Bank segment

9 Months Ended

Sep. 30, 2019

Bank Subsidiary [Abstract]

Bank segment

Bank segment

Selected financial information

American Savings Bank, F.S.B.

Statements of Income Data

	Three months ended September 30,					Nine months ended September 30
(in thousands)	2019			2018		2019		2018
Interest and dividend income
Interest and fees on loans	$	59,260		$	55,885	$	175,740	$	163,318
Interest and dividends on investment securities	7,599			9,300		25,762		27,130
Total interest and dividend income	66,859			65,185		201,502		190,448
Interest expense
Interest on deposit liabilities	4,384			3,635		12,923		9,876
Interest on other borrowings	422			404		1,361		1,293
Total interest expense	4,806			4,039		14,284		11,169
Net interest income	62,053			61,146		187,218		179,279
Provision for loan losses	3,315			6,033		17,873		12,337
Net interest income after provision for loan losses	58,738			55,113		169,345		166,942
Noninterest income
Fees from other financial services	5,085			4,543		14,445		13,941
Fee income on deposit liabilities	5,320			5,454		15,402		15,781
Fee income on other financial products	1,706			1,746		5,129		5,075
Bank-owned life insurance	1,660			2,663		6,309		4,667
Mortgage banking income	1,490			169		3,080		1,399
Gains on sale of investment securities, net	653			—		653		—
Other income, net	428			736		1,420		1,708
Total noninterest income	16,342			15,311		46,438		42,571
Noninterest expense
Compensation and employee benefits	25,364			23,952		76,626		72,047
Occupancy	5,694			4,363		15,843		12,837
Data processing	3,763			3,583		11,353		10,587
Services	2,829			2,485		7,861		8,560
Equipment	2,163			1,783		6,416		5,385
Office supplies, printing and postage	1,297			1,556		4,320		4,554
Marketing	1,142			993		3,455		2,723
FDIC insurance	(5		)	638		1,249		2,078
Other expense	3,676			4,240		12,049		12,897
Total noninterest expense	45,923			43,593		139,172		131,668
Income before income taxes	29,157			26,831		76,611		77,845
Income taxes	6,269			5,610		15,868		17,103
Net income	$	22,888		$	21,221	$	60,743	$	60,742

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

	Three months ended September 30,						Nine months ended September 30
(in thousands)	2019			2018			2019			2018
Interest and dividend income	66,859			65,185			$	201,502		$	190,448
Noninterest income	16,342			15,311			46,438			42,571
*Revenues-Bank	83,201			80,496			247,940			233,019
Total interest expense	4,806			4,039			14,284			11,169
Provision for loan losses	3,315			6,033			17,873			12,337
Noninterest expense	45,923			43,593			139,172			131,668
Less: Retirement defined benefits gain (expense)—other than service costs	196			(433		)	276			(1,223		)
*Expenses-Bank	54,240			53,232			171,605			153,951
*Operating income-Bank	28,961			27,264			76,335			79,068
Add back: Retirement defined benefits (gain) expense—other than service costs	(196		)	433			(276		)	1,223
Income before income taxes	$	29,157		$	26,831		$	76,611		$	77,845

American Savings Bank, F.S.B.

Statements of Comprehensive Income Data

	Three months ended September 30,						Nine months ended September 30
(in thousands)	2019			2018			2019			2018
Net income	$	22,888		$	21,221		$	60,743		$	60,742
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of (taxes) benefits of $(1,557), $1,876, $(10,194) and $8,335, respectively	4,253			(5,123		)	27,846			(22,768		)
Reclassification adjustment for net realized gains included in net income, net of taxes of $175, nil, $175, and nil, respectively	(478		)	—			(478		)	—
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of (taxes) benefits of $13, $141, $(1,109) and $968, respectively	34			382			(3,032		)	1,970
Other comprehensive income (loss), net of taxes	3,809			(4,741		)	24,336			(20,798		)
Comprehensive income	$	26,697		$	16,480		$	85,079		$	39,944

American Savings Bank, F.S.B.

Balance Sheets Data

(in thousands)	September 30, 2019						December 31, 2018
Assets
Cash and due from banks				$	135,813					$	122,059
Interest-bearing deposits				1,315						4,225
Investment securities
Available-for-sale, at fair value				1,210,748						1,388,533
Held-to-maturity, at amortized cost (fair value of $137,497 and $142,057, respectively)				132,704						141,875
Stock in Federal Home Loan Bank, at cost				9,953						9,958
Loans held for investment				5,084,336						4,843,021
Allowance for loan losses				(53,040		)				(52,119		)
Net loans				5,031,296						4,790,902
Loans held for sale, at lower of cost or fair value				17,115						1,805
Other				514,116						486,347
Goodwill				82,190						82,190
Total assets				$	7,135,250					$	7,027,894
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing				$	1,885,028					$	1,800,727
Deposit liabilities—interest-bearing				4,311,195						4,358,125
Other borrowings				129,190						110,040
Other				135,606						124,613
Total liabilities				6,461,019						6,393,505
Commitments and contingencies
Common stock				1						1
Additional paid-in capital				348,933						347,170
Retained earnings				339,029						325,286
Accumulated other comprehensive loss, net of tax benefits
Net unrealized gains (losses) on securities	$	2,945					$	(24,423	)
Retirement benefit plans	(16,677		)	(13,732		)	(13,645		)	(38,068		)
Total shareholder’s equity				674,231						634,389
Total liabilities and shareholder’s equity				$	7,135,250					$	7,027,894
Other assets
Bank-owned life insurance				$	156,077					$	151,172
Premises and equipment, net				207,659						214,415
Accrued interest receivable				19,743						20,140
Mortgage-servicing rights				8,567						8,062
Low-income housing equity investments				69,286						67,626
Real estate acquired in settlement of loans, net				—						406
Real estate held for sale				9,074						—
Other				43,710						24,526
				$	514,116					$	486,347
Other liabilities
Accrued expenses				$	41,264					$	54,084
Federal and state income taxes payable				9,472						2,012
Cashier’s checks				27,498						26,906
Advance payments by borrowers				5,164						10,183
Other				52,208						31,428
				$	135,606					$	124,613

    

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 and advances from the Federal Home Loan Bank (FHLB) of $91.2 million and $38.0 million, respectively, as of September 30, 2019 and $65.0 million and $45.0 million, respectively, as of December 31, 2018.

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
September 30, 2019
Available-for-sale
U.S. Treasury and federal agency obligations	$	126,084	$	822	$	(198	)	$	126,708	—	$	—	$	—		4	$	32,686	$	(198	)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,017,256		6,647		(4,598		)	1,019,305		12	67,163		(252		)	85	389,212		(4,346		)
Corporate bonds	34,926		1,350		—			36,276		—	—		—			—	—		—
Mortgage revenue bonds	28,459		—		—			28,459		—	—		—			—	—		—
	$	1,206,725	$	8,819	$	(4,796	)	$	1,210,748	12	$	67,163	$	(252	)	89	$	421,898	$	(4,544	)
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	132,704	$	4,793	$	—		$	137,497	—	$	—	$	—		—	$	—	$	—
	$	132,704	$	4,793	$	—		$	137,497	—	$	—	$	—		—	$	—	$	—
December 31, 2018
Available-for-sale
U.S. Treasury and federal agency obligations	$	156,694	$	62	$	(2,407	)	$	154,349	5	$	25,882	$	(208	)	19	$	118,405	$	(2,199	)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,192,169		789		(31,542		)	1,161,416		22	129,011		(1,330		)	145	947,890		(30,212		)
Corporate bonds	49,398		103		(369		)	49,132		6	23,175		(369		)	—	—		—
Mortgage revenue bonds	23,636		—		—			23,636		—	—		—			—	—		—
	$	1,421,897	$	954	$	(34,318	)	$	1,388,533	33	$	178,068	$	(1,907	)	164	$	1,066,295	$	(32,411	)
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	141,875	$	1,446	$	(1,264	)	$	142,057	3	$	29,814	$	(400	)	2	$	31,505	$	(864	)
	$	141,875	$	1,446	$	(1,264	)	$	142,057	3	$	29,814	$	(400	)	2	$	31,505	$	(864	)

ASB does not believe that the investment securities that were in an unrealized loss position at September 30, 2019, represent an other-than-temporary impairment (OTTI). 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 did not recognize OTTI for the quarters and nine months ended September 30, 2019 and 2018.

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:

September 30, 2019	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	47,046	$	47,021
Due after one year through five years	89,085		90,675
Due after five years through ten years	37,911		38,320
Due after ten years	15,427		15,427
	189,469		191,443
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,017,256		1,019,305
Total available-for-sale securities	$	1,206,725	$	1,210,748
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	132,704	$	137,497
Total held-to-maturity securities	$	132,704	$	137,497

Proceeds from the sale of available-for-sale securities were $19.8 million for both the three and nine months ended September 30, 2019, respectively, and nil for both the three and nine months ended September 30, 2018, respectively. Gross realized gains and losses were $0.7 million for both the three and nine months ended September 30, 2019, respectively, and nil for both the three and nine months ended September 30, 2018, respectively.

Loans. The components of loans were summarized as follows:

	September 30, 2019			December 31, 2018
(in thousands)
Real estate:
Residential 1-4 family	$	2,183,888		$	2,143,397
Commercial real estate	810,971			748,398
Home equity line of credit	1,079,262			978,237
Residential land	15,095			13,138
Commercial construction	76,382			92,264
Residential construction	10,104			14,307
Total real estate	4,175,702			3,989,741
Commercial	638,213			587,891
Consumer	269,741			266,002
Total loans	5,083,656			4,843,634
Less: Deferred fees and discounts	680			(613		)
Allowance for loan losses	(53,040		)	(52,119		)
Total loans, net	$	5,031,296		$	4,790,902

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 properties, the loan-to-value ratio may not exceed 80% of the lower of the appraised value or purchase price at origination.

Allowance for loan losses.  The allowance for loan losses (balances and changes) and financing receivables 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 September 30, 2019
Allowance for loan losses:
Beginning balance	$	2,015		$	15,811		$	6,881		$	537		$	2,046		$	2		$	13,073		$	18,060		$	58,425
Charge-offs	(7		)	—			(13		)	—			—			—			(4,900		)	(5,311		)	(10,231		)
Recoveries	27			—			4			28			—			—			726			746			1,531
Provision	(56		)	(396		)	135			(104		)	196			1			(517		)	4,056			3,315
Ending balance	$	1,979		$	15,415		$	7,007		$	461		$	2,242		$	3		$	8,382		$	17,551		$	53,040
Three months ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	2,939		$	15,298		$	7,334		$	642		$	4,616		$	4		$	10,161		$	11,809		$	52,803
Charge-offs	—			—			(80		)	(1		)	—			—			(788		)	(4,508		)	(5,377		)
Recoveries	5			—			71			122			—			—			105			365			668
Provision	(623		)	(1,033		)	(347		)	(296		)	(356		)	—			1,255			7,433			6,033
Ending balance	$	2,321		$	14,265		$	6,978		$	467		$	4,260		$	4		$	10,733		$	15,099		$	54,127
Nine months ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	1,976		$	14,505		$	6,371		$	479		$	2,790		$	4		$	9,225		$	16,769		$	52,119
Charge-offs	(26		)	—			(32		)	(4		)	—			—			(6,012		)	(15,972		)	(22,046		)
Recoveries	644			—			13			42			—			—			2,187			2,208			5,094
Provision	(615		)	910			655			(56		)	(548		)	(1		)	2,982			14,546			17,873
Ending balance	$	1,979		$	15,415		$	7,007		$	461		$	2,242		$	3		$	8,382		$	17,551		$	53,040
September 30, 2019
Ending balance: individually evaluated for impairment	$	906		$	7		$	500		$	—		$	—		$	—		$	905		$	504		$	2,822
Ending balance: collectively evaluated for impairment	$	1,073		$	15,408		$	6,507		$	461		$	2,242		$	3		$	7,477		$	17,047		$	50,218
Financing Receivables:
Ending balance	$	2,183,888		$	810,971		$	1,079,262		$	15,095		$	76,382		$	10,104		$	638,213		$	269,741		$	5,083,656
Ending balance: individually evaluated for impairment	$	16,556		$	877		$	12,909		$	3,194		$	—		$	—		$	9,370		$	558		$	43,464
Ending balance: collectively evaluated for impairment	$	2,167,332		$	810,094		$	1,066,353		$	11,901		$	76,382		$	10,104		$	628,843		$	269,183		$	5,040,192
Nine months ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	2,902		$	15,796		$	7,522		$	896		$	4,671		$	12		$	10,851		$	10,987		$	53,637
Charge-offs	(31		)	—			(224		)	(18		)	—			—			(1,930		)	(12,628		)	(14,831		)
Recoveries	73			—			98			173			—			—			1,555			1,085			2,984
Provision	(623		)	(1,531		)	(418		)	(584		)	(411		)	(8		)	257			15,655			12,337
Ending balance	$	2,321		$	14,265		$	6,978		$	467		$	4,260		$	4		$	10,733		$	15,099		$	54,127
December 31, 2018
Ending balance: individually evaluated for impairment	$	876		$	7		$	701		$	6		$	—		$	—		$	628		$	4		$	2,222
Ending balance: collectively evaluated for impairment	$	1,100		$	14,498		$	5,670		$	473		$	2,790		$	4		$	8,597		$	16,765		$	49,897
Financing Receivables:
Ending balance	$	2,143,397		$	748,398		$	978,237		$	13,138		$	92,264		$	14,307		$	587,891		$	266,002		$	4,843,634
Ending balance: individually evaluated for impairment	$	16,494		$	915		$	14,800		$	2,059		$	—		$	—		$	5,340		$	89		$	39,697
Ending balance: collectively evaluated for impairment	$	2,126,903		$	747,483		$	963,437		$	11,079		$	92,264		$	14,307		$	582,551		$	265,913		$	4,803,937

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 the Bank 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 internally assigned grade for loans was as follows:

	September 30, 2019								December 31, 2018
(in thousands)	Commercial real estate		Commercial construction		Commercial		Total		Commercial real estate		Commercial construction		Commercial		Total
Grade:
Pass	$	723,864	$	74,093	$	593,952	$	1,391,909	$	658,288	$	89,974	$	547,640	$	1,295,902
Special mention	18,038		—		25,822		43,860		32,871		—		11,598		44,469
Substandard	69,069		2,289		14,753		86,111		57,239		2,290		28,653		88,182
Doubtful	—		—		3,686		3,686		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	$	810,971	$	76,382	$	638,213	$	1,525,566	$	748,398	$	92,264	$	587,891	$	1,428,553

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		Recorded investment> 90 days and accruing
September 30, 2019
Real estate:
Residential 1-4 family	$	2,162	$	807	$	2,452	$	5,421	$	2,178,467	$	2,183,888	$	—
Commercial real estate	347		—		—		347		810,624		810,971		—
Home equity line of credit	736		814		2,127		3,677		1,075,585		1,079,262		—
Residential land	—		—		25		25		15,070		15,095		—
Commercial construction	—		—		—		—		76,382		76,382		—
Residential construction	—		—		—		—		10,104		10,104		—
Commercial	359		174		1,280		1,813		636,400		638,213		—
Consumer	4,230		2,923		2,461		9,614		260,127		269,741		—
Total loans	$	7,834	$	4,718	$	8,345	$	20,897	$	5,062,759	$	5,083,656	$	—
December 31, 2018
Real estate:
Residential 1-4 family	$	3,757	$	2,773	$	2,339	$	8,869	$	2,134,528	$	2,143,397	$	—
Commercial real estate	—		—		—		—		748,398		748,398		—
Home equity line of credit	1,139		681		2,720		4,540		973,697		978,237		—
Residential land	9		—		319		328		12,810		13,138		—
Commercial construction	—		—		—		—		92,264		92,264		—
Residential construction	—		—		—		—		14,307		14,307		—
Commercial	315		281		548		1,144		586,747		587,891		—
Consumer	5,220		3,166		2,702		11,088		254,914		266,002		—
Total loans	$	10,440	$	6,901	$	8,628	$	25,969	$	4,817,665	$	4,843,634	$	—

The credit risk profile based on nonaccrual loans, accruing loans 90 days or more past due and troubled debt restructuring (TDR) loans was as follows:

(in thousands)	September 30, 2019		December 31, 2018
Real estate:
Residential 1-4 family	$	12,076	$	12,037
Commercial real estate	—		—
Home equity line of credit	7,859		6,348
Residential land	457		436
Commercial construction	—		—
Residential construction	—		—
Commercial	7,004		4,278
Consumer	4,632		4,196
Total nonaccrual loans	$	32,028	$	27,295
Real estate:
Residential 1-4 family	$	—	$	—
Commercial real estate	—		—
Home equity line of credit	—		—
Residential land	—		—
Commercial construction	—		—
Residential construction	—		—
Commercial	—		—
Consumer	—		—
Total accruing loans 90 days or more past due	$	—	$	—
Real estate:
Residential 1-4 family	$	9,981	$	10,194
Commercial real estate	877		915
Home equity line of credit	10,686		11,597
Residential land	2,737		1,622
Commercial construction	—		—
Residential construction	—		—
Commercial	2,564		1,527
Consumer	58		62
Total troubled debt restructured loans not included above	$	26,903	$	25,917

The total carrying amount and the total unpaid principal balance of impaired loans were as follows:

	September 30, 2019						Three months ended September 30, 2019				Nine months ended September 30, 2019
(in thousands)	Recorded investment		Unpaid principal balance		Related Allowance		Average recorded investment		Interest income recognized*		Average recorded investment		Interest income recognized*
With no related allowance recorded
Real estate:
Residential 1-4 family	$	8,277	$	8,877	$	—	$	8,562	$	175	$	8,515	$	422
Commercial real estate	—		—		—		—		—		—		—
Home equity line of credit	1,806		1,967		—		1,797		12		2,091		78
Residential land	3,194		3,398		—		3,205		40		2,507		90
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	6,749		11,894		—		4,812		239		4,470		239
Consumer	2		2		—		21		4		27		4
	$	20,028	$	26,138	$	—	$	18,397	$	470	$	17,610	$	833
With an allowance recorded
Real estate:
Residential 1-4 family	$	8,279	$	8,332	$	906	$	8,296	$	86	$	8,377	$	265
Commercial real estate	877		877		7		881		9		894		28
Home equity line of credit	11,103		11,133		500		11,332		143		11,606		425
Residential land	—		—		—		—		—		36		—
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	2,621		2,621		905		8,330		38		8,026		94
Consumer	556		556		504		556		12		301		14
	$	23,436	$	23,519	$	2,822	$	29,395	$	288	$	29,240	$	826
Total
Real estate:
Residential 1-4 family	$	16,556	$	17,209	$	906	$	16,858	$	261	$	16,892	$	687
Commercial real estate	877		877		7		881		9		894		28
Home equity line of credit	12,909		13,100		500		13,129		155		13,697		503
Residential land	3,194		3,398		—		3,205		40		2,543		90
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	9,370		14,515		905		13,142		277		12,496		333
Consumer	558		558		504		577		16		328		18
	$	43,464	$	49,657	$	2,822	$	47,792	$	758	$	46,850	$	1,659

	December 31, 2018						Three months ended September 30, 2018				Nine months ended September 30, 2018
(in thousands)	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized*		Average recorded investment		Interest income recognized*
With no related allowance recorded
Real estate:
Residential 1-4 family	$	7,822	$	8,333	$	—	$	8,940	$	239	$	8,779	$	396
Commercial real estate	—		—		—		—		—		—		—
Home equity line of credit	2,743		3,004		—		2,234		23		2,103		35
Residential land	2,030		2,228		—		1,773		6		1,358		16
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	3,722		4,775		—		3,915		6		3,099		26
Consumer	32		32		—		33		—		18		—
	$	16,349	$	18,372	$	—	$	16,895	$	274	$	15,357	$	473
With an allowance recorded
Real estate:
Residential 1-4 family	$	8,672	$	8,875	$	876	$	8,820	$	84	$	8,909	$	274
Commercial real estate	915		915		7		985		11		997		32
Home equity line of credit	12,057		12,086		701		12,090		111		10,083		288
Residential land	29		29		6		20		—		45		3
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	1,618		1,618		628		1,774		28		1,824		94
Consumer	57		57		4		57		1		58		3
	$	23,348	$	23,580	$	2,222	$	23,746	$	235	$	21,916	$	694
Total
Real estate:
Residential 1-4 family	$	16,494	$	17,208	$	876	$	17,760	$	323	$	17,688	$	670
Commercial real estate	915		915		7		985		11		997		32
Home equity line of credit	14,800		15,090		701		14,324		134		12,186		323
Residential land	2,059		2,257		6		1,793		6		1,403		19
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	5,340		6,393		628		5,689		34		4,923		120
Consumer	89		89		4		90		1		76		3
	$	39,697	$	41,952	$	2,222	$	40,641	$	509	$	37,273	$	1,167

* Since loan was classified as impaired.

 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.

All TDR loans are classified as impaired and are segregated and reviewed separately when assessing the adequacy of the allowance for loan losses based on the appropriate method of measuring impairment:  (1) present value of expected future cash flows discounted at the loan’s effective original contractual rate, (2) fair value of collateral less cost to sell or (3) observable market price. The financial impact of the calculated impairment amount 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 loan losses.

Loan modifications that occurred during the third quarters and first nine months of 2019 and 2018 were as follows:

Loans modified as a TDR	Three months ended September 30, 2019					Nine months ended September 30, 2019
(dollars in thousands)	Number of contracts	Outstanding  recorded  investment  (as of period end)1		Related allowance (as of period end)		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	$	324	$	—	10	$	1,563	$	165
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	—	—		—		3	429		85
Residential land	1	350		—		3	1,169		—
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	3	275		58		6	1,761		218
Consumer	—	—		—		—	—		—
	5	$	949	$	58	22	$	4,922	$	468
Loans modified as a TDR	Three months ended September 30, 2018					Nine months ended September 30, 2018
(dollars in thousands)	Number of contracts	Outstanding  recorded  investment (as of period end)1		Related allowance (as of period end)		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	2	$	427	$	19	2	$	427	$	19
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	16	1,571		283		52	6,540		930
Residential land	2	1,343		—		2	1,343		—
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	6	255		174		13	2,381		218
Consumer	—	—		—		—	—		—
	26	$	3,596	$	476	69	$	10,691	$	1,167

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 third quarter and first nine months of 2019. Loans modified in TDRs that experienced a payment default of 90 days or more during the third quarter and first nine months of 2018, and for which the payment of default occurred within one year of the modification, were as follows:

	Three months ended September 30, 2018			Nine months ended September 30, 2018
(dollars in thousands)	Number of contracts	Outstanding  recorded  investment (as of period end)1		Number of contracts	Outstanding  recorded  investment  (as of period end)1
TDRs that defaulted during the period within twelve months of their modification date
Real estate:
Residential 1-4 family	—	$	—	—	$	—
Commercial real estate	—	—		—	—
Home equity line of credit	—	—		1	81
Residential land	—	—		—	—
Commercial construction	—	—		—	—
Residential construction	—	—		—	—
Commercial	—	—		1	291
Consumer	—	—		—	—
	—	$	—	2	$	372

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.

If loans modified in a TDR subsequently default, 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 September 30, 2019 and December 31, 2018.

The Company had $4.3 million and $4.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2019 and December 31, 2018, 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 $87.8 million and $31.9 million for three months ended September 30, 2019 and 2018, respectively, and $177.3 million and $109.3 million for the nine months ended September 30, 2019 and 2018, respectively, and recognized gains on such sales of $1.5 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $3.1 million and $1.4 million for the nine months ended September 30, 2019 and 2018, respectively.

There were no repurchased mortgage loans for the three and nine months ended September 30, 2019 and 2018. The repurchase reserve was $0.1 million as of September 30, 2019 and 2018.

Mortgage servicing fees, a component of other income, net, were $0.8 million and $0.7 million for the three months ended September 30, 2019 and 2018, respectively, and were $2.2 million for the nine months ended September 30, 2019 and 2018, respectively.

Changes in the carrying value of MSRs were as follows:

(in thousands)	Gross carrying amount		Accumulated amortization			Valuation allowance		Net carrying amount
September 30, 2019	$	20,413	$	(11,846	)	$	—	$	8,567
December 31, 2018	18,556		(10,494		)	—		8,062

Changes related to MSRs were as follows:

	Three months ended September 30,						Nine months ended September 30
(in thousands)	2019			2018			2019			2018
Mortgage servicing rights
Beginning balance	$	8,103		$	8,509		$	8,062		$	8,639
Amount capitalized	995			305			1,857			1,032
Amortization	(531		)	(388		)	(1,352		)	(1,245		)
Other-than-temporary impairment	—			—			—			—
Carrying amount before valuation allowance	8,567			8,426			8,567			8,426
Valuation allowance for mortgage servicing rights
Beginning balance	—			—			—			—
Provision (recovery)	—			—			—			—
Other-than-temporary impairment	—			—			—			—
Ending balance	—			—			—			—
Net carrying value of mortgage servicing rights	$	8,567		$	8,426		$	8,567		$	8,426

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)	September 30, 2019			December 31, 2018
Unpaid principal balance	$	1,232,240		$	1,188,514
Weighted average note rate	3.99		%	3.98		%
Weighted average discount rate	9.3		%	10.0		%
Weighted average prepayment speed	12.8		%	6.5		%

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)	September 30, 2019			December 31, 2018
Prepayment rate:
25 basis points adverse rate change	$	(1,058	)	$	(250	)
50 basis points adverse rate change	(2,093		)	(566		)
Discount rate:
25 basis points adverse rate change	(90		)	(139		)
50 basis points adverse rate change	(180		)	(275		)

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 September 30, 2019, ASB had $38.0 million FHLB advances outstanding. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of September 30, 2019.

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
September 30, 2019	$	91	$	—	$	91
December 31, 2018	65		—		65

	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
September 30, 2019	$	91	$	111	$	—
December 31, 2018	65		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:

	September 30, 2019					December 31, 2018
(in thousands)	Notional amount		Fair value			Notional amount		Fair value
Interest rate lock commitments	$	42,073	$	470		$	10,180	$	91
Forward commitments	55,791		(76		)	10,132		(43		)

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

Derivative Financial Instruments Not Designated as Hedging Instruments 1	September 30, 2019				December 31, 2018
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	477	$	7	$	91	$	—
Forward commitments	9		85		—		43
	$	486	$	92	$	91	$	43

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 September 30,						Nine months ended September 30
(in thousands)		2019			2018			2019			2018
Interest rate lock commitments	Mortgage banking income	$	(3	)	$	(248	)	$	379		$	(131	)
Forward commitments	Mortgage banking income	39			62			(33		)	24
		$	36		$	(186	)	$	346		$	(107	)

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $20.7 million and $18.1 million at September 30, 2019 and December 31, 2018, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of September 30, 2019, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.