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Bank segment
 3 Months Ended
Mar. 31, 2019
Bank Subsidiary [Abstract]  
Bank segment Bank segment
Selected financial information
American Savings Bank, F.S.B.
Statements of Income Data
 
 
Three months ended March 31
(in thousands)
 
2019
 
2018
Interest and dividend income
 
 

 
 

Interest and fees on loans
 
$
57,860

 
$
52,800

Interest and dividends on investment securities
 
10,628

 
9,202

Total interest and dividend income
 
68,488

 
62,002

Interest expense
 
 

 
 

Interest on deposit liabilities
 
4,252

 
2,957

Interest on other borrowings
 
528

 
496

Total interest expense
 
4,780

 
3,453

Net interest income
 
63,708

 
58,549

Provision for loan losses
 
6,870

 
3,541

Net interest income after provision for loan losses
 
56,838

 
55,008

Noninterest income
 
 

 
 

Fees from other financial services
 
4,562

 
4,654

Fee income on deposit liabilities
 
5,078

 
5,189

Fee income on other financial products
 
1,593

 
1,654

Bank-owned life insurance
 
2,259

 
871

Mortgage banking income
 
614

 
613

Other income, net
 
458

 
436

Total noninterest income
 
14,564

 
13,417

Noninterest expense
 
 

 
 

Compensation and employee benefits
 
25,512

 
24,440

Occupancy
 
4,670

 
4,280

Data processing
 
3,738

 
3,464

Services
 
2,426

 
3,047

Equipment
 
2,064

 
1,728

Office supplies, printing and postage
 
1,360

 
1,507

Marketing
 
990

 
645

FDIC insurance
 
626

 
713

Other expense
 
3,854

 
4,101

Total noninterest expense
 
45,240

 
43,925

Income before income taxes
 
26,162

 
24,500

Income taxes
 
5,323

 
5,540

Net income
 
$
20,839

 
$
18,960




Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:
 
 
Three months ended March 31
(in thousands)
 
2019
 
2018
Interest and dividend income
 
$
68,488

 
$
62,002

Noninterest income
 
14,564

 
13,417

*Revenues-Bank
 
83,052

 
75,419

Total interest expense
 
4,780

 
3,453

Provision for loan losses
 
6,870

 
3,541

Noninterest expense
 
45,240

 
43,925

Less: Retirement defined benefits gain (expense)—other than service costs
 
40

 
(387
)
*Expenses-Bank
 
56,930

 
50,532

*Operating income-Bank
 
26,122

 
24,887

Add back: Retirement defined benefits gain (expense)—other than service costs
 
(40
)
 
387

Income before income taxes
 
$
26,162

 
$
24,500



American Savings Bank, F.S.B.
Statements of Comprehensive Income Data
 
 
Three months ended March 31
(in thousands)
 
2019
 
2018
Net income
 
$
20,839

 
$
18,960

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 $(3,455) and $4,867, respectively
 
9,439

 
(13,297
)
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 $(1,166) and $694, respectively
 
(3,187
)
 
1,222

Other comprehensive income (loss), net of taxes
 
6,252

 
(12,075
)
Comprehensive income
 
$
27,091

 
$
6,885


American Savings Bank, F.S.B.
Balance Sheets Data
(in thousands)
 
March 31, 2019
 
December 31, 2018
Assets
 
 

 
 

 
 

 
 

Cash and due from banks
 
 

 
$
136,585

 
 

 
$
122,059

Interest-bearing deposits
 
 
 
31,703

 
 
 
4,225

Investment securities
 
 
 
 
 
 
 
 
Available-for-sale, at fair value
 
 

 
1,348,263

 
 

 
1,388,533

Held-to-maturity, at amortized cost (fair value of $142,333 and $142,057, respectively)
 
 
 
140,203

 
 
 
141,875

Stock in Federal Home Loan Bank, at cost
 
 

 
9,434

 
 

 
9,958

Loans held for investment
 
 

 
4,858,180

 
 

 
4,843,021

Allowance for loan losses
 
 

 
(54,297
)
 
 

 
(52,119
)
Net loans
 
 

 
4,803,883

 
 

 
4,790,902

Loans held for sale, at lower of cost or fair value
 
 

 
8,136

 
 

 
1,805

Other
 
 

 
501,970

 
 

 
486,347

Goodwill
 
 

 
82,190

 
 

 
82,190

Total assets
 
 

 
$
7,062,367

 
 

 
$
7,027,894

Liabilities and shareholder’s equity
 
 

 
 

 
 

 
 

Deposit liabilities—noninterest-bearing
 
 

 
$
1,879,244

 
 

 
$
1,800,727

Deposit liabilities—interest-bearing
 
 

 
4,326,415

 
 

 
4,358,125

Other borrowings
 
 

 
89,870

 
 

 
110,040

Other
 
 

 
122,651

 
 

 
124,613

Total liabilities
 
 

 
6,418,180

 
 

 
6,393,505

Commitments and contingencies
 
 

 


 
 

 


Common stock
 
 

 
1

 
 

 
1

Additional paid-in capital
 
 
 
347,877

 
 
 
347,170

Retained earnings
 
 

 
328,125

 
 

 
325,286

Accumulated other comprehensive loss, net of tax benefits
 
 

 
 

 
 

 
 

Net unrealized losses on securities
 
$
(14,984
)
 
 

 
$
(24,423
)
 
 

Retirement benefit plans
 
(16,832
)
 
(31,816
)
 
(13,645
)
 
(38,068
)
Total shareholder’s equity
 
 

 
644,187

 
 

 
634,389

Total liabilities and shareholder’s equity
 
 

 
$
7,062,367

 
 

 
$
7,027,894

 
 
 
 
 
 
 
 
 
Other assets
 
 

 
 

 
 

 
 

Bank-owned life insurance
 
 

 
$
150,705

 
 

 
$
151,172

Premises and equipment, net
 
 

 
208,309

 
 

 
214,415

Accrued interest receivable
 
 

 
20,654

 
 

 
20,140

Mortgage-servicing rights
 
 

 
7,897

 
 

 
8,062

Low-income housing equity investments
 
 
 
65,428

 
 
 
67,626

Real estate acquired in settlement of loans, net
 
 

 
—

 
 

 
406

Real estate held for sale
 
 
 
9,014

 
 
 
—

Other
 
 

 
39,963

 
 

 
24,526

 
 
 

 
$
501,970

 
 

 
$
486,347

Other liabilities
 
 

 
 

 
 

 
 

Accrued expenses
 
 

 
$
36,067

 
 

 
$
54,084

Federal and state income taxes payable
 
 

 
5,391

 
 

 
2,012

Cashier’s checks
 
 

 
27,432

 
 

 
26,906

Advance payments by borrowers
 
 

 
5,956

 
 

 
10,183

Other
 
 

 
47,805

 
 

 
31,428

 
 
 

 
$
122,651

 
 

 
$
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 $65 million and $25 million, respectively, as of March 31, 2019 and $65 million and $45 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
March 31, 2019
 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agency obligations
 
$
142,179

 
$
93

 
$
(1,428
)
 
$
140,844

 
2

 
$
10,022

 
$
(7
)
 
20

 
$
117,499

 
$
(1,421
)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
 
1,149,167

 
1,318

 
(21,498
)
 
1,128,987

 
3

 
13,792

 
(10
)
 
161

 
1,010,168

 
(21,488
)
Corporate bonds
 
49,417

 
1,045

 
—

 
50,462

 
—

 
—

 
—

 
—

 
—

 
—

Mortgage revenue bonds
 
27,970

 
—

 
—

 
27,970

 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
1,368,733

 
$
2,456

 
$
(22,926
)
 
$
1,348,263

 
5

 
$
23,814

 
$
(17
)
 
181

 
$
1,127,667

 
$
(22,909
)
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
 
$
140,203

 
$
2,528

 
$
(398
)
 
$
142,333

 
—

 
$
—

 
$
—

 
3

 
$
39,027

 
$
(398
)
 
 
$
140,203

 
$
2,528

 
$
(398
)
 
$
142,333

 
—

 
$
—

 
$
—

 
3

 
$
39,027

 
$
(398
)
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 March 31, 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 ended March 31, 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:
March 31, 2019
 
Amortized cost
 
Fair value
(in thousands)
 
 
 
 
Available-for-sale
 
 
 
 
Due in one year or less
 
$
15,000

 
$
14,960

Due after one year through five years
 
133,142

 
133,294

Due after five years through ten years
 
55,997

 
55,595

Due after ten years
 
15,427

 
15,427

 
 
219,566

 
219,276

Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
 
1,149,167

 
1,128,987

Total available-for-sale securities
 
$
1,368,733

 
$
1,348,263

Held-to-maturity
 
 
 
 
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
 
$
140,203

 
$
142,333

Total held-to-maturity securities
 
$
140,203

 
$
142,333


Proceeds from the sale of available-for-sale securities were nil for both the three months ended March 31, 2019 and 2018. Gross realized gains and losses were nil for both the three months ended March 31, 2019 and 2018.
Loans. The components of loans were summarized as follows:
 
March 31, 2019
 
December 31, 2018
(in thousands)
 

 
 

Real estate:
 

 
 

Residential 1-4 family
$
2,159,886

 
$
2,143,397

Commercial real estate
737,489

 
748,398

Home equity line of credit
995,624

 
978,237

Residential land
12,941

 
13,138

Commercial construction
98,734

 
92,264

Residential construction
10,924

 
14,307

Total real estate
4,015,598

 
3,989,741

Commercial
576,235

 
587,891

Consumer
266,437

 
266,002

Total loans
4,858,270

 
4,843,634

Less: Deferred fees and discounts
(90
)
 
(613
)
          Allowance for loan losses
(54,297
)
 
(52,119
)
Total loans, net
$
4,803,883

 
$
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. ASB is subject to the risk that the private mortgage insurance company cannot satisfy the bank's claim on policies.
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 March 31, 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
 
(14
)
 
—

 
—

 
—

 
—

 
—

 
(618
)
 
(5,559
)
 
(6,191
)
Recoveries
 
609

 
—

 
5

 
7

 
—

 
—

 
180

 
698

 
1,499

Provision
 
(660
)
 
320

 
117

 
(61
)
 
53

 
(1
)
 
2,027

 
5,075

 
6,870

Ending balance
 
$
1,911

 
$
14,825

 
$
6,493

 
$
425

 
$
2,843

 
$
3

 
$
10,814

 
$
16,983

 
$
54,297

March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
771

 
$
7

 
$
491

 
$
4

 
$
—

 
$
—

 
$
2,965

 
$
4

 
$
4,242

Ending balance: collectively evaluated for impairment
 
$
1,140

 
$
14,818

 
$
6,002

 
$
421

 
$
2,843

 
$
3

 
$
7,849

 
$
16,979

 
$
50,055

Financing Receivables:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
2,159,886

 
$
737,489

 
$
995,624

 
$
12,941

 
$
98,734

 
$
10,924

 
$
576,235

 
$
266,437

 
$
4,858,270

Ending balance: individually evaluated for impairment
 
$
17,403

 
$
902

 
$
14,046

 
$
2,065

 
$
—

 
$
—

 
$
15,895

 
$
88

 
$
50,399

Ending balance: collectively evaluated for impairment
 
$
2,142,483

 
$
736,587

 
$
981,578

 
$
10,876

 
$
98,734

 
$
10,924

 
$
560,340

 
$
266,349

 
$
4,807,871

Three months ended March 31, 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
)
 
—

 
—

 
(8
)
 
—

 
—

 
(602
)
 
(4,232
)
 
(4,873
)
Recoveries
 
54

 
—

 
14

 
5

 
—

 
—

 
1,170

 
347

 
1,590

Provision
 
(400
)
 
163

 
446

 
(219
)
 
(310
)
 
(8
)
 
(1,064
)
 
4,933

 
3,541

Ending balance
 
$
2,525

 
$
15,959

 
$
7,982

 
$
674

 
$
4,361

 
$
4

 
$
10,355

 
$
12,035

 
$
53,895

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:
 
 
March 31, 2019
 
December 31, 2018
(in thousands)
 
Commercial
real estate
 
Commercial
construction
 
Commercial
 
Total
 
Commercial
real estate
 
Commercial
construction
 
Commercial
 
Total
Grade:
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
Pass
 
$
659,853

 
$
96,445

 
$
534,127

 
$
1,290,425

 
$
658,288

 
$
89,974

 
$
547,640

 
$
1,295,902

Special mention
 
7,960

 
—

 
11,148

 
19,108

 
32,871

 
—

 
11,598

 
44,469

Substandard
 
69,676

 
2,289

 
30,960

 
102,925

 
57,239

 
2,290

 
28,653

 
88,182

Doubtful
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
737,489

 
$
98,734

 
$
576,235

 
$
1,412,458

 
$
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
March 31, 2019
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
2,625

 
$
2,954

 
$
3,866

 
$
9,445

 
$
2,150,441

 
$
2,159,886

 
$
—

Commercial real estate
 
2,225

 
—

 
—

 
2,225

 
735,264

 
737,489

 
—

Home equity line of credit
 
1,244

 
251

 
2,726

 
4,221

 
991,403

 
995,624

 
—

Residential land
 
818

 
488

 
9

 
1,315

 
11,626

 
12,941

 
—

Commercial construction
 
—

 
—

 
—

 
—

 
98,734

 
98,734

 
—

Residential construction
 
—

 
—

 
—

 
—

 
10,924

 
10,924

 
—

Commercial
 
3,167

 
570

 
337

 
4,074

 
572,161

 
576,235

 
—

Consumer
 
4,173

 
2,551

 
2,458

 
9,182

 
257,255

 
266,437

 
—

Total loans
 
$
14,252

 
$
6,814

 
$
9,396

 
$
30,462

 
$
4,827,808

 
$
4,858,270

 
$
—

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)
 
March 31, 2019
 
December 31, 2018
Real estate:
 
 

 
 

Residential 1-4 family
 
$
13,878

 
$
12,037

Commercial real estate
 
—

 
—

Home equity line of credit
 
6,888

 
6,348

Residential land
 
452

 
436

Commercial construction
 
—

 
—

Residential construction
 
—

 
—

Commercial
 
14,447

 
4,278

Consumer
 
4,542

 
4,196

  Total nonaccrual loans
 
$
40,207

 
$
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
 
$
10,145

 
$
10,194

Commercial real estate
 
902

 
915

Home equity line of credit
 
11,013

 
11,597

Residential land
 
1,613

 
1,622

Commercial construction
 
—

 
—

Residential construction
 
—

 
—

Commercial
 
1,622

 
1,527

Consumer
 
61

 
62

     Total troubled debt restructured loans not included above
 
$
25,356

 
$
25,917



The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
 
 
March 31, 2019
 
Three months ended March 31, 2019
(in thousands)
 
Recorded
investment
 
Unpaid
principal
balance
 
Related
Allowance
 
Average
recorded
investment
 
Interest
income
recognized*
With no related allowance recorded
 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
9,208

 
$
9,833

 
$
—

 
$
7,991

 
$
160

Commercial real estate
 
—

 
—

 
—

 
—

 
—

Home equity line of credit
 
2,508

 
2,778

 
—

 
2,534

 
12

Residential land
 
2,036

 
2,235

 
—

 
2,036

 
26

Commercial construction
 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

Commercial
 
4,736

 
5,897

 
—

 
3,973

 
—

Consumer
 
31

 
31

 
—

 
31

 
—

 
 
$
18,519

 
$
20,774

 
$
—

 
$
16,565

 
$
198

With an allowance recorded
 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
8,195

 
$
8,248

 
$
771

 
$
8,394

 
$
83

Commercial real estate
 
902

 
902

 
7

 
906

 
10

Home equity line of credit
 
11,538

 
11,577

 
491

 
11,823

 
130

Residential land
 
29

 
29

 
4

 
29

 
—

Commercial construction
 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

Commercial
 
11,159

 
11,159

 
2,965

 
4,750

 
26

Consumer
 
57

 
57

 
4

 
57

 
1

 
 
$
31,880

 
$
31,972

 
$
4,242

 
$
25,959

 
$
250

Total
 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
17,403

 
$
18,081

 
$
771

 
$
16,385

 
$
243

Commercial real estate
 
902

 
902

 
7

 
906

 
10

Home equity line of credit
 
14,046

 
14,355

 
491

 
14,357

 
142

Residential land
 
2,065

 
2,264

 
4

 
2,065

 
26

Commercial construction
 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

Commercial
 
15,895

 
17,056

 
2,965

 
8,723

 
26

Consumer
 
88

 
88

 
4

 
88

 
1

 
 
$
50,399

 
$
52,746

 
$
4,242

 
$
42,524

 
$
448


 
 
December 31, 2018
 
Three months ended March 31, 2018
(in thousands)
 
Recorded
investment
 
Unpaid
principal
balance
 
Related
allowance
 
Average
recorded
investment
 
Interest
income
recognized*
With no related allowance recorded
 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
7,822

 
$
8,333

 
$
—

 
$
8,496

 
$
107

Commercial real estate
 
—

 
—

 
—

 
—

 
—

Home equity line of credit
 
2,743

 
3,004

 
—

 
1,700

 
5

Residential land
 
2,030

 
2,228

 
—

 
1,168

 
5

Commercial construction
 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

Commercial
 
3,722

 
4,775

 
—

 
2,357

 
10

Consumer
 
32

 
32

 
—

 
7

 
—

 
 
$
16,349

 
$
18,372

 
$
—

 
$
13,728

 
$
127

With an allowance recorded
 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
8,672

 
$
8,875

 
$
876

 
$
9,129

 
$
93

Commercial real estate
 
915

 
915

 
7

 
1,008

 
11

Home equity line of credit
 
12,057

 
12,086

 
701

 
7,741

 
81

Residential land
 
29

 
29

 
6

 
77

 
2

Commercial construction
 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

Commercial
 
1,618

 
1,618

 
628

 
1,957

 
36

Consumer
 
57

 
57

 
4

 
58

 
1

 
 
$
23,348

 
$
23,580

 
$
2,222

 
$
19,970

 
$
224

Total
 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
16,494

 
$
17,208

 
$
876

 
$
17,625

 
$
200

Commercial real estate
 
915

 
915

 
7

 
1,008

 
11

Home equity line of credit
 
14,800

 
15,090

 
701

 
9,441

 
86

Residential land
 
2,059

 
2,257

 
6

 
1,245

 
7

Commercial construction
 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

Commercial
 
5,340

 
6,393

 
628

 
4,314

 
46

Consumer
 
89

 
89

 
4

 
65

 
1

 
 
$
39,697

 
$
41,952

 
$
2,222

 
$
33,698

 
$
351

*
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 first quarters of 2019 and 2018 were as follows:
Loans modified as a TDR
 
Three months ended March 31, 2019
 
Three months ended March 31, 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
 
8

 
$
1,048

 
$
5

 
1

 
$
345

 
$
107

Commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

Home equity line of credit
 
2

 
264

 
23

 
18

 
2,155

 
417

Residential land
 
1

 
335

 
—

 
—

 
—

 
—

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
1

 
195

 
17

 
5

 
2,213

 
—

Consumer
 
—

 
—

 
—

 
—

 
—

 
—

 
 
12

 
$
1,842

 
$
45

 
24

 
$
4,713

 
$
524

Loans modified in TDRs that experienced a payment default of 90 days or more during the first quarters of 2019 and 2018, and for which the payment of default occurred within one year of the modification, were as follows:
 
 
Three months ended March 31, 2019
 
Three months ended March 31, 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
 
—

 
$
—

 
1

 
$
49

Commercial real estate
 
—

 
—

 
—

 
—

Home equity line of credit
 
—

 
—

 
1

 
86

Residential land
 
—

 
—

 
—

 
—

Commercial construction
 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

Commercial
 
1

 
19

 
—

 
—

Consumer
 
—

 
—

 
—

 
—

 
 
1

 
$
19

 
2

 
$
135


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 March 31, 2019 and December 31, 2018.
The Company had $5.2 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, 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 $24.9 million and $33.1 million for the three months ended March 31, 2019 and 2018, respectively, and recognized gains on such sales of $0.6 million for both of these periods.
There were no repurchased mortgage loans for the three months ended March 31, 2019 and 2018. The repurchase reserve was $0.1 million as of March 31, 2019 and 2018.
Mortgage servicing fees, a component of other income, net, were $0.7 million for both the three months ended March 31, 2019 and 2018.
Changes in the carrying value of MSRs were as follows:
(in thousands)
 
Gross
carrying amount
 
Accumulated amortization
 
Valuation allowance
 
Net
carrying amount
March 31, 2019
 
$
18,786

 
$
(10,889
)
 
$
—

 
$
7,897

December 31, 2018
 
18,556

 
(10,494
)
 
—

 
8,062



Changes related to MSRs were as follows:
 
 
Three months ended March 31
(in thousands)
 
2019
 
2018
Mortgage servicing rights
 
 
 
 
Beginning balance
 
$
8,062

 
$
8,639

Amount capitalized
 
230

 
335

Amortization
 
(395
)
 
(433
)
Other-than-temporary impairment
 
—

 
—

Carrying amount before valuation allowance
 
7,897

 
8,541

Valuation allowance for mortgage servicing rights
 
 
 
 
Beginning balance
 
—

 
—

Provision (recovery)
 
—

 
—

Other-than-temporary impairment
 
—

 
—

Ending balance
 
—

 
—

Net carrying value of mortgage servicing rights
 
$
7,897

 
$
8,541


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, 2019

 
December 31, 2018

Unpaid principal balance
 
$
1,172,573

 
$
1,188,514

Weighted average note rate
 
3.99
%
 
3.98
%
Weighted average discount rate
 
10.0
%
 
10.0
%
Weighted average prepayment speed
 
7.4
%
 
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)
 
March 31, 2019

 
December 31, 2018

Prepayment rate:
 
 
 
 
  25 basis points adverse rate change
 
$
(421
)
 
$
(250
)
  50 basis points adverse rate change
 
(962
)
 
(566
)
Discount rate:
 
 
 
 
  25 basis points adverse rate change
 
(126
)
 
(139
)
  50 basis points adverse rate change
 
(251
)
 
(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.  FHLB advances are fixed rate for a specific term. As of March 31, 2019, ASB had an FHLB advance outstanding for $25 million with a maturity date of April 2019. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of March 31, 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
 
 

 
 

 
 

March 31, 2019
 
$
65

 
$
—

 
$
65

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
 
 
 
 
 
 
March 31, 2019
 
$
65

 
$
90

 
$
—

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:
 
 
March 31, 2019
 
December 31, 2018
(in thousands)
 
Notional amount
 
Fair value
 
Notional amount
 
Fair value
Interest rate lock commitments
 
$
31,406

 
$
462

 
$
10,180

 
$
91

Forward commitments
 
34,165

 
(161
)
 
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
 
March 31, 2019
 
December 31, 2018
(in thousands)
 
 Asset derivatives
 
 Liability
derivatives
 
 Asset derivatives
 
 Liability
derivatives
Interest rate lock commitments
 
$
463

 
$
1

 
$
91

 
$
—

Forward commitments
 
9

 
170

 
—

 
43

 
 
$
472

 
$
171

 
$
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 March 31
(in thousands)
 
 
2019
 
2018
Interest rate lock commitments
 
Mortgage banking income
 
$
371

 
$
124

Forward commitments
 
Mortgage banking income
 
(118
)
 
(36
)
 
 
 
 
$
253

 
$
88


Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $16.5 million and $18.1 million at March 31, 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 March 31, 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.