Bank segment

3 Months Ended

Mar. 31, 2023

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)	2023		2022
Interest and dividend income
Interest and fees on loans	$	64,842	$	46,005
Interest and dividends on investment securities	14,637		13,984
Total interest and dividend income	79,479		59,989
Interest expense
Interest on deposit liabilities	6,837		947
Interest on other borrowings	7,721		5
Total interest expense	14,558		952
Net interest income	64,921		59,037
Provision for credit losses	1,175		(3,263)
Net interest income after provision for credit losses	63,746		62,300
Noninterest income
Fees from other financial services	4,679		5,587
Fee income on deposit liabilities	4,599		4,691
Fee income on other financial products	2,744		2,718
Bank-owned life insurance	1,425		681
Mortgage banking income	130		1,077
Gain on sale of real estate	—		1,002
Other income, net	801		372
Total noninterest income	14,378		16,128
Noninterest expense
Compensation and employee benefits	30,204		27,215
Occupancy	5,588		5,952
Data processing	5,012		4,151
Services	2,595		2,439
Equipment	2,646		2,329
Office supplies, printing and postage	1,165		1,060
Marketing	1,016		1,018
Other expense	6,191		4,049
Total noninterest expense	54,417		48,213
Income before income taxes	23,707		30,215
Income taxes	5,145		6,345
Net income	18,562		23,870
Other comprehensive income (loss), net of taxes	18,430		(122,441)
Comprehensive income (loss)	$	36,992	$	(98,571)

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

	Three months ended March 31
(in thousands)	2023		2022
Interest and dividend income	$	79,479	$	59,989
Noninterest income	14,378		16,128
Less: Gain on sale of real estate	—		1,002
*Revenues-Bank	93,857		75,115
Total interest expense	14,558		952
Provision for credit losses	1,175		(3,263)
Noninterest expense	54,417		48,213
Less: Gain on sale of real estate	—		1,002
Less: Retirement defined benefits credit—other than service costs	(187)		(185)
*Expenses-Bank	70,337		45,085
*Operating income-Bank	23,520		30,030
Add back: Retirement defined benefits credit—other than service costs	(187)		(185)
Income before income taxes	$	23,707	$	30,215

American Savings Bank, F.S.B.

Balance Sheets Data

(in thousands)	March 31, 2023				December 31, 2022
Assets
Cash and due from banks			$	138,742			$	153,042
Interest-bearing deposits			44,315				3,107
Cash and cash equivalents			183,057				156,149
Investment securities
Available-for-sale, at fair value			1,419,755				1,429,667
Held-to-maturity, at amortized cost (fair value of $1,158,090 and $1,150,971, respectively)			1,238,185				1,251,747
Stock in Federal Home Loan Bank, at cost			10,000				26,560
Loans held for investment			6,059,354				5,978,906
Allowance for credit losses			(71,296)				(72,216)
Net loans			5,988,058				5,906,690
Loans held for sale, at lower of cost or fair value			660				824
Other			688,165				692,143
Goodwill			82,190				82,190
Total assets			$	9,610,070			$	9,545,970
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing			$	2,769,789			$	2,811,077
Deposit liabilities—interest-bearing			5,460,812				5,358,619
Other borrowings			680,690				695,120
Other			206,317				212,269
Total liabilities			9,117,608				9,077,085
Common stock			1				1
Additional paid-in capital			356,391				355,806
Retained earnings			454,255				449,693
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities	$	(308,622)			$	(328,904)
Retirement benefit plans	(9,563)		(318,185)		(7,711)		(336,615)
Total shareholder’s equity			492,462				468,885
Total liabilities and shareholder’s equity			$	9,610,070			$	9,545,970
Other assets
Bank-owned life insurance			$	183,936			$	182,986
Premises and equipment, net			192,789				195,324
Accrued interest receivable			26,547				25,077
Mortgage-servicing rights			8,745				9,047
Low-income housing investments			110,748				106,978
Real estate held for sale			100				—
Deferred tax asset			109,885				116,441
Real estate acquired in settlement of loans, net			614				115
Other			54,801				56,175
			$	688,165			$	692,143
Other liabilities
Accrued expenses			$	95,066			$	97,295
Federal and state income taxes payable			2,614				863
Cashier’s checks			34,616				36,401
Advance payments by borrowers			5,466				9,637
Other			68,555				68,073
			$	206,317			$	212,269

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 FHLB advances, borrowings from the Federal Reserve Bank and securities sold under agreements to repurchase.

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, 2023
Available-for-sale
U.S. Treasury and federal agency obligations	$	85,786	$	—	$	(6,042)	$	79,744	—	$	—	$	—	14	$	79,744	$	(6,042)
Mortgage-backed securities*	1,500,717		1		(216,783)		1,283,935		24	89,727		(7,367)		158	1,193,633		(209,416)
Corporate bonds	44,341		—		(3,031)		41,310		2	8,951		(50)		3	32,359		(2,981)
Mortgage revenue bonds	14,766		—		—		14,766		—	—		—		—	—		—
	$	1,645,610	$	1	$	(225,856)	$	1,419,755	26	$	98,678	$	(7,417)	175	$	1,305,736	$	(218,439)
Held-to-maturity
U.S. Treasury and federal agency obligations	$	59,900	$	—	$	(7,172)	$	52,728	—	$	—	$	—	3	$	52,728	$	(7,172)
Mortgage-backed securities*	1,178,285		8,875		(81,798)		1,105,362		6	64,288		(532)		41	427,520		(81,266)
	$	1,238,185	$	8,875	$	(88,970)	$	1,158,090	6	$	64,288	$	(532)	44	$	480,248	$	(88,438)
December 31, 2022
Available-for-sale
U.S. Treasury and federal agency obligations	$	88,344	$	—	$	(7,281)	$	81,063	12	$	41,201	$	(2,120)	4	$	39,862	$	(5,161)
Mortgage-backed securities*	1,530,582		—		(237,614)		1,292,968		113	455,836		(56,999)		70	837,132		(180,615)
Corporate bonds	44,377		—		(3,643)		40,734		4	29,644		(2,028)		1	11,090		(1,615)
Mortgage revenue bonds	14,902		—		—		14,902		—	—		—		—	—		—
	$	1,678,205	$	—	$	(248,538)	$	1,429,667	129	$	526,681	$	(61,147)	75	$	888,084	$	(187,391)
Held-to-maturity
U.S. Treasury and federal agency obligations	$	59,894	$	—	$	(8,478)	$	51,416	1	$	16,874	$	(3,222)	2	$	34,542	$	(5,256)
Mortgage-backed securities*	1,191,853		2,670		(94,968)		1,099,555		22	183,629		(10,593)		51	567,250		(84,375)
	$	1,251,747	$	2,670	$	(103,446)	$	1,150,971	23	$	200,503	$	(13,815)	53	$	601,792	$	(89,631)

* 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, 2023 and December 31, 2022, 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 rated 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, 2023 and December 31, 2022.

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, 2023	Amortized  cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	2,579	$	2,531
Due after one year through five years	127,548		118,523
Due after five years through ten years	14,766		14,766
Due after ten years	—		—
	144,893		135,820
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,500,717		1,283,935
Total available-for-sale securities	$	1,645,610	$	1,419,755
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	59,900		52,728
Due after ten years	—		—
	59,900		52,728
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,178,285		1,105,362
Total held-to-maturity securities	$	1,238,185	$	1,158,090

There were no sales of available-for-sale securities for the quarters ended March 31, 2023 and 2022.

The components of loans were summarized as follows:

	March 31, 2023		December 31, 2022
(in thousands)
Real estate:
Residential 1-4 family	$	2,484,316	$	2,479,637
Commercial real estate	1,377,184		1,358,123
Home equity line of credit	1,022,800		1,002,905
Residential land	20,061		20,679
Commercial construction	94,267		88,489
Residential construction	15,749		20,788
Total real estate	5,014,377		4,970,621
Commercial	800,949		779,691
Consumer	272,401		254,709
Total loans	6,087,727		6,005,021
Less: Deferred fees and discounts	(28,373)		(26,115)
Allowance for credit losses	(71,296)		(72,216)
Total loans, net	$	5,988,058	$	5,906,690

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, 2023
Allowance for credit losses:
Beginning balance	$	6,270	$	21,898	$	6,125	$	717	$	1,195	$	46	$	12,426	$	23,539	$	72,216
Charge-offs	(809)		—		(63)		—		—		—		(227)		(2,323)		(3,422)
Recoveries	4		—		17		—		—		—		398		908		1,327
Provision	(853)		803		(26)		(97)		(460)		(18)		(661)		2,487		1,175
Ending balance	$	4,612	$	22,701	$	6,053	$	620	$	735	$	28	$	11,936	$	24,611	$	71,296
Three months ended March 31, 2022
Allowance for credit losses:
Beginning balance	$	6,545	$	24,696	$	5,657	$	646	$	2,186	$	18	$	15,798	$	15,584	$	71,130
Charge-offs	—		—		—		—		—		—		(76)		(1,482)		(1,558)
Recoveries	8		—		11		5		—		—		353		1,025		1,402
Provision	1,321		(4,520)		(18)		46		154		13		(1,761)		1,002		(3,763)
Ending balance	$	7,874	$	20,176	$	5,650	$	697	$	2,340	$	31	$	14,314	$	16,129	$	67,211

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, 2023
Allowance for loan commitments:
Beginning balance	$	400	$	2,600	$	1,400	$	4,400
Provision	—		—		—		—
Ending balance	$	400	$	2,600	$	1,400	$	4,400
Three months ended March 31, 2022
Allowance for loan commitments:
Beginning balance	$	400	$	3,700	$	800	$	4,900
Provision	—		(100)		600		500
Ending balance	$	400	$	3,600	$	1,400	$	5,400

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)	2023		2022		2021		2020		2019		Prior		Revolving		Converted to term loans		Total
March 31, 2023
Residential 1-4 family
Current	$	46,292	$	425,843	$	750,578	$	418,780	$	110,618	$	727,411	$	—	$	—	$	2,479,522
30-59 days past due	—		—		—		—		938		971		—		—		1,909
60-89 days past due	—		—		—		—		—		930		—		—		930
Greater than 89 days past due	—		—		—		267		—		1,688		—		—		1,955
	46,292		425,843		750,578		419,047		111,556		731,000		—		—		2,484,316
Current YTD period
Gross charge-offs	—		—		—		—		—		809		—		—		809
Home equity line of credit
Current	—		—		—		—		—		—		973,686		46,565		1,020,251
30-59 days past due	—		—		—		—		—		—		781		115		896
60-89 days past due	—		—		—		—		—		—		346		337		683
Greater than 89 days past due	—		—		—		—		—		—		573		397		970
	—		—		—		—		—		—		975,386		47,414		1,022,800
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		63		63
Residential land
Current	1,204		5,237		8,587		4,039		—		994		—		—		20,061
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	1,204		5,237		8,587		4,039		—		994		—		—		20,061
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Residential construction
Current	1,444		6,786		7,519		—		—		—		—		—		15,749
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	1,444		6,786		7,519		—		—		—		—		—		15,749
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Consumer
Current	36,794		189,133		18,047		4,233		4,301		341		9,589		4,904		267,342
30-59 days past due	203		1,628		235		54		170		11		78		120		2,499
60-89 days past due	—		899		116		59		129		4		16		117		1,340
Greater than 89 days past due	—		502		199		59		105		26		82		247		1,220
	36,997		192,162		18,597		4,405		4,705		382		9,765		5,388		272,401
Current YTD period
Gross charge-offs	189		1,523		319		57		135		21		15		64		2,323
Commercial real estate
Pass	41,312		392,018		174,655		276,754		52,121		339,660		8,235		—		1,284,755
Special Mention	—		—		11,250		3,425		30,179		21,307		—		—		66,161
Substandard	5,433		—		—		659		11,356		8,820		—		—		26,268
Doubtful	—		—		—		—		—		—		—		—		—
	46,745		392,018		185,905		280,838		93,656		369,787		8,235		—		1,377,184

	Term Loans by Origination Year												Revolving Loans
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Converted to term loans		Total
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Commercial construction
Pass	—		11,206		54,924		44		—		—		28,093		—		94,267
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	—		11,206		54,924		44		—		—		28,093		—		94,267
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Commercial
Pass	30,142		238,671		184,551		86,275		60,265		97,277		66,200		12,918		776,299
Special Mention	—		—		—		—		2,255		—		8,492		6		10,753
Substandard	—		3,234		1,507		398		1,320		5,195		899		1,344		13,897
Doubtful	—		—		—		—		—		—		—		—		—
	30,142		241,905		186,058		86,673		63,840		102,472		75,591		14,268		800,949
Current YTD period
Gross charge-offs	—		—		51		—		—		—		14		162		227
Total loans	$	162,824	$	1,275,157	$	1,212,168	$	795,046	$	273,757	$	1,204,635	$	1,097,070	$	67,070	$	6,087,727

	Term Loans by Origination Year												Revolving Loans
(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Converted to term loans		Total
December 31, 2022
Residential 1-4 family
Current	$	432,707	$	755,056	$	423,455	$	113,096	$	51,860	$	698,354	$	—	$	—	$	2,474,528
30-59 days past due	—		—		—		—		448		1,098		—		—		1,546
60-89 days past due	—		—		268		—		—		90		—		—		358
Greater than 89 days past due	—		—		—		—		809		2,396		—		—		3,205
	432,707		755,056		423,723		113,096		53,117		701,938		—		—		2,479,637
Home equity line of credit
Current	—		—		—		—		—		—		959,131		40,814		999,945
30-59 days past due	—		—		—		—		—		—		1,103		209		1,312
60-89 days past due	—		—		—		—		—		—		209		226		435
Greater than 89 days past due	—		—		—		—		—		—		587		626		1,213
	—		—		—		—		—		—		961,030		41,875		1,002,905
Residential land
Current	5,245		9,010		5,222		203		522		477		—		—		20,679
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	5,245		9,010		5,222		203		522		477		—		—		20,679
Residential construction
Current	7,986		11,624		1,178		—		—		—		—		—		20,788
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	7,986		11,624		1,178		—		—		—		—		—		20,788
Consumer
Current	199,574		21,330		5,543		7,580		527		140		10,810		4,782		250,286
30-59 days past due	1,110		287		65		239		30		—		81		167		1,979
60-89 days past due	756		163		88		137		19		—		45		107		1,315
Greater than 89 days past due	621		105		37		176		28		—		20		142		1,129
	202,061		21,885		5,733		8,132		604		140		10,956		5,198		254,709
Commercial real estate
Pass	390,206		177,130		283,321		51,542		63,084		278,280		8,235		—		1,251,798
Special Mention	—		11,250		3,446		40,423		—		24,466		—		—		79,585
Substandard	—		—		665		11,357		—		14,718		—		—		26,740
Doubtful	—		—		—		—		—		—		—		—		—
	390,206		188,380		287,432		103,322		63,084		317,464		8,235		—		1,358,123
Commercial construction
Pass	15,094		47,478		44		—		—		—		25,873		—		88,489
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	15,094		47,478		44		—		—		—		25,873		—		88,489
Commercial
Pass	239,852		185,013		85,220		68,161		46,142		53,192		60,871		13,964		752,415
Special Mention	—		—		—		2,374		—		645		9,005		8		12,032
Substandard	3,322		2,305		401		1,304		1,346		3,849		1,664		1,053		15,244
Doubtful	—		—		—		—		—		—		—		—		—
	243,174		187,318		85,621		71,839		47,488		57,686		71,540		15,025		779,691
Total loans	$	1,296,473	$	1,220,751	$	808,953	$	296,592	$	164,815	$	1,077,705	$	1,077,634	$	62,098	$	6,005,021

Revolving loans converted to term loans during the three months ended March 31, 2023 in the commercial, home equity line of credit and consumer portfolios were $1.2 million, $7.8 million and $1.1 million, respectively. Revolving loans converted to term loans during the three months ended March 31, 2022 in the commercial, home equity line of credit and consumer portfolios were $0.5 million, $4.4 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, 2023
Real estate:
Residential 1-4 family	$	1,909	$	930	$	1,955	$	4,794	$	2,479,522	$	2,484,316	$	—
Commercial real estate	—		—		—		—		1,377,184		1,377,184		—
Home equity line of credit	896		683		970		2,549		1,020,251		1,022,800		—
Residential land	—		—		—		—		20,061		20,061		—
Commercial construction	—		—		—		—		94,267		94,267		—
Residential construction	—		—		—		—		15,749		15,749		—
Commercial	263		71		427		761		800,188		800,949		—
Consumer	2,499		1,340		1,220		5,059		267,342		272,401		—
Total loans	$	5,567	$	3,024	$	4,572	$	13,163	$	6,074,564	$	6,087,727	$	—
December 31, 2022
Real estate:
Residential 1-4 family	$	1,546	$	358	$	3,205	$	5,109	$	2,474,528	$	2,479,637	$	—
Commercial real estate	508		217		—		725		1,357,398		1,358,123		—
Home equity line of credit	1,312		435		1,213		2,960		999,945		1,002,905		—
Residential land	—		—		—		—		20,679		20,679		—
Commercial construction	—		—		—		—		88,489		88,489		—
Residential construction	—		—		—		—		20,788		20,788		—
Commercial	614		18		77		709		778,982		779,691		—
Consumer	1,979		1,315		1,129		4,423		250,286		254,709		—
Total loans	$	5,959	$	2,343	$	5,624	$	13,926	$	5,991,095	$	6,005,021	$	—

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

(in thousands)	March 31, 2023						December 31, 2022
	With a Related ACL		Without a Related ACL		Total		With a Related ACL		Without a Related ACL		Total
Real estate:
Residential 1-4 family	$	3,371	$	2,117	$	5,488	$	4,198	$	2,981	$	7,179
Commercial real estate	—		—		—		—		—		—
Home equity line of credit	4,014		1,237		5,251		3,654		1,442		5,096
Residential land	109		—		109		420		—		420
Commercial construction	—		—		—		—		—		—
Residential construction	—		—		—		—		—		—
Commercial	1,744		—		1,744		2,183		—		2,183
Consumer	1,895		—		1,895		1,588		—		1,588
Total	$	11,133	$	3,354	$	14,487	$	12,043	$	4,423	$	16,466

ASB did not recognize interest on nonaccrual loans for the three months ended March 31, 2023 and 2022.

Modifications Made to Borrowers Experiencing Financial Difficulty. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loan information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. ASB uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of the modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

Modifications may include interest rate reductions, interest only payments for an extended period of time, protracted terms such as amortization and maturity beyond the customary length of time found in the normal marketplace, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or repossession of collateral.

During the first three months of 2023, no loans received a material modification based on borrower financial difficulty.

Troubled debt restructurings. Prior to January 1, 2023, a loan modification was 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. With the adoption of ASU No. 2022-02, accounting guidance for TDRs by creditors is eliminated. Loan refinancing and restructuring guidance is applied to determine whether a modification results in a new loan or a continuation of an existing loan. ASB will continue TDR disclosures for years prior to the adoption of ASU No. 2022-02.

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

(in thousands)	December 31, 2022
Real estate:
Residential 1-4 family	$	8,821
Commercial real estate	9,477
Home equity line of credit	4,404
Residential land	782
Commercial construction	—
Residential construction	—
Commercial	6,596
Consumer	50
Total troubled debt restructured loans accruing interest	$	30,130

Loans modified as a TDR.  There were no loan modifications that occurred during the three months ended March 31, 2022.

There were no loans modified in TDRs that experienced a payment default of 90 days or more during the first three months of 2022.

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 December 31, 2022.

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:

	Amortized cost
(in thousands)	March 31, 2023		December 31, 2022		Collateral type
Real estate:
Residential 1-4 family	$	2,353	$	3,959	Residential real estate property
Home equity line of credit	1,237		1,425		Residential real estate property
Total	$	3,590	$	5,384

ASB had $3.4 million and $4.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2023 and December 31, 2022, respectively.

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 $5.7 million and $75.6 million for the three months ended March 31, 2023 and 2022, respectively, and recognized gains on such sales of $0.1 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively.

There were no repurchased mortgage loans for the three months ended March 31, 2023 and 2022.

Mortgage servicing fees, a component of other income, net, were $0.9 million for the three months ended March 31, 2023 and 2022.

Changes in the carrying value of MSRs were as follows:

(in thousands)	Gross carrying amount		Accumulated amortization		Valuation allowance		Net carrying amount
March 31, 2023	$	17,868	$	(9,123)	$	—	$	8,745
December 31, 2022	19,544		(10,497)		—		9,047

Changes related to MSRs were as follows:

	Three months ended March 31
(in thousands)	2023		2022
Mortgage servicing rights
Beginning balance	$	9,047	$	9,950
Amount capitalized	51		719
Amortization	(353)		(645)
Other-than-temporary impairment	—		—
Carrying amount before valuation allowance	8,745		10,024
Valuation allowance for mortgage servicing rights
Beginning balance	—		—
Provision	—		—
Other-than-temporary impairment	—		—
Ending balance	—		—
Net carrying value of mortgage servicing rights	$	8,745	$	10,024

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 condensed 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, 2023			December 31, 2022
Unpaid principal balance	$	1,431,037		$	1,451,322
Weighted average note rate	3.39		%	3.38		%
Weighted average discount rate	10.00		%	10.00		%
Weighted average prepayment speed	6.39		%	6.56		%

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, 2023		December 31, 2022
Prepayment rate:
25 basis points adverse rate change	$	(109)	$	(92)
50 basis points adverse rate change	(243)		(214)
Discount rate:
25 basis points adverse rate change	(190)		(182)
50 basis points adverse rate change	(376)		(361)

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, 2023 and December 31, 2022, ASB had nil and $414.0 million of FHLB advances outstanding, respectively, and borrowings with the Federal Reserve Bank of $550.0 million and nil, respectively. As of March 31, 2023, ASB was in compliance with all FHLB Advances, Pledge and Security Agreement requirements and all requirements to borrow at the Federal Reserve Discount Window Primary Credit Facility under 12 CFR 201.4(a) guidelines.

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, 2023	$	131	$	—	$	131
December 31, 2022	281		—		281

	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, 2023	$	131	$	172	$	—
December 31, 2022	281		327		—

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, 2023				December 31, 2022
(in thousands)	Notional amount		Fair value		Notional amount		Fair value
Interest rate lock commitments	$	2,467	$	26	$	1,720	$	9
Forward commitments	2,250		5		1,500		18

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, 2023				December 31, 2022
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	26	$	—	$	9	$	—
Forward commitments	9		4		18		—
	$	35	$	4	$	27	$	—

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)		2023		2022
Interest rate lock commitments	Mortgage banking income	$	17	$	(655)
Forward commitments	Mortgage banking income	(13)		178
		$	4	$	(477)

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $77.1 million and $70.1 million at March 31, 2023 and December 31, 2022, 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, 2023, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.