		(177	)		(208	)		(240	)		(276	)
Pro forma RSP adjustment		(266	)		(312	)		(359	)		(413	)
Pro forma option adjustment		(398	)		(469	)		(539	)		(620	)
Pro forma net income	($	9,918	)	($	10,024	)	($	10,132	)	($	10,256	)
Pro forma earnings per share	($	2.00	)	($	1.72	)	($	1.51	)	($	1.33	)
Core Earnings:
Historical LTM ended 3/31/11	($	9,496	)	($	9,496	)	($	9,496	)	($	9,496	)
Pro forma income on net proceeds		226			268			309			356
Pro forma ESOP adjustment		(177	)		(208	)		(240	)		(276	)
Pro forma RSP adjustment		(266	)		(312	)		(359	)		(413	)
Pro forma option adjustment		(398	)		(469	)		(539	)		(620	)
Pro forma core earnings	($	10,111	)	($	10,217	)	($	10,325	)	($	10,449	)
Pro forma core earnings per share	($	2.04	)	($	1.75	)	($	1.54	)	($	1.36	)
Total Equity	$	63,295		$	63,295		$	63,295		$	63,295
Net offering proceeds		51,713			61,076			70,440			81,207
Less: ESOP purchase		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: RSP purchase		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Pro forma total equity	$	108,582		$	116,811		$	125,041		$	134,504
Pro forma book value	$	20.28		$	18.54		$	17.26		$	16.14
Tangible Equity	$	63,295		$	63,295		$	63,295		$	63,295
Net offering proceeds		51,713			61,076			70,440			81,207
Less: ESOP purchase		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: RSP purchase		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Pro forma tangible equity	$	108,582		$	116,811		$	125,041		$	134,504
Pro forma tangible book value	$	20.28		$	18.54		$	17.26		$	16.14
Total Assets	$	750,709		$	750,709		$	750,709		$	750,709
Net offering proceeds		51,713			61,076			70,440			81,207
Less: ESOP purchase		(4,284	)		(5,040	)		(5,796	)		(6,665	)
Less: RSP purchase		(2,142	)		(2,520	)		(2,898	)		(3,333	)
Pro forma total assets	$	795,996		$	804,225		$	812,455		$	821,918
Pro Forma Ratios:
Price / LTM EPS		NM			NM			NM			NM
Price / Core EPS		NM			NM			NM			NM
Price / Book Value		49.3	%		53.9	%		57.9	%		62.0	%
Price / Tangible Book Value		49.3	%		53.9	%		57.9	%		62.0	%
Price / Total Assets		6.73	%		7.83	%		8.92	%		10.14	%
Total Equity / Assets		13.64	%		14.52	%		15.39	%		16.36	%
Tangible Equity / Assets		13.64	%		14.52	%		15.39	%		16.36	%

IV-2

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-3

Pro Forma Conversion Analysis at the Maximum Valuation

Asheville Savings Bank, S.S.B.

Historical Financial Data as of March 31, 2011

Valuation Parameters	Symbol	Data
Net income — LTM	Y	$	-9,303,000
Core earnings — LTM	Y		-9,496,000
Net worth	B		63,295,000
Tangible net worth	B		63,295,000
Total assets	A		750,709,000
Expenses in conversion	X		2,010,490
Other proceeds not reinvested	O		8,694,000
ESOP purchase	E		5,796,000
ESOP expense (pre-tax)	F		387,097
RSP purchase	M		2,898,000
RSP expense (pre-tax)	N		579,032
Stock option expense (pre-tax)	Q		595,539
Option expense tax-deductible	D		25.00	%
Re-investment rate (after-tax)	R		0.50	%
Tax rate	T		38.00	%
Shares for EPS	S		92.53	%
Pro Forma Valuation Ratios at Maximum Value
Price / LTM EPS	P/E		NM
Price / Core EPS	P/E		NM
Price / Book Value	P/B		57.94	%
Price / Tangible Book	P/TB		57.94	%
Price / Assets	P/A		8.92	%

Pro Forma Calculation at Maximum Value
						Based on
	V	=	(P/E /S)*((Y-R*(O+X)-(F+N)*(1-T)-(Q-Q*D*T)))	=	$72,450,000	[LTM earnings]
			1 - (P/E / S) * R
	V	=	(P/E / S)*((Y-R*(O+X)-(F+N)*(1-T)-(Q-Q*D*T))	=	$72,450,000	[Core earnings]
			1 - (P/E / S) * R
	V	=	P/B * (B - X - E - M)	=	$72,450,000	[Book value]
			1 - P/B
	V	=	P/TB * (B - X - E - M)	=	$72,450,000	[Tangible book]
			1 - P/TB
	V	=	P/A * (B - X - E - M)	=	$72,450,000	[Total assets]
			1 - P/A

Pro Forma Valuation Range
Minimum	=	$	63,000,000         x	0.85	=	$53,550,000
Midpoint	=	$	63,000,000         x	1.00	=	$63,000,000
Maximum	=	$	63,000,000         x	1.15	=	$72,450,000
Adj. Max.	=	$	72,450,000         x	1.15	=	$83,317,500

IV-3

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-4

Comparative Valuation Ratio Differential

Pro Forma Conversion Valuation Range

Computed from Market Price Data as of May 9, 2011

		Asheville		Comparative
Valuation		Savings		Group
Ratio	Symbol	Bank		Average			Median
Price / Book Value	P/B				66.6			67.2
Minimum	(%)		49.3		-26.0	%		-26.6	%
Midpoint			53.9		-19.1	%		-19.8	%
Maximum			57.9		-13.1	%		-13.8	%
Adj. Maximum			62.0		-6.9	%		-7.7	%
Price / Tangible Book	P/TB				68.8			72.5
Minimum	(%)		49.3		-28.3	%		-32.0	%
Midpoint			53.9		-21.7	%		-25.7	%
Maximum			57.9		-15.8	%		-20.1	%
Adj. Maximum			62.0		-9.9	%		-14.5	%
Price / LTM EPS	P/E				17.2			18.3
Minimum	(x)		NM		NA			NA
Midpoint			NM		NA			NA
Maximum			NM		NA			NA
Adj. Maximum			NM		NA			NA
Price / Core EPS	P/E				22.5			19.0
Minimum	(x)		NM		NA			NA
Midpoint			NM		NA			NA
Maximum			NM		NA			NA
Adj. Maximum			NM		NA			NA
Price / Total Assets	P/A				6.85			5.53
Minimum	(%)		6.73		-1.8	%		21.7	%
Midpoint			7.83		14.3	%		41.8	%
Maximum			8.92		30.2	%		61.4	%
Adj. Maximum			10.14		48.0	%		83.5	%

IV-4

CORRESP

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