Bank segment

3 Months Ended

Mar. 31, 2021

Bank Subsidiary [Abstract]

Bank segment

Bank segment

Selected financial information

American Savings Bank, F.S.B.

Statements of Income and Comprehensive Income Data

	Three months ended March 31
(in thousands)	2021		2020
Interest and dividend income
Interest and fees on loans	$	49,947	$	55,545
Interest and dividends on investment securities	8,673		9,430
Total interest and dividend income	58,620		64,975
Interest expense
Interest on deposit liabilities	1,462		3,587
Interest on other borrowings	27		313
Total interest expense	1,489		3,900
Net interest income	57,131		61,075
Provision for credit losses	(8,435)		10,401
Net interest income after provision for credit losses	65,566		50,674
Noninterest income
Fees from other financial services	5,073		4,571
Fee income on deposit liabilities	3,863		5,113
Fee income on other financial products	2,442		1,872
Bank-owned life insurance	2,561		794
Mortgage banking income	4,300		2,000
Gain on sale of investment securities, net	528		—
Other income, net	272		413
Total noninterest income	19,039		14,763
Noninterest expense
Compensation and employee benefits	28,037		25,777
Occupancy	4,969		5,267
Data processing	4,351		3,837
Services	2,862		2,809
Equipment	2,222		2,339
Office supplies, printing and postage	1,044		1,341
Marketing	648		802
FDIC insurance	816		102
Other expense	2,554		4,194
Total noninterest expense	47,503		46,468
Income before income taxes	37,102		18,969
Income taxes	7,546		3,208
Net income	29,556		15,761
Other comprehensive income (loss), net of taxes	(45,754)		19,847
Comprehensive income (loss)	$	(16,198)	$	35,608

Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:

	Three months ended March 31
(in thousands)	2021		2020
Interest and dividend income	$	58,620	$	64,975
Noninterest income	19,039		14,763
Less: Gain on sale of investment securities, net	528		—
*Revenues-Bank	77,131		79,738
Total interest expense	1,489		3,900
Provision for credit losses	(8,435)		10,401
Noninterest expense	47,503		46,468
Less: Retirement defined benefits expense (credit)—other than service costs	(1,278)		434
*Expenses-Bank	41,835		60,335
*Operating income-Bank	35,296		19,403
Add back: Retirement defined benefits expense (credit)—other than service costs	(1,278)		434
Add back: Gain on sale of investment securities, net	528		—
Income before income taxes	$	37,102	$	18,969

American Savings Bank, F.S.B.

Balance Sheets Data

(in thousands)	March 31, 2021				December 31, 2020
Assets
Cash and due from banks			$	113,698			$	178,422
Interest-bearing deposits			110,365				114,304
Cash and cash equivalents			224,063				292,726
Investment securities
Available-for-sale, at fair value			2,305,257				1,970,417
Held-to-maturity, at amortized cost (fair value of $285,599 and $229,963, respectively)			295,046				226,947
Stock in Federal Home Loan Bank, at cost			10,000				8,680
Loans held for investment			5,310,081				5,333,843
Allowance for credit losses			(91,793)				(101,201)
Net loans			5,218,288				5,232,642
Loans held for sale, at lower of cost or fair value			23,637				28,275
Other			559,543				554,656
Goodwill			82,190				82,190
Total assets			$	8,718,024			$	8,396,533
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing			$	2,833,844			$	2,598,500
Deposit liabilities—interest-bearing			4,911,450				4,788,457
Other borrowings			102,685				89,670
Other			154,418				183,731
Total liabilities			8,002,397				7,660,358
Commitments and contingencies
Common stock			1				1
Additional paid-in capital			352,408				351,758
Retained earnings			394,026				369,470
Accumulated other comprehensive income (loss), net of taxes
Net unrealized gains (losses) on securities	$	(25,791)			$	19,986
Retirement benefit plans	(5,017)		(30,808)		(5,040)		14,946
Total shareholder’s equity			715,627				736,175
Total liabilities and shareholder’s equity			$	8,718,024			8,396,533
Other assets
Bank-owned life insurance			$	162,821			$	163,265
Premises and equipment, net			206,247				206,134
Accrued interest receivable			24,381				24,616
Mortgage-servicing rights			10,685				10,020
Low-income housing investments			80,791				83,435
Other			74,618				67,186
			$	559,543			$	554,656
Other liabilities
Accrued expenses			$	55,073			$	62,694
Federal and state income taxes payable			1,709				6,582
Cashier’s checks			29,363				38,011
Advance payments by borrowers			5,863				10,207
Other			62,410				66,237
			$	154,418			$	183,731

Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.

Other borrowings consisted of securities sold under agreements to repurchase, federal funds purchased and advances from the Federal Home Loan Bank (FHLB) of $102.7 million, nil and nil, respectively, as of March 31, 2021 and $89.7 million, nil and nil, respectively, as of December 31, 2020.

Investment securities.  The major components of investment securities were as follows:

	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Gross unrealized losses
									Less than 12 months					12 months or longer
(dollars in thousands)									Number of issues	Fair  value		Amount		Number of issues	Fair  value		Amount
March 31, 2021
Available-for-sale
U.S. Treasury and federal agency obligations	$	55,969	$	1,719	$	(41)	$	57,647	1	$	4,908	$	(41)	—	$	—	$	—
Mortgage-backed securities*	2,239,311		15,404		(53,363)		2,201,352		92	1,613,008		(53,344)		1	958		(19)
Corporate bonds	29,781		1,050		—		30,831		—	—		—		—	—		—
Mortgage revenue bonds	15,427		—		—		15,427		—	—		—		—	—		—
	$	2,340,488	$	18,173	$	(53,404)	$	2,305,257	93	$	1,617,916	$	(53,385)	1	$	958	$	(19)
Held-to-maturity
Mortgage-backed securities*	$	295,046	$	2,812	$	(12,259)	$	285,599	16	$	220,908	$	(12,259)	—	$	—	$	—
	$	295,046	$	2,812	$	(12,259)	$	285,599	16	$	220,908	$	(12,259)	—	$	—	$	—
December 31, 2020
Available-for-sale
U.S. Treasury and federal agency obligations	$	60,260	$	2,062	$	—	$	62,322	—	$	—	$	—	—	$	—	$	—
Mortgage-backed securities*	1,825,893		26,817		(3,151)		1,849,559		22	373,924		(3,151)		—	—		—
Corporate bonds	29,776		1,575		—		31,351		—	—		—		—	—		—
Mortgage revenue bonds	27,185		—		—		27,185		—	—		—		—	—		—
	$	1,943,114	$	30,454	$	(3,151)	$	1,970,417	22	$	373,924	$	(3,151)	—	$	—	$	—
Held-to-maturity
Mortgage-backed securities*	$	226,947	$	3,846	$	(830)	$	229,963	7	$	114,152	$	(830)	—	$	—	$	—
	$	226,947	$	3,846	$	(830)	$	229,963	7	$	114,152	$	(830)	—	$	—	$	—

* Issued or guaranteed by U.S. Government agencies or sponsored agencies

ASB does not believe that the investment securities that were in an unrealized loss position at March 31, 2021, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at March 31, 2021 and December 31, 2020.

U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.

The contractual maturities of investment securities were as follows:

March 31, 2021	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	11,996	$	12,011
Due after one year through five years	43,530		45,180
Due after five years through ten years	30,224		31,287
Due after ten years	15,427		15,427
	101,177		103,905
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	2,239,311		2,201,352
Total available-for-sale securities	$	2,340,488	$	2,305,257
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	295,046	$	285,599
Total held-to-maturity securities	$	295,046	$	285,599

Proceeds from the sale of available-for-sale securities were $197.4 million and nil, respectively, for the three months ended March 31, 2021 and 2020. Gross realized gains and losses for the three months ended March 31, 2021 were $1.0 million and $0.5 million, respectively. Gross realized gains and losses for the three months ended March 31, 2020 were nil.

Loans. The components of loans were summarized as follows:

	March 31, 2021		December 31, 2020
(in thousands)
Real estate:
Residential 1-4 family	$	2,107,537	$	2,144,239
Commercial real estate	1,012,968		983,865
Home equity line of credit	901,462		963,578
Residential land	17,468		15,617
Commercial construction	114,455		121,424
Residential construction	13,365		11,022
Total real estate	4,167,255		4,239,745
Commercial	1,010,004		936,748
Consumer	148,511		168,733
Total loans	5,325,770		5,345,226
Deferred fees and discounts	(15,689)		(11,383)
Allowance for credit losses	(91,793)		(101,201)
Total loans, net	$	5,218,288	$	5,232,642

ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.

Allowance for credit losses.  The allowance for credit losses (balances and changes) by portfolio segment were as follows:

(in thousands)	Residential 1-4 family		Commercial real estate		Home equity line of credit		Residential land		Commercial construction		Residential construction		Commercial loans		Consumer loans		Total
Three months ended March 31, 2021
Allowance for credit losses:
Beginning balance	$	4,600	$	35,607	$	6,813	$	609	$	4,149	$	11	$	25,462	$	23,950	$	101,201
Charge-offs	—		—		(50)		—		—		—		(771)		(2,860)		(3,681)
Recoveries	3		—		15		10		—		—		273		1,007		1,308
Provision	658		(1,262)		(877)		(46)		(2,696)		5		(460)		(2,357)		(7,035)
Ending balance	$	5,261	$	34,345	$	5,901	$	573	$	1,453	$	16	$	24,504	$	19,740	$	91,793
Three months ended March 31, 2020
Allowance for credit losses:
Beginning balance, prior to adoption of ASU No. 2016-13	$	2,380	$	15,053	$	6,922	$	449	$	2,097	$	3	$	10,245	$	16,206	$	53,355
Impact of adopting ASU No. 2016-13	2,150		208		(541)		(64)		289		14		922		16,463		19,441
Charge-offs	—		—		—		(8)		—		—		(369)		(6,254)		(6,631)
Recoveries	53		—		6		9		—		—		186		764		1,018
Provision	(107)		1,326		(162)		(34)		1,060		(3)		1,993		5,828		9,901
Ending balance	$	4,476	$	16,587	$	6,225	$	352	$	3,446	$	14	$	12,977	$	33,007	$	77,084

Allowance for loan commitments.  The allowance for loan commitments by portfolio segment were as follows:

(in thousands)	Home equity  line of credit		Commercial construction		Commercial loans		Total
Three months ended March 31, 2021
Allowance for loan commitments:
Beginning balance	$	300	$	3,000	$	1,000	$	4,300
Provision	100		(1,700)		200		(1,400)
Ending balance	$	400	$	1,300	$	1,200	$	2,900
Three months ended March 31, 2020
Allowance for loan commitments:
Beginning balance, prior to adoption of ASU No. 2016-13	$	392	$	931	$	418	$	1,741
Impact of adopting ASU No. 2016-13	(92)		1,745		(94)		1,559
Provision	—		515		(15)		500
Ending balance	$	300	$	3,191	$	309	$	3,800

Credit quality.  ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.

Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications:  Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the probability of default model rating, the loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.

The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows:

	Term Loans by Origination Year												Revolving Loans
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Converted to term loans		Total
March 31, 2021
Residential 1-4 family
Current	$	150,713	$	549,327	$	184,339	$	97,560	$	179,131	$	934,471	$	—	$	—	$	2,095,541
30-59 days past due	—		280		—		—		—		2,081		—		—		2,361
60-89 days past due	—		—		3,018		431		—		1,954		—		—		5,403
Greater than 89 days past due	—		—		942		—		—		3,290		—		—		4,232
	150,713		549,607		188,299		97,991		179,131		941,796		—		—		2,107,537
Home equity line of credit
Current	—		—		—		—		—		—		861,116		36,792		897,908
30-59 days past due	—		—		—		—		—		—		659		473		1,132
60-89 days past due	—		—		—		—		—		—		261		73		334
Greater than 89 days past due	—		—		—		—		—		—		1,243		845		2,088
	—		—		—		—		—		—		863,279		38,183		901,462
Residential land
Current	2,794		8,354		2,884		1,290		855		292		—		—		16,469
30-59 days past due	—		—		—		—		—		699		—		—		699
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		300		—		—		300
	2,794		8,354		2,884		1,290		855		1,291		—		—		17,468
Residential construction
Current	1,114		7,865		3,344		383		659		—		—		—		13,365
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	1,114		7,865		3,344		383		659		—		—		—		13,365
Consumer
Current	6,658		25,307		57,781		29,734		4,219		475		16,332		3,729		144,235
30-59 days past due	125		164		577		452		90		1		106		125		1,640
60-89 days past due	—		149		623		372		119		1		80		92		1,436
Greater than 89 days past due	—		218		356		280		56		1		199		90		1,200
	6,783		25,838		59,337		30,838		4,484		478		16,717		4,036		148,511
Commercial real estate
Pass	23,091		274,952		69,384		60,627		28,174		222,617		11,000		—		689,845
Special Mention	—		4,914		29,597		57,489		51,586		97,247		—		—		240,833
Substandard	—		—		14,647		4,170		1,877		61,596		—		—		82,290
Doubtful	—		—		—		—		—		—		—		—		—
	23,091		279,866		113,628		122,286		81,637		381,460		11,000		—		1,012,968
Commercial construction
Pass	—		21,414		39,513		26,990		—		2,917		20,972		—		111,806
Special Mention	245		2,404		—		—		—		—		—		—		2,649
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	245		23,818		39,513		26,990		—		2,917		20,972		—		114,455
Commercial
Pass	169,095		337,753		96,251		60,462		28,545		51,072		91,178		19,666		854,022
Special Mention	65		38,316		15,024		1,820		6,725		33,990		26,301		26		122,267
Substandard	—		275		7,921		2,004		3,765		11,276		6,665		1,809		33,715
Doubtful	—		—		—		—		—		—		—		—		—
	169,160		376,344		119,196		64,286		39,035		96,338		124,144		21,501		1,010,004
Total loans	$	353,900	$	1,271,692	$	526,201	$	344,064	$	305,801	$	1,424,280	$	1,036,112	$	63,720	$	5,325,770

	Term Loans by Origination Year												Revolving Loans
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Converted to term loans		Total
December 31, 2020
Residential 1-4 family
Current	$	567,282	$	218,988	$	111,243	$	203,916	$	184,888	$	849,788	$	—	$	—	$	2,136,105
30-59 days past due	—		—		—		—		—		2,629		—		—		2,629
60-89 days past due	—		476		—		—		—		2,314		—		—		2,790
Greater than 89 days past due	—		—		—		353		—		2,362		—		—		2,715
	567,282		219,464		111,243		204,269		184,888		857,093		—		—		2,144,239
Home equity line of credit
Current	—		—		—		—		—		—		927,106		33,228		960,334
30-59 days past due	—		—		—		—		—		—		552		298		850
60-89 days past due	—		—		—		—		—		—		267		75		342
Greater than 89 days past due	—		—		—		—		—		—		1,463		589		2,052
	—		—		—		—		—		—		929,388		34,190		963,578
Residential land
Current	8,357		3,427		1,598		939		22		272		—		—		14,615
30-59 days past due	—		—		—		—		—		702		—		—		702
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		300		—		—		300
	8,357		3,427		1,598		939		22		1,274		—		—		15,617
Residential construction
Current	6,919		3,093		385		625		—		—		—		—		11,022
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	6,919		3,093		385		625		—		—		—		—		11,022
Consumer
Current	28,818		67,159		37,072		7,207		293		348		18,351		3,758		163,006
30-59 days past due	406		1,085		727		155		4		—		138		90		2,605
60-89 days past due	191		549		427		165		3		—		97		59		1,491
Greater than 89 days past due	131		532		409		119		7		—		262		171		1,631
	29,546		69,325		38,635		7,646		307		348		18,848		4,078		168,733
Commercial real estate
Pass	270,603		63,301		62,168		28,432		55,089		155,654		11,000		—		646,247
Special Mention	10,261		36,405		57,952		33,763		68,287		48,094		—		—		254,762
Substandard	—		14,720		4,181		1,892		4,423		57,640		—		—		82,856
Doubtful	—		—		—		—		—		—		—		—		—
	280,864		114,426		124,301		64,087		127,799		261,388		11,000		—		983,865
Commercial construction
Pass	14,480		31,965		26,990		—		5,562		—		22,517		—		101,514
Special Mention	1,910		—		—		18,000		—		—		—		—		19,910
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	16,390		31,965		26,990		18,000		5,562		—		22,517		—		121,424
Commercial
Pass	392,088		117,791		75,533		29,211		12,520		35,770		74,520		11,004		748,437
Special Mention	37,836		23,087		1,920		6,990		30,264		13,250		31,362		11,218		155,927
Substandard	304		7,785		2,043		4,017		7,542		3,113		5,265		1,928		31,997
Doubtful	—		—		—		—		—		—		387		—		387
	430,228		148,663		79,496		40,218		50,326		52,133		111,534		24,150		936,748
Total loans	$	1,339,586	$	590,363	$	382,648	$	335,784	$	368,904	$	1,172,236	$	1,093,287	$	62,418	$	5,345,226

Revolving loans converted to term loans during the three months ended March 31, 2021 in the commercial, home equity line of credit and consumer portfolios was $0.5 million, $6.2 million, and $0.7 million, respectively. Revolving loans converted to term loans during the three months ended March 31, 2020 in the commercial, home equity line of credit and consumer portfolios was $2.0 million, $1.8 million and $1.0 million, respectively.

The credit risk profile based on payment activity for loans was as follows:

(in thousands)	30-59 days past due		60-89 days past due		Greater than 90 days		Total past due		Current		Total financing receivables		Amortized cost> 90 days and accruing
March 31, 2021
Real estate:
Residential 1-4 family	$	2,361	$	5,403	$	4,232	$	11,996	$	2,095,541	$	2,107,537	$	—
Commercial real estate	1,681		—		—		1,681		1,011,287		1,012,968		—
Home equity line of credit	1,132		334		2,088		3,554		897,908		901,462		—
Residential land	699		—		300		999		16,469		17,468		—
Commercial construction	—		—		—		—		114,455		114,455		—
Residential construction	—		—		—		—		13,365		13,365		—
Commercial	146		47		73		266		1,009,738		1,010,004		—
Consumer	1,640		1,436		1,200		4,276		144,235		148,511		—
Total loans	$	7,659	$	7,220	$	7,893	$	22,772	$	5,302,998	$	5,325,770	$	—
December 31, 2020
Real estate:
Residential 1-4 family	$	2,629	$	2,790	$	2,715	$	8,134	$	2,136,105	$	2,144,239	$	—
Commercial real estate	—		488		—		488		983,377		983,865		—
Home equity line of credit	850		342		2,052		3,244		960,334		963,578		—
Residential land	702		—		300		1,002		14,615		15,617		—
Commercial construction	—		—		—		—		121,424		121,424		—
Residential construction	—		—		—		—		11,022		11,022		—
Commercial	608		300		132		1,040		935,708		936,748		—
Consumer	2,605		1,491		1,631		5,727		163,006		168,733		—
Total loans	$	7,394	$	5,411	$	6,830	$	19,635	$	5,325,591	$	5,345,226	$	—

The credit risk profile based on nonaccrual loans were as follows:

(in thousands)	March 31, 2021						December 31, 2020
	With a Related ACL		Without a Related ACL		Total		With a Related ACL		Without a Related ACL		Total
Real estate:
Residential 1-4 family	$	16,945	$	2,987	$	19,932	$	8,991	$	2,835	$	11,826
Commercial real estate	15,634		2,828		18,462		15,847		2,875		18,722
Home equity line of credit	5,075		1,587		6,662		5,791		1,567		7,358
Residential land	107		300		407		108		300		408
Commercial construction	—		—		—		—		—		—
Residential construction	—		—		—		—		—		—
Commercial	1,763		2,918		4,681		1,819		3,328		5,147
Consumer	3,192		—		3,192		3,935		—		3,935
Total	$	42,716	$	10,620	$	53,336	$	36,491	$	10,905	$	47,396

The credit risk profile based on loans whose terms have been modified and accruing interest were as follows:

(in thousands)	March 31, 2021		December 31, 2020
Real estate:
Residential 1-4 family	$	7,453	$	7,932
Commercial real estate	3,254		3,281
Home equity line of credit	7,727		8,148
Residential land	1,738		1,555
Commercial construction	—		—
Residential construction	—		—
Commercial	5,737		6,108
Consumer	54		54
Total troubled debt restructured loans accruing interest	$	25,963	$	27,078

ASB did not recognize interest on nonaccrual loans for the three months ended March 31, 2021 and 2020.

Troubled debt restructurings.  A loan modification is deemed to be a TDR when the borrower is determined to be experiencing financial difficulties and ASB grants a concession it would not otherwise consider.

The allowance for credit losses on TDR loans that do not share risk characteristics are individually evaluated based on the present value of expected future cash flows discounted at the loan’s effective original contractual rate or based on the fair value of collateral less cost to sell. The financial impact of the estimated loss is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for credit losses.

Loan modifications that occurred during the first three months of 2021 and 2020 were as follows:

Loans modified as a TDR	Three months ended March 31, 2021
(dollars in thousands)	Number  of contracts	Outstanding recorded  investment  (as of period end)1		Related allowance (as of period end)
Troubled debt restructurings
Real estate:
Residential 1-4 family	12	$	8,283	$	298
Commercial real estate	1	482		—
Home equity line of credit	1	170		21
Residential land	1	271		11
Commercial construction	—	—		—
Residential construction	—	—		—
Commercial	2	59		19
Consumer	—	—		—
	17	$	9,265	$	349

	Three months ended March 31, 2020
(dollars in thousands)	Number  of contracts	Outstanding recorded  investment  (as of period end)1		Related allowance (as of period end)
Troubled debt restructurings
Real estate:
Residential 1-4 family	1	$	148	$	8
Commercial real estate	2	16,584		4,281
Home equity line of credit	—	—		—
Residential land	—	—		—
Commercial construction	—	—		—
Residential construction	—	—		—
Commercial	4	756		278
Consumer	—	—		—
	7	$	17,488	$	4,567

1 The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-off, or foreclosed upon by period end are not included.

There were no loans modified in TDRs that experienced a payment default of 90 days or more during the first three months of 2021 and 2020.

If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at March 31, 2021 and December 31, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes.

In response to the COVID-19 pandemic, the Board of Governors of the FRB, the FDIC, the National Credit Union Administration, the OCC, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to accounting for loan modifications, past due reporting and nonaccrual status and charge-offs.

Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with the FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. Financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral. Lastly, during short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Loans considered collateral-dependent were as follows:

	March 31, 2021		December 31, 2020
(in thousands)	Amortized cost		Amortized cost		Collateral type
Real estate:
Residential 1-4 family	$	2,782	$	2,541	Residential real estate property
Commercial real estate	2,828		2,875		Commercial real estate property
Home equity line of credit	1,587		1,567		Residential real estate property
Residential land	300		300		Residential real estate property
Total real estate	7,497		7,283
Commercial	889		934		Business assets
Total	$	8,386	$	8,217

ASB had $3.8 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2021 and December 31, 2020.

Mortgage servicing rights (MSRs). In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold.

ASB received proceeds from the sale of residential mortgages of $170.9 million and $72.5 million for the three months ended March 31, 2021 and 2020, respectively, and recognized gains on such sales of $4.3 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

There were no repurchased mortgage loans for the three months ended March 31, 2021 and 2020. The repurchase reserve was $0.1 million as of March 31, 2021 and 2020.

Mortgage servicing fees, a component of other income, net, were $0.9 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively.

Changes in the carrying value of MSRs were as follows:

(in thousands)	Gross carrying amount1		Accumulated amortization		Valuation allowance		Net carrying amount
March 31, 2021	$	20,830	$	(10,141)	$	(4)	$	10,685
December 31, 2020	22,950		(12,670)		(260)		10,020

1     Reflects impact of loans paid in full

Changes related to MSRs were as follows:

	Three months ended March 31
(in thousands)	2021		2020
Mortgage servicing rights
Beginning balance	$	10,280	$	9,101
Amount capitalized	1,547		636
Amortization	(1,138)		(617)
Other-than-temporary impairment	—		—
Carrying amount before valuation allowance	10,689		9,120
Valuation allowance for mortgage servicing rights
Beginning balance	260		—
Provision	(256)		—
Other-than-temporary impairment	—		—
Ending balance	4		—
Net carrying value of mortgage servicing rights	$	10,685	$	9,120

ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs.

ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.

Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows:

(dollars in thousands)	March 31, 2021			December 31, 2020
Unpaid principal balance	$	1,505,963		$	1,450,312
Weighted average note rate	3.57		%	3.68		%
Weighted average discount rate	9.25		%	9.25		%
Weighted average prepayment speed	12.0		%	17.7		%

The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:

(dollars in thousands)	March 31, 2021		December 31, 2020
Prepayment rate:
25 basis points adverse rate change	$	(659)	$	(738)
50 basis points adverse rate change	(1,376)		(1,445)
Discount rate:
25 basis points adverse rate change	(110)		(68)
50 basis points adverse rate change	(218)		(135)

The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear.

Other borrowings.  As of March 31, 2021 and December 31, 2020, ASB had no FHLB advances outstanding or federal funds purchased with the Federal Reserve Bank. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of March 31, 2021.

Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the condensed consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:

(in millions)	Gross amount  of recognized  liabilities		Gross amount  offset in the  Balance Sheets		Net amount of liabilities presented in the Balance Sheets
Repurchase agreements
March 31, 2021	$	103	$	—	$	103
December 31, 2020	90		—		90

	Gross amount not offset in the Balance Sheets
(in millions)	Net amount of liabilities presented in the Balance Sheets		Financial instruments		Cash collateral pledged
Commercial account holders
March 31, 2021	$	103	$	122	$	—
December 31, 2020	90		92		—

The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts.

Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans.

ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.

ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.

Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

The notional amount and fair value of ASB’s derivative financial instruments were as follows:

	March 31, 2021				December 31, 2020
(in thousands)	Notional amount		Fair value		Notional amount		Fair value
Interest rate lock commitments	$	49,316	$	438	$	120,980	$	4,536
Forward commitments	49,500		340		100,500		(500)

ASB’s derivative financial instruments, their fair values and balance sheet location were as follows:

Derivative Financial Instruments Not Designated as Hedging Instruments 1	March 31, 2021				December 31, 2020
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	456	$	(18)	$	4,536	$	—
Forward commitments	340		—		—		500
	$	796	$	(18)	$	4,536	$	500

1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.

The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:

Derivative Financial Instruments Not Designated as Hedging Instruments	Location of net gains (losses) recognized in the Statements of Income	Three months ended March 31
(in thousands)		2021		2020
Interest rate lock commitments	Mortgage banking income	$	(4,098)	$	1,555
Forward commitments	Mortgage banking income	840		(543)
		$	(3,258)	$	1,012

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $37.8 million and $41.0 million at March 31, 2021 and December 31, 2020, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of March 31, 2021, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.