ASHEVILLE, N.C., Jan. 30, 2015 /PRNewswire/ -- ASB Bancorp, Inc. (the "Company") (NASDAQ GM: ASBB), the holding company for Asheville Savings Bank, S.S.B. (the "Bank"), announced today its unaudited preliminary operating results for the three months and year ended December 31, 2014. The Company reported net income of $642,000, or $0.16 per diluted common share, for the quarter ended December 31, 2014 compared to net income of $360,000, or $0.08 per diluted common share, for the same quarter of 2013. Net income totaled $2.5 million, or $0.59 per diluted common share, for the year ended December 31, 2014 compared to net income of $1.5 million, or $0.31 per diluted common share, for the year ended December 31, 2013.

Suzanne S. DeFerie, President and Chief Executive Officer, commented: "Our 2014 results reflected important progress we have made towards prudent loan growth and increased earnings, complemented by improved asset quality. We strengthened our balance sheet by growing core deposits 10.7% in 2014 to fund loan growth of 16.2%. These actions contributed to a 15 basis point expansion in our net interest margin in 2014. Coupled with a 7.3% decrease in our noninterest expenses, our returns on assets and equity and our efficiency ratio all improved significantly in 2014. We also ended 2014 with a tangible book value per common share of $21.56, an increase of 7.5% over 2013. For 2015, we will continue our focus on prudent loan growth funded by core deposit growth and the reduction of expenses where possible to build share value through increasing earnings."

Fourth Quarter Highlights

• Net income for the fourth quarter of 2014 was $642,000, or $0.16 per diluted common share, compared to $360,000, or $0.08 per diluted common share, for the fourth quarter of 2013. For the years ended December 31, 2014 and 2013, net income improved 71.2% to $2.5 million, or $0.59 per diluted common share, in 2014 compared to $1.5 million, or $0.31 per diluted common share, in 2013.
• Net interest income increased 8.7% to $5.2 million for the three months ended December 31, 2014 from $4.8 million for the three months ended December 31, 2013. The net interest margin improved to 2.94% for the fourth quarter of 2014 compared to 2.79% for the fourth quarter of 2013.
• Interest income from loans increased 10.3% in the fourth quarter of 2014 compared to the fourth quarter of 2013, primarily reflecting a $64.5 million increase in average loan balances when comparing the two quarters.
• Interest expense decreased 8.4% in the fourth quarter of 2014 compared to the fourth quarter of 2013.
• Provisions for loan losses were $220,000 in the fourth quarter of 2014 compared to $54,000 in the fourth quarter of 2013, primarily due to loan growth.
• Loan balances increased $33.9 million, or 7.0%, in the fourth quarter of 2014 and $72.6 million, or 16.2%, for the year ended December 31, 2014 as new loan originations exceeded loan repayments, prepayments and foreclosures.
• Noninterest expenses decreased 5.2% to $5.7 million for the fourth quarter of 2014 from $6.0 million for the fourth quarter of 2013, due to overhead expense reduction initiatives.
• Delinquent and nonperforming loans were 0.60% and 0.52%, respectively, of total loans at December 31, 2014, compared to 0.48% and 0.27%, respectively, of total loans at December 31, 2013.
• Nonperforming assets, including foreclosed properties, decreased to 1.51% of total assets at December 31, 2014 from 2.10% of total assets at December 31, 2013 and 1.68% of total assets at September 30, 2014.
• Core deposits, which exclude certificates of deposit, increased $43.6 million, or 10.7%, since December 31, 2013 and $15.3 million, or 3.5%, since September 30, 2014. Noninterest-bearing deposits increased $23.4 million since December 31, 2013, while commercial non-maturity deposits increased $26.4 million, or 27.7%, over the same period.
• Book value per common share increased to $21.56 from $21.53 at September 30, 2014 and $20.06 at December 31, 2013.
• Capital remains strong with consolidated regulatory capital ratios of 13.17% Tier 1 leverage capital, 19.83% Tier 1 risk-based capital and 21.01% total risk-based capital.
• During 2014, a total of 663,246 shares of common stock were repurchased through open market and privately negotiated transactions at an average cost of $19.45 per share.

DeFerie commented: "Our improving core performance reflects our ongoing initiatives to build a more diversified loan portfolio while diligently managing funding costs and operating efficiency. As discussed previously, during 2014 we used a portion of our capital to repurchase shares of our common stock through both open market and privately negotiated transactions."

Income Statement Analysis

Net Interest Income. Net interest income increased $421,000, or 8.7%, to $5.2 million for the fourth quarter of 2014 compared to $4.8 million for the fourth quarter of 2013. The net interest margin increased 15 basis points to 2.94% for the quarter ended December 31, 2014 compared to 2.79% for the quarter ended December 31, 2013. Interest expense decreased $80,000, or 8.4%, to $877,000 for the fourth quarter of 2014 compared to $957,000 for the fourth quarter of 2013, primarily resulting from a 5 basis point decline in the average rate paid on interest-bearing liabilities coupled with a $2.6 million decrease in the average balance of total interest-bearing liabilities. Total interest and dividend income increased $341,000, or 5.9%, to $6.1 million for the fourth quarter of 2014 compared to $5.8 million for the fourth quarter of 2013, primarily resulting from a $64.5 million increase in average loan balances and an 18 basis point increase in the average yield on mortgage-backed and similar securities, which were partially offset by a $47.9 million decrease in the average balance in mortgage-backed and other investment securities, a 16 basis point reduction in the average yield on loans and a 20 basis point decrease in the average yield on other investment securities.

Net interest income increased $1.2 million, or 6.4%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily due to an increase in interest income on loans and a decrease in interest expense on deposits, which were partially offset by a decrease in interest and dividend income on securities. Total interest expense decreased $658,000, or 15.7%, during the year ended December 31, 2014, primarily resulting from a 13 basis point decrease in the rates paid on interest-bearing deposits as well as a decrease of $9.8 million, or 1.9%, in the average balances of interest-bearing deposits, reflecting a decline in average certificates of deposit that was partially offset by growth in average balances of NOW, money market, and savings accounts. The Company continued its focus on core deposit growth, from which it excludes certificates of deposit. The average rate paid on total interest-bearing liabilities decreased 11 basis points during 2014. Total interest and dividend income increased $550,000, or 2.4%, during the year ended December 31, 2014. Loan interest income increased $1.5 million, or 7.7%, during the year ended December 31, 2014, primarily due to an increase in average outstanding loans of $55.4 million, or 13.1%, which was partially offset by a 22 basis point decrease in the yield earned on loans during 2014. Interest income from securities decreased by $978,000, primarily due to a $63.7 million decrease in the average balance of mortgage-backed and related securities and a decrease of $11.6 million in the average balance of other investment securities that resulted from sales in 2014 to fund loan growth.

"We believe an important measure of our performance is the net interest margin improvement resulting from increased interest income from loan growth funded by lower deposit interest expense from diligent deposit repricing and core deposit growth," DeFerie explained. "We consider our loan pipeline to be robust, which gives us confidence in our ability to continue to grow interest income as we enter 2015."

Noninterest Income. Noninterest income decreased $75,000, or 4.3%, to $1.7 million for the three months ended December 31, 2014 compared to $1.8 million for the three months ended December 31, 2013, primarily due to a reduction of $265,000 in gains on the sale of foreclosed properties and $56,000 in lower mortgage banking income, partially offset by $115,000 in higher income from an investment in a Small Business Investment Company, $81,000 in higher loan fees and $32,000 in higher income from debit card services.

During the year ended December 31, 2014, total noninterest income decreased $1.7 million, or 21.2%, to $6.3 million compared to $8.0 million for the year ended December 31, 2013. Factors that contributed to the decrease in noninterest income during 2014 included $967,000 in lower mortgage banking income, a reduction of $659,000 in gains from the sale of investment securities, a reduction of $273,000 in gains from the sale of foreclosed properties and $132,000 in lower fees from deposits and other service charge income, which were partially offset by $219,000 in higher loan fees and $110,000 in higher income from debit card services. The decrease in mortgage banking income was attributable to lower volumes of residential mortgage loans originated and sold. The decrease in deposit fees was primarily the result of lower ATM and deposit overdraft fees.

Noninterest Expenses. Noninterest expenses decreased $316,000, or 5.2%, to $5.7 million for the three months ended December 31, 2014 from $6.0 million for the three months ended December 31, 2013. The decrease in the fourth quarter of 2014 was primarily attributable to $197,000 in lower data processing fees, $165,000 in lower salaries and employee benefits, $76,000 in lower expenses related to foreclosed properties, and lower expenses in most other categories, which were partially offset by $176,000 in higher professional and outside service fees.

Noninterest expenses decreased $1.8 million, or 7.3%, to $23.5 million for the year ended December 31, 2014 compared to $25.4 million for the year ended December 31, 2013. The decrease in noninterest expenses for 2014 was primarily attributable to $1.8 million in lower foreclosed property expenses, $319,000 in lower data processing fees and $168,000 in lower occupancy expenses, which were partially offset by $395,000 in higher salaries and employee benefits and $324,000 in higher professional and outside service fees. The increase in salaries and employee benefits was primarily due to an increase of $457,000 relating to the Company's equity incentive plan, which included $380,000 related to accelerated vesting for the disability of a participant, and an increase of $537,000 in other employee benefits, which were partially offset by a decrease of $632,000 in compensation expenses in 2014. Employee benefits for 2013 included a $499,000 one-time credit to pension expense resulting from the curtailment of benefits for future service.

Balance Sheet Review

Assets. Total assets increased $27.0 million, or 3.7%, to $760.1 million at December 31, 2014 from $733.0 million at December 31, 2013. Investment securities decreased $44.1 million, or 23.3%, to $145.5 million at December 31, 2014 from $189.6 million at December 31, 2013, primarily due to the sale of investment securities to fund loan growth. Loans receivable, net of deferred fees, increased $72.6 million, or 16.2%, to $521.8 million at December 31, 2014 from $449.2 million at December 31, 2013 as new loan originations exceeded loan repayments, prepayments, and foreclosures.

Liabilities. Total liabilities increased $33.7 million to $665.7 million at December 31, 2014 compared to $631.9 million at December 31, 2013. Total deposits increased $30.6 million, or 5.3%, to $603.4 million at December 31, 2014 from $572.8 million at December 31, 2013. Core deposits, which exclude certificates of deposit, increased $43.6 million, or 10.7%, to $449.3 million at December 31, 2014 from $405.7 million at December 31, 2013 as a result of the Company's continued focus on increasing core deposits to fund loan growth.

Commercial checking and money market accounts increased $26.4 million, or 27.7%, to $121.6 million at December 31, 2014 from $95.2 million at December 31, 2013, reflecting expanded sources of lower cost funding. The Company's initiatives to obtain new commercial deposit relationships in conjunction with making new commercial loans significantly contributed to this increase and reflects its commitment to establishing diversified relationships with business clients.

Certificates of deposit decreased $13.0 million, or 7.8%, to $154.1 million at December 31, 2014 compared to $167.1 million at December 31, 2013. Noninterest-bearing deposits increased $23.4 million, or 31.7%, to $97.5 million at December 31, 2014, compared to $74.0 million at December 31, 2013. Accounts payable and other liabilities increased $3.2 million, or 38.7%, to $11.6 million at December 31, 2014 from $8.4 million at December 31, 2013.

"We believe our 27.7% increase in commercial checking and money market accounts during 2014 demonstrates our focus on creating full relationships with our business clients and reflects the complementary nature of our business banking strategy," DeFerie explained.

Asset Quality

Provision for Loan Losses. The provision for loan losses was $220,000 for the fourth quarter of 2014 compared to $54,000 for the fourth quarter of 2013. The provision expenses recorded in the three months ended December 31, 2014 and 2013 were primarily due to loan growth for the periods. The Company charged off $182,000 in loans during the fourth quarter of 2014 compared to $352,000 during the same quarter of 2013.

The Company recorded a recovery of loan losses in the amount of $(998,000) for the year ended December 31, 2014 compared to a recovery of loan losses of $(681,000) for the year ended December 31, 2013. In the second quarter of 2014, the Company assessed and modified its loan loss methodology for unimpaired commercial construction and land development, unimpaired residential construction and land development, and unimpaired commercial and industrial loans, which resulted in a nonrecurring reduction of approximately $1.3 million in the Company's reserves for loans not considered impaired in the second quarter of 2014. Charge-offs were $504,000 for the year ended December 31, 2014 compared to $630,000 for the year ended December 31, 2013. The allowance for loan losses totaled $5.9 million, or 1.14% of total loans, at December 31, 2014 compared to $7.3 million, or 1.63% of total loans, at December 31, 2013.

Nonperforming Assets. Nonperforming assets decreased $3.9 million, or 25.5%, to $11.5 million, or 1.51% of total assets, at December 31, 2014, compared to $15.4 million, or 2.10% of total assets, at December 31, 2013. Nonperforming assets included $2.7 million in nonperforming loans and $8.8 million in foreclosed real estate at December 31, 2014, compared to $1.2 million and $14.2 million, respectively, at December 31, 2013.

Nonperforming loans increased $1.5 million, or 124.6%, to $2.7 million at December 31, 2014 from $1.2 million at December 31, 2013. Collateral on nonperforming loans in the amount of $281,000 was moved into foreclosed real estate, while performing troubled debt restructurings decreased $451,000, or 8.6%, when comparing the same periods. Total performing troubled debt restructurings and nonperforming assets decreased $4.4 million, or 21.2%, to $16.3 million, or 2.15% of total assets, at December 31, 2014, compared to $20.7 million, or 2.82% of total assets, at December 31, 2013.

Nonperforming loans at December 31, 2014 included two commercial mortgage loans that totaled $881,000, four commercial and industrial loans that totaled $221,000, six residential mortgage loans that totaled $1.4 million, and four home equity loans that totaled $230,000. As of December 31, 2014, the nonperforming loans had specific reserves of $198,000. Foreclosed real estate at December 31, 2014 included 10 properties with a total carrying value of $8.8 million compared to 11 properties with a total carrying value of $14.2 million at December 31, 2013. During 2014, there were five new properties in the amount of $281,000 added to foreclosed real estate, while six properties totaling $1.8 million were sold including a large parcel with a recorded amount of $1.2 million. In addition, during 2014, the Bank sold 29 of its 44 units in a mixed-use condominium complex for net proceeds of $4.0 million. The Bank also recorded $242,000 in capital additions and $150,000 in valuation adjustments during 2014.

The Bank's largest foreclosed property resulted from a loan relationship that had an original purpose of constructing a mixed-use retail, commercial office, and residential condominium project located in Western North Carolina. As a result of this foreclosure, the Bank acquired 44 of the 48 condominium units in the building. Following an additional write-down of approximately $630,000 on the loans secured by this collateral in the fourth quarter of 2012, the Bank recorded this foreclosed property in the amount of $9.8 million. During 2013, the Bank recorded additional write-downs totaling $1.6 million, which resulted in an adjusted recorded amount of $8.2 million at December 31, 2013. During the year ended December 31, 2014, the Bank recorded an additional write-down of $133,000 on the property and sold 28 residential condominium units and one office unit. At December 31, 2014, the adjusted recorded amount was $4.5 million for the remaining 8 retail units and 7 office units.

Outlook

The Company's capital ratios exceeded accepted regulatory standards for a well-capitalized institution, with a Tier 1 leverage ratio of 13.17%, a Tier 1 risk-based capital ratio of 19.83% and a total risk-based capital ratio of 21.01% at December 31, 2014. Book value per common share was $21.56 at December 31, 2014 compared with $20.06 at December 31, 2013. Return on average assets was 0.33% and return on average equity was 2.51% for the year ended December 31, 2014 compared with 0.19% and 1.37%, respectively, for the year ended December 31, 2013.

DeFerie concluded: "We are enthusiastic about the important progress we made in 2014 to strengthen our balance sheet and grow our loan portfolio to better position us for the future. We feel there is opportunity to further improve our operating results with continued loan growth and increased operating efficiency and that we are well positioned to capitalize on opportunities that will support the momentum we developed during the past year."

Profile

The Bank is a North Carolina chartered stock savings bank offering traditional financial services through thirteen full-service banking centers located in Buncombe, Madison, McDowell, Henderson, and Transylvania counties in Western North Carolina and a loan production office in Charlotte, North Carolina. Originally chartered in 1936 and headquartered in Asheville, North Carolina, the Bank is locally managed with a focus on fostering strong relationships with its customers, its employees and the communities it serves. The Bank was recognized as the 2014 #1 Best Bank and #1 Best Bank for Small Business Services by the readers of the Mountain Xpress newspaper in Western North Carolina and was also awarded the Best Bank in McDowell County for 2014 by the readers of The McDowell News newspaper.

This news release, as well as other written communications made from time to time by the Company and its subsidiaries and oral communications made from time to time by authorized officers of the Company, may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "intend" and "potential." For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

The Company cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and geopolitical conditions; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting the Company's operations, pricing, products and services and other factors described in the Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Contact: Suzanne S. DeFerie
Chief Executive Officer
(828) 254-7411