ASB Bancorp, Inc. Reports Financial Results For The Fourth Quarter And Year Ended December 31, 2015

ASHEVILLE, N.C., Feb. 1, 2016 /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, 2015. The Company reported net income of $946,000, or $0.24 per diluted common share, for the quarter ended December 31, 2015 compared to $642,000, or $0.16 per diluted common share, for the same quarter of 2014. For the three months ended December 31, 2015, net income and diluted earnings per share grew by 47.4% and 50.0%, respectively. Net income totaled $3.6 million, or $0.89 per diluted common share, for the year ended December 31, 2015 compared to $2.5 million, or $0.59 per diluted common share, for the year ended December 31, 2014. For the full year, net income and diluted earnings per share grew by 43.6% and 50.8%, respectively.

Suzanne S. DeFerie, President and Chief Executive Officer, commented: "Results for 2015 were solid as we met most key performance targets that we had set out earlier in the year.  We demonstrated good growth in core deposits, commercial deposit relationships and total loans; net interest margin expanded; and we saw a significant improvement in asset quality, all while maintaining a strong capital position.  As a result, net income increased by 43.6% for the full year.

"Improving our efficiency ratio remains a key priority and we have identified and begun implementing several initiatives designed to increase noninterest income and reduce operating expenses.  Combined with expected continued growth in core deposits and loans and further expansion of net interest margin, we expect these initiatives to contribute to strong net income growth in 2016 and improved returns for our shareholders."

Fourth Quarter Highlights        

• Net income for the fourth quarter of 2015 was $946,000, or $0.24 per diluted common share, compared to $642,000, or $0.16 per diluted common share, for the fourth quarter of 2014. For the years ended December 31, 2015 and 2014, net income improved 43.6% to $3.6 million, or $0.89 per diluted common share, in 2015 compared to $2.5 million, or $0.59 per diluted common share, in 2014.
   
• Net interest income increased 8.1% to $5.7 million for the three months ended December 31, 2015 from $5.2 million for the three months ended December 31, 2014. The net interest margin improved to 3.04% for the fourth quarter of 2015 compared to 2.94% for the fourth quarter of 2014.
   
• Interest income from loans increased 7.6% in the fourth quarter of 2015 compared to the fourth quarter of 2014, primarily reflecting a $66.6 million increase in average loan balances when comparing the two quarters.
   
• Interest expense decreased 1.1% in the fourth quarter of 2015 compared to the fourth quarter of 2014.
   
• The Company recorded a recovery of loan losses in the amount of $89,000 in the fourth quarter of 2015 compared to a provision for loan losses of $220,000 in the fourth quarter of 2014.  The allowance for loan losses declined to 1.09% of total loans at December 31, 2015 from 1.14% of total loans at December 31, 2014, although the allowance coverage of nonperforming loans was 246.82% at December 31, 2015 compared to 221.32% at December 31, 2014. 
   
• Loan balances increased $7.0 million, or 1.2%, in the fourth quarter of 2015 and $54.3 million, or 10.4%, for the year ended December 31, 2015 as new loan originations exceeded loan repayments, prepayments and foreclosures.
   
• Nonperforming assets, including foreclosed properties, decreased to 1.05% of total assets at December 31, 2015 from 1.51% at December 31, 2014 and 1.46% at September 30, 2015, due primarily to the sale of a large foreclosed property with a recorded amount of $3.1 million.
   
• Noninterest income increased 9.9% to $1.8 million for the fourth quarter of 2015 from $1.7 million for the fourth quarter of 2014, primarily due to an increase in mortgage banking income and gains realized from the sale of investment securities. 
   
• Noninterest expenses increased 3.6% to $5.9 million for the fourth quarter of 2015 from $5.7 million for the fourth quarter of 2014, primarily due to increases in compensation and employee benefits, which included increases of $170,000 for employee incentives and $80,000 in pension plan expenses for 2015.
   
• Delinquent and nonperforming loans were 0.49% and 0.44%, respectively, of total loans at December 31, 2015, compared to 0.60% and 0.52%, respectively, at December 31, 2014. 
   
• Core deposits, which exclude certificates of deposit, increased $46.3 million, or 10.3%, since December 31, 2014 and $6.1 million, or 1.2%, since September 30, 2015.  Noninterest-bearing deposits increased $16.3 million, or 16.7%, and commercial non-maturity deposits increased $25.4 million, or 20.9%, since December 31, 2014.
   
• Book value per common share increased to $22.50 from $22.41 at September 30, 2015 and $21.56 at December 31, 2014.
   
• Capital remains strong with consolidated regulatory capital ratios of 16.66% common equity Tier 1 capital, 11.87% Tier 1 leverage capital, 16.66% Tier 1 risk-based capital and 17.77% total risk-based capital as of December 31, 2015.
   
• During November 2015, the Company repurchased 421,770 shares of its common stock from one of its larger institutional shareholders in a previously announced privately negotiated transaction at a purchase price of $26.50 per share. During 2015, a total of 438,936 shares of common stock were repurchased through open market and privately negotiated transactions at an average purchase price of $26.37 per share. 

Income Statement Analysis

Net Interest Income. Net interest income increased $426,000, or 8.1%, to $5.7 million for the fourth quarter of 2015 compared to $5.2 million for the fourth quarter of 2014. The net interest margin increased 10 basis points to 3.04% for the quarter ended December 31, 2015 compared to 2.94% for the quarter ended December 31, 2014. Total interest and dividend income increased $416,000, or 6.8%, to $6.5 million for the fourth quarter of 2015 compared to $6.1 million for the fourth quarter of 2014, primarily resulting from a $66.6 million increase in average loan balances and a 33 basis point increase in the average yield on investment securities, which were partially offset by a 21 basis point reduction in the average yield on loans and a $7.1 million decrease in the average balance of investment securities. Interest expense decreased $10,000, or 1.1%, to $867,000 for the fourth quarter of 2015 from $877,000 for the fourth quarter of 2014, primarily due to a $17.1 million decrease in the average balances of certificates of deposit. When comparing the these same three-month periods, average noninterest-bearing deposits grew $23.2 million, or 24.1%, which contributed to minimizing deposit interest expense while deposit funding grew.

Net interest income increased $2.0 million, or 9.9%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014, 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 and dividend income increased $1.9 million, or 8.2%, during the year ended December 31, 2015. Loan interest income increased $2.2 million, or 10.9%, during the year ended December 31, 2015, primarily due to an increase in average outstanding loans of $80.4 million, or 16.9%, which was partially offset by a 22 basis point decrease in the yield earned on loans during 2015. Interest income from securities decreased by $234,000, attributable to an $18.6 million decrease in the average balance of investment securities, partially offset by a 14 basis point increase in the yield earned on the investment portfolio. Total interest expense decreased $51,000, or 1.4%, during the year ended December 31, 2015. The lower interest expense was primarily attributable to lower average balances of certificates of deposit, which were partially offset by higher 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 2 basis points during 2015. Average noninterest-bearing deposits grew $23.0 million, or 26.4%, when comparing the same periods, which contributed to the reduction in deposit interest expense while deposit funding grew.

Noninterest Income. Noninterest income increased $166,000, or 9.9%, to $1.8 million for the three months ended December 31, 2015 compared to $1.7 million for the three months ended December 31, 2014. Factors that contributed to the increase in noninterest income during the 2015 period included increases of $170,000 in net gains from the sale of investment securities, $159,000 in mortgage banking income, $42,000 in deposit and other service charge income and $22,000 in debit card income, which were partially offset by a decrease of $130,000 in income from an investment in a Small Business Investment Company, an increase of $65,000 in losses on sale of foreclosed properties and $33,000 in lower loan fee income.

During the year ended December 31, 2015, total noninterest income increased $1.2 million, or 18.6%, to $7.5 million from $6.3 million for the year ended December 31, 2014. The increase in noninterest income during 2015 was primarily attributable to $845,000 in higher mortgage banking income, $364,000 in higher net gains from the sale of investment securities, $141,000 in debit card income and $110,000 in deposit and other service charge income that were partially offset by decreases of $114,000 in loan fee income, $109,000 in income from an investment in a Small Business Investment Company and $90,000 in losses on sale of foreclosed properties. The increase in mortgage banking income was attributable to higher volumes of residential mortgage loans originated and sold. The increase in gains from sales of investment securities was primarily due to more sales of investment securities that were needed to fund loan growth. The increase in deposit fees was primarily the result of higher retail checking account fees, and the increase in income from debit card services was driven by volume.

Noninterest Expenses. Noninterest expenses increased $207,000, or 3.6%, to $5.9 million for the three months ended December 31, 2015 from $5.7 million for the three months ended December 31, 2014. The increase in the fourth quarter of 2015 was primarily attributable to increases of $274,000 in compensation and employee benefits and $138,000 in data processing fees, which were partially offset by decreases of $85,000 in professional and outside services, $37,000 in occupancy expenses and lower expenses in most other categories. The increase in compensation and employee benefits was affected by strong quarterly loan production in our mortgage banking business and included increases of $170,000 for employee incentives and $80,000 for pension plan expenses in 2015.

Noninterest expenses remained at $23.5 million for the years ended December 31, 2015 and 2014. Increases of $469,000 in compensation and employee benefits and $90,000 in data processing fees were offset by lower expenses in most other categories. The increase in compensation and employee benefits included increases of $490,000 for employee incentives and $263,000 for pension plan expenses in 2015, which were partially offset by a decrease of $402,000 in equity incentive plan expenses primarily due to additional expense of $380,000 in 2014 for accelerated vesting related to the disability of a participant. Decreases of noninterest expenses in 2015 included $259,000 in foreclosed property expenses, $141,000 in professional and outside services, $119,000 in occupancy expenses and $77,000 in advertising. The decrease in foreclosed property expenses included a reduction of $141,000 in valuation write-downs of foreclosed properties.

Balance Sheet Review

Assets. Total assets increased $22.8 million, or 3.0%, to $782.9 million at December 31, 2015 from $760.0 million at December 31, 2014. Investment securities decreased $4.1 million, or 2.8%, to $141.4 million at December 31, 2015 from $145.5 million at December 31, 2014, primarily due to the sale of investment securities to fund loan growth. Loans receivable, net of deferred fees, increased $54.3 million, or 10.4%, to $576.1 million at December 31, 2015 from $521.8 million at December 31, 2014 as new loan originations exceeded loan repayments, prepayments, and foreclosures.

Liabilities. Total liabilities increased $27.6 million to $693.2 million at December 31, 2015 from $665.6 million at December 31, 2014. Total deposits increased $27.5 million, or 4.6%, to $630.9 million at December 31, 2015 from $603.4 million at December 31, 2014. Core deposits, which exclude certificates of deposit, increased $46.3 million, or 10.3%, to $495.6 million at December 31, 2015 from $449.3 million at December 31, 2014 as a result of the Company's continued focus on increasing core deposits to fund loan growth.

Commercial checking and money market accounts increased $25.4 million, or 20.9%, to $147.0 million at December 31, 2015 from $121.6 million at December 31, 2014, reflecting expanded sources of lower cost funding. The Company's initiatives to obtain new commercial deposit relationships in conjunction with making new commercial loans significantly contributed to this increase and reflects its commitment to establishing diversified relationships with business clients.

Certificates of deposit decreased $18.8 million, or 12.2%, to $135.3 million at December 31, 2015 from $154.1 million at December 31, 2014. Noninterest-bearing deposits increased $16.2 million, or 16.7%, to $113.7 million at December 31, 2015 from $97.5 million at December 31, 2014. Accounts payable and other liabilities increased $336,000, or 2.9%, to $12.0 million at December 31, 2015 from $11.6 million at December 31, 2014. The increase in accounts payable and other liabilities was primarily attributable to accrued employee incentives.

Asset Quality

Provision for Loan Losses. The Company recorded a recovery of loan losses in the amount of $89,000 for the fourth quarter of 2015 compared to a provision for loan losses of $220,000 for the fourth quarter of 2014. The decrease in the provision for loan losses for the fourth quarter of 2015 was due to improvement in loan delinquencies and the credit quality of the loan portfolio in addition to a large recovery received during the quarter. The Company charged off $41,000 in loans during the fourth quarter of 2015 compared to $182,000 during the same quarter of 2014.

The Company recorded a provision for loan losses in the amount of $361,000 for the year ended December 31, 2015 compared to a recovery of loan losses of $998,000 for the year ended December 31, 2014. Net charge-offs were $21,000 for the year ended December 31, 2015 compared to $360,000 for the year ended December 31, 2014. The increase in the provision for loan losses was primarily due to loan growth in 2015 and to a reduction in loan loss reserves in 2014 due to a modification of our 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 reserves for loans not considered impaired. The allowance for loan losses totaled $6.3 million, or 1.09% of total loans, at December 31, 2015 compared to $5.9 million, or 1.14% of total loans, at December 31, 2014.

Nonperforming Assets. Nonperforming assets decreased $3.3 million, or 28.8%, to $8.2 million, or 1.05% of total assets, at December 31, 2015, compared to $11.5 million, or 1.51% of total assets, at December 31, 2014. Nonperforming assets included $2.5 million in nonperforming loans and $5.6 million in foreclosed real estate at December 31, 2015, compared to $2.7 million and $8.8 million, respectively, at December 31, 2014.

Nonperforming loans decreased $140,000, or 5.2%, to $2.5 million at December 31, 2015 from $2.7 million at December 31, 2014. Real property securing nonperforming loans in the amount of  $820,000 was moved into foreclosed real estate, while performing troubled debt restructurings decreased $252,000, or 5.2%, when comparing the same periods. Total performing troubled debt restructurings and nonperforming assets decreased $3.6 million, or 21.8%, to $12.7 million, or 1.63% of total assets, at December 31, 2015, compared to $16.3 million, or 2.15% of total assets, at December 31, 2014.

Nonperforming loans at December 31, 2015 included two commercial mortgage loans that totaled $818,000, four commercial and industrial loans that totaled $227,000, four residential mortgage loans that totaled $1.3 million, and four home equity loans that totaled $194,000. As of December 31, 2015, the nonperforming loans had specific reserves of $110,000. Foreclosed real estate at December 31, 2015 included six properties with a total carrying value of $5.6 million compared to ten properties with a total carrying value of $8.8 million at December 31, 2014. During 2015, there were three new properties in the amount of $820,000 added to foreclosed real estate, while seven properties totaling $3.3 million were sold, including a large parcel with a recorded amount of $3.1 million. In addition, during 2015, the Bank sold three of its 15 units in a mixed-use condominium complex for net proceeds of $508,000 along with two residential lots in a mixed-use lot subdivision and one parcel of land that was a portion of a residential property for net proceeds of $150,000. Loss provisions on foreclosed real estate of $9,000 were recorded during 2015 and there were no capital additions during the period.

The Bank's largest foreclosed property resulted from a loan relationship that had an original purpose of constructing a mixed-use retail, commercial office, and residential condominium project located in Western North Carolina. As a result of this foreclosure, the Bank acquired 44 of the 48 condominium units in the building. Following an additional write-down of approximately $630,000 on the loans secured by this collateral in the fourth quarter of 2012, the Bank recorded this foreclosed property in the amount of $9.8 million. During 2013, the Bank recorded additional write-downs totaling $1.6 million, which resulted in an adjusted recorded amount of $8.2 million at December 31, 2013. During the year ended December 31, 2014, the Bank recorded an additional write-down of $133,000 on the property and sold 28 residential condominium units and one office unit. During 2015, the Bank sold one retail unit and two office units.  At December 31, 2015, the adjusted recorded amount was $4.0 million for the remaining seven retail units and five office units.

Share Repurchases

On March 31, 2015, the Company's Board of Directors approved an additional 5% stock repurchase plan. During the fourth quarter of 2015, 3,021 shares of common stock were repurchased at an average purchase price of $26.00 per share. As previously disclosed, on November 19, 2015, the Company entered into a privately negotiated stock repurchase agreement with FVP Master Fund, L.P. Pursuant to the agreement, the Company purchased 421,770 shares of its common stock, $0.01 par value, for an aggregate purchase price of $11,176,905, or $26.50 per share.

Profile

The Bank is a North Carolina chartered stock savings bank offering traditional financial services through 13 full-service banking centers located in Buncombe, Madison, McDowell, Henderson and Transylvania counties in Western North Carolina and a loan production office in Mecklenburg County. 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 2015 #1 Best Bank Overall, #1 Best Bank for Small Business Services and #1 Best Bank for Mortgages by the readers of the Mountain Xpress newspaper in Western North Carolina.

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, performance and growth targets and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "intend" and "potential," and are subject to the protections of the safe harbors created by such acts.

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 filings with the Securities and Exchange Commission, including its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. 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.