XML 26 R13.htm IDEA: XBRL DOCUMENT

Bank segment

6 Months Ended

Jun. 30, 2019

Selected financial information

American Savings Bank, F.S.B.

Statements of Income Data



	Three months ended June 30				Six months ended June 30
(in thousands)	2019		2018		2019		2018
Interest and dividend income
Interest and fees on loans	$	58,620	$	54,633	$	116,480	$	107,433
Interest and dividends on investment securities	7,535		8,628		18,163		17,830
Total interest and dividend income	66,155		63,261		134,643		125,263
Interest expense
Interest on deposit liabilities	4,287		3,284		8,539		6,241
Interest on other borrowings	411		393		939		889
Total interest expense	4,698		3,677		9,478		7,130
Net interest income	61,457		59,584		125,165		118,133
Provision for loan losses	7,688		2,763		14,558		6,304
Net interest income after provision for loan losses	53,769		56,821		110,607		111,829
Noninterest income
Fees from other financial services	4,798		4,744		9,360		9,398
Fee income on deposit liabilities	5,004		5,138		10,082		10,327
Fee income on other financial products	1,830		1,675		3,423		3,329
Bank-owned life insurance	2,390		1,133		4,649		2,004
Mortgage banking income	976		617		1,590		1,230
Other income, net	534		536		992		972
Total noninterest income	15,532		13,843		30,096		27,260
Noninterest expense
Compensation and employee benefits	25,750		23,655		51,262		48,095
Occupancy	5,479		4,194		10,149		8,474
Data processing	3,852		3,540		7,590		7,004
Services	2,606		3,028		5,032		6,075
Equipment	2,189		1,874		4,253		3,602
Office supplies, printing and postage	1,663		1,491		3,023		2,998
Marketing	1,323		1,085		2,313		1,730
FDIC insurance	628		727		1,254		1,440
Other expense	4,519		4,556		8,373		8,657
Total noninterest expense	48,009		44,150		93,249		88,075
Income before income taxes	21,292		26,514		47,454		51,014
Income taxes	4,276		5,953		9,599		11,493
Net income	$	17,016	$	20,561	$	37,855	$	39,521

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



	Three months ended June 30						Six months ended June 30
(in thousands)	2019			2018			2019			2018
Interest and dividend income	66,155			63,261			$	134,643		$	125,263
Noninterest income	15,532			13,843			30,096			27,260
*Revenues-Bank	81,687			77,104			164,739			152,523
Total interest expense	4,698			3,677			9,478			7,130
Provision for loan losses	7,688			2,763			14,558			6,304
Noninterest expense	48,009			44,150			93,249			88,075
Less: Retirement defined benefits gain (expense)—other than service costs	40			(403		)	80			(790		)
*Expenses-Bank	60,435			50,187			117,365			100,719
*Operating income-Bank	21,252			26,917			47,374			51,804
Add back: Retirement defined benefits (gain) expense—other than service costs	(40		)	403			(80		)	790
Income before income taxes	$	21,292		$	26,514		$	47,454		$	51,014

American Savings Bank, F.S.B.

Statements of Comprehensive Income Data



	Three months ended June 30					Six months ended June 30
(in thousands)	2019		2018			2019			2018
Net income	$	17,016	$	20,561		$	37,855		$	39,521
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 $(5,182), $1,592, $(8,637) and $6,459, respectively	14,154		(4,348		)	23,593			(17,645		)
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 $44, $133, $(1,122), and $827, respectively	121		366			(3,066		)	1,588
Other comprehensive income (loss), net of taxes	14,275		(3,982		)	20,527			(16,057		)
Comprehensive income	$	31,291	$	16,579		$	58,382		$	23,464

American Savings Bank, F.S.B.

Balance Sheets Data



(in thousands)	June 30, 2019						December 31, 2018
Assets
Cash and due from banks				$	115,214					$	122,059
Interest-bearing deposits				52,415						4,225
Investment securities
Available-for-sale, at fair value				1,298,010						1,388,533
Held-to-maturity, at amortized cost (fair value of $141,231 and $142,057, respectively)				137,029						141,875
Stock in Federal Home Loan Bank, at cost				8,434						9,958
Loans held for investment				5,008,489						4,843,021
Allowance for loan losses				(58,425		)				(52,119		)
Net loans				4,950,064						4,790,902
Loans held for sale, at lower of cost or fair value				9,196						1,805
Other				511,502						486,347
Goodwill				82,190						82,190
Total assets				$	7,164,054					$	7,027,894
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing				$	1,883,044					$	1,800,727
Deposit liabilities—interest-bearing				4,374,339						4,358,125
Other borrowings				111,485						110,040
Other				134,162						124,613
Total liabilities				6,503,030						6,393,505
Commitments and contingencies
Common stock				1						1
Additional paid-in capital				348,423						347,170
Retained earnings				330,141						325,286
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities	$	(830	)				$	(24,423	)
Retirement benefit plans	(16,711		)	(17,541		)	(13,645		)	(38,068		)
Total shareholder’s equity				661,024						634,389
Total liabilities and shareholder’s equity				$	7,164,054					$	7,027,894

Other assets
Bank-owned life insurance				$	151,607					$	151,172
Premises and equipment, net				208,956						214,415
Accrued interest receivable				20,675						20,140
Mortgage-servicing rights				8,103						8,062
Low-income housing equity investments				71,484						67,626
Real estate acquired in settlement of loans, net				—						406
Real estate held for sale				9,014						—
Other				41,663						24,526
				$	511,502					$	486,347
Other liabilities
Accrued expenses				$	42,129					$	54,084
Federal and state income taxes payable				7,176						2,012
Cashier’s checks				25,135						26,906
Advance payments by borrowers				11,080						10,183
Other				48,642						31,428
				$	134,162					$	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 $111 million and nil, respectively, as of June 30, 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
June 30, 2019
Available-for-sale
U.S. Treasury and federal agency obligations	$	130,810	$	736	$	(340	)	$	131,206	—	$	—	$	—		8	$	55,125	$	(340	)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,090,729		4,083		(7,325		)	1,087,487		1	1,071		(3		)	113	628,194		(7,322		)
Corporate bonds	49,438		1,713		—			51,151		—	—		—			—	—		—
Mortgage revenue bonds	28,166		—		—			28,166		—	—		—			—	—		—
	$	1,299,143	$	6,532	$	(7,665	)	$	1,298,010	1	$	1,071	$	(3	)	121	$	683,319	$	(7,662	)
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	137,029	$	4,202	$	—		$	141,231	—	$	—	$	—		—	$	—	$	—
	$	137,029	$	4,202	$	—		$	141,231	—	$	—	$	—		—	$	—	$	—
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 June 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 six months ended June 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:



June 30, 2019	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	12,062	$	12,076
Due after one year through five years	126,045		127,461
Due after five years through ten years	54,880		55,559
Due after ten years	15,427		15,427
	208,414		210,523
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,090,729		1,087,487
Total available-for-sale securities	$	1,299,143	$	1,298,010
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	137,029	$	141,231
Total held-to-maturity securities	$	137,029	$	141,231

Proceeds from the sale of available-for-sale securities were nil for both the three and six months ended June 30, 2019 and 2018. Gross realized gains and losses were nil for both the three and six months ended June 30, 2019 and 2018.

Loans. The components of loans were summarized as follows:



	June 30, 2019			December 31, 2018
(in thousands)
Real estate:
Residential 1-4 family	$	2,189,976		$	2,143,397
Commercial real estate	790,174			748,398
Home equity line of credit	1,036,985			978,237
Residential land	14,696			13,138
Commercial construction	68,676			92,264
Residential construction	8,165			14,307
Total real estate	4,108,672			3,989,741
Commercial	626,524			587,891
Consumer	272,949			266,002
Total loans	5,008,145			4,843,634
Less: Deferred fees and discounts	344			(613		)
Allowance for loan losses	(58,425		)	(52,119		)
Total loans, net	$	4,950,064		$	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 June 30, 2019
Allowance for loan losses:
Beginning balance	$	1,911		$	14,825		$	6,493		$	425		$	2,843		$	3		$	10,814		$	16,983		$	54,297
Charge-offs	(5		)	—			(19		)	(4		)	—			—			(494		)	(5,102		)	(5,624		)
Recoveries	8			—			4			7			—			—			1,281			764			2,064
Provision	101			986			403			109			(797		)	(1		)	1,472			5,415			7,688
Ending balance	$	2,015		$	15,811		$	6,881		$	537		$	2,046		$	2		$	13,073		$	18,060		$	58,425
Three months ended June 30, 2018
Allowance for loan losses:
Beginning balance	$	2,525		$	15,959		$	7,982		$	674		$	4,361		$	4		$	10,355		$	12,035		$	53,895
Charge-offs	—			—			(144		)	(9		)	—			—			(540		)	(3,888		)	(4,581		)
Recoveries	14			—			13			46			—			—			280			373			726
Provision	400			(661		)	(517		)	(69		)	255			—			66			3,289			2,763
Ending balance	$	2,939		$	15,298		$	7,334		$	642		$	4,616		$	4		$	10,161		$	11,809		$	52,803
Six months ended June 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	(19		)	—			(19		)	(4		)	—			—			(1,112		)	(10,661		)	(11,815		)
Recoveries	617			—			9			14			—			—			1,461			1,462			3,563
Provision	(559		)	1,306			520			48			(744		)	(2		)	3,499			10,490			14,558
Ending balance	$	2,015		$	15,811		$	6,881		$	537		$	2,046		$	2		$	13,073		$	18,060		$	58,425
June 30, 2019
Ending balance: individually evaluated for impairment	$	904		$	7		$	465		$	—		$	—		$	—		$	4,983		$	501		$	6,860
Ending balance: collectively evaluated for impairment	$	1,111		$	15,804		$	6,416		$	537		$	2,046		$	2		$	8,090		$	17,559		$	51,565
Financing Receivables:
Ending balance	$	2,189,976		$	790,174		$	1,036,985		$	14,696		$	68,676		$	8,165		$	626,524		$	272,949		$	5,008,145
Ending balance: individually evaluated for impairment	$	17,537		$	890		$	13,376		$	2,869		$	—		$	—		$	16,033		$	586		$	51,291
Ending balance: collectively evaluated for impairment	$	2,172,439		$	789,284		$	1,023,609		$	11,827		$	68,676		$	8,165		$	610,491		$	272,363		$	4,956,854
Six months ended June 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		)	—			(144		)	(17		)	—			—			(1,142		)	(8,120		)	(9,454		)
Recoveries	68			—			27			51			—			—			1,450			720			2,316
Provision	—			(498		)	(71		)	(288		)	(55		)	(8		)	(998		)	8,222			6,304
Ending balance	$	2,939		$	15,298		$	7,334		$	642		$	4,616		$	4		$	10,161		$	11,809		$	52,803
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:



	June 30, 2019								December 31, 2018
(in thousands)	Commercial real estate		Commercial construction		Commercial		Total		Commercial real estate		Commercial construction		Commercial		Total
Grade:
Pass	$	703,028	$	66,387	$	570,099	$	1,339,514	$	658,288	$	89,974	$	547,640	$	1,295,902
Special mention	11,012		—		28,263		39,275		32,871		—		11,598		44,469
Substandard	76,134		2,289		19,336		97,759		57,239		2,290		28,653		88,182
Doubtful	—		—		8,826		8,826		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	$	790,174	$	68,676	$	626,524	$	1,485,374	$	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
June 30, 2019
Real estate:
Residential 1-4 family	$	4,125	$	661	$	3,763	$	8,549	$	2,181,427	$	2,189,976	$	—
Commercial real estate	—		—		—		—		790,174		790,174		—
Home equity line of credit	1,444		813		1,798		4,055		1,032,930		1,036,985		—
Residential land	—		—		376		376		14,320		14,696		—
Commercial construction	—		—		—		—		68,676		68,676		—
Residential construction	—		—		—		—		8,165		8,165		—
Commercial	410		305		2,264		2,979		623,545		626,524		—
Consumer	4,583		2,536		2,276		9,395		263,554		272,949		—
Total loans	$	10,562	$	4,315	$	10,477	$	25,354	$	4,982,791	$	5,008,145	$	—
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)	June 30, 2019		December 31, 2018
Real estate:
Residential 1-4 family	$	13,087	$	12,037
Commercial real estate	—		—
Home equity line of credit	7,506		6,348
Residential land	818		436
Commercial construction	—		—
Residential construction	—		—
Commercial	13,595		4,278
Consumer	4,362		4,196
Total nonaccrual loans	$	39,368	$	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	$	10,269	$	10,194
Commercial real estate	890		915
Home equity line of credit	11,116		11,597
Residential land	2,402		1,622
Commercial construction	—		—
Residential construction	—		—
Commercial	2,611		1,527
Consumer	59		62
Total troubled debt restructured loans not included above	$	27,347	$	25,917

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



	June 30, 2019						Three months ended June 30, 2019				Six months ended June 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	$	9,208	$	9,833	$	—	$	8,993	$	87	$	8,492	$	247
Commercial real estate	—		—		—		—		—		—		—
Home equity line of credit	1,787		2,073		—		1,940		54		2,238		66
Residential land	2,869		3,072		—		2,280		24		2,158		50
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	4,553		5,774		—		4,626		—		4,299		—
Consumer	30		30		—		31		—		31		—
	$	18,447	$	20,782	$	—	$	17,870	$	165	$	17,218	$	363
With an allowance recorded
Real estate:
Residential 1-4 family	$	8,329	$	8,382	$	904	$	8,440	$	96	$	8,417	$	179
Commercial real estate	890		890		7		894		9		900		19
Home equity line of credit	11,589		11,623		465		11,665		152		11,743		282
Residential land	—		—		—		79		—		54		—
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	11,480		11,584		4,983		10,997		30		7,874		56
Consumer	556		556		501		288		1		173		2
	$	32,844	$	33,035	$	6,860	$	32,363	$	288	$	29,161	$	538
Total
Real estate:
Residential 1-4 family	$	17,537	$	18,215	$	904	$	17,433	$	183	$	16,909	$	426
Commercial real estate	890		890		7		894		9		900		19
Home equity line of credit	13,376		13,696		465		13,605		206		13,981		348
Residential land	2,869		3,072		—		2,359		24		2,212		50
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	16,033		17,358		4,983		15,623		30		12,173		56
Consumer	586		586		501		319		1		204		2
	$	51,291	$	53,817	$	6,860	$	50,233	$	453	$	46,379	$	901



	December 31, 2018						Three months ended June 30, 2018				Six months ended June 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	$	—	$	8,900	$	50	$	8,699	$	157
Commercial real estate	—		—		—		—		—		—		—
Home equity line of credit	2,743		3,004		—		2,374		7		2,037		12
Residential land	2,030		2,228		—		1,132		5		1,150		10
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	3,722		4,775		—		3,026		10		2,691		20
Consumer	32		32		—		15		—		11		—
	$	16,349	$	18,372	$	—	$	15,447	$	72	$	14,588	$	199
With an allowance recorded
Real estate:
Residential 1-4 family	$	8,672	$	8,875	$	876	$	8,778	$	97	$	8,953	$	190
Commercial real estate	915		915		7		997		10		1,003		21
Home equity line of credit	12,057		12,086		701		10,420		96		9,080		177
Residential land	29		29		6		40		1		58		3
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	1,618		1,618		628		1,738		30		1,848		66
Consumer	57		57		4		58		1		58		2
	$	23,348	$	23,580	$	2,222	$	22,031	$	235	$	21,000	$	459
Total
Real estate:
Residential 1-4 family	$	16,494	$	17,208	$	876	$	17,678	$	147	$	17,652	$	347
Commercial real estate	915		915		7		997		10		1,003		21
Home equity line of credit	14,800		15,090		701		12,794		103		11,117		189
Residential land	2,059		2,257		6		1,172		6		1,208		13
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial	5,340		6,393		628		4,764		40		4,539		86
Consumer	89		89		4		73		1		69		2
	$	39,697	$	41,952	$	2,222	$	37,478	$	307	$	35,588	$	658


*	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 second quarters and first six months of 2019 and 2018 were as follows:



Loans modified as a TDR	Three months ended June 30, 2019					Six months ended June 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	$	469	$	154	9	$	1,501	$	161
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	2	311		59		3	432		83
Residential land	2	825		—		2	825		—
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	2	1,317		133		3	1,507		150
Consumer	—	—		—		—	—		—
	7	$	2,922	$	346	17	$	4,265	$	394

Loans modified as a TDR	Three months ended June 30, 2018					Six months ended June 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	—	$	—	$	—	—	$	—	$	—
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	20	3,260		578		37	5,293		953
Residential land	—	—		—		—	—		—
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	2	43		43		7	2,200		43
Consumer	—	—		—		—	—		—
	22	$	3,303	$	621	44	$	7,493	$	996

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



	Three months ended June 30, 2018			Six months ended June 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	100		2	181
Residential land	—	—		—	—
Commercial construction	—	—		—	—
Residential construction	—	—		—	—
Commercial	1	291		1	291
Consumer	—	—		—	—
	2	$	391	3	$	472


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 June 30, 2019 and December 31, 2018.

The Company had $4.6 million and $4.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 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 $64.7 million and $44.3 million for three months ended June 30, 2019 and 2018, respectively, and $89.6 million and $77.4 million for the six months ended June 30, 2019 and 2018, respectively, and recognized gains on such sales of $1.0 million and $0.6 million for the three months ended June 30, 2019 and 2018, respectively, and $1.6 million and $1.2 million for the six months ended June 30, 2019 and 2018, respectively.

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

Mortgage servicing fees, a component of other income, net, were $0.8 million for each the three months ended June 30, 2019 and 2018 and were $1.5 million for each the six months ended June 30, 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
June 30, 2019	$	19,418	$	(11,315	)	$	—	$	8,103
December 31, 2018	18,556		(10,494		)	—		8,062

Changes related to MSRs were as follows:



	Three months ended June 30						Six months ended June 30
(in thousands)	2019			2018			2019			2018
Mortgage servicing rights
Beginning balance	$	7,897		$	8,541		$	8,062		$	8,639
Amount capitalized	632			392			862			727
Amortization	(426		)	(424		)	(821		)	(857		)
Other-than-temporary impairment	—			—			—			—
Carrying amount before valuation allowance	8,103			8,509			8,103			8,509
Valuation allowance for mortgage servicing rights
Beginning balance	—			—			—			—
Provision (recovery)	—			—			—			—
Other-than-temporary impairment	—			—			—			—
Ending balance	—			—			—			—
Net carrying value of mortgage servicing rights	$	8,103		$	8,509		$	8,103		$	8,509

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)	June 30, 2019			December 31, 2018
Unpaid principal balance	$	1,200,017		$	1,188,514
Weighted average note rate	4.01		%	3.98		%
Weighted average discount rate	9.3		%	10.0		%
Weighted average prepayment speed	10.3		%	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)	June 30, 2019			December 31, 2018
Prepayment rate:
25 basis points adverse rate change	$	(843	)	$	(250	)
50 basis points adverse rate change	(1,786		)	(566		)
Discount rate:
25 basis points adverse rate change	(108		)	(139		)
50 basis points adverse rate change	(215		)	(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 June 30, 2019, ASB had no FHLB advances outstanding. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of June 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
June 30, 2019	$	111	$	—	$	111
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
June 30, 2019	$	111	$	128	$	—
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:



	June 30, 2019					December 31, 2018
(in thousands)	Notional amount		Fair value			Notional amount		Fair value
Interest rate lock commitments	$	40,392	$	473		$	10,180	$	91
Forward commitments	41,640		(115		)	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	June 30, 2019				December 31, 2018
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	473	$	—	$	91	$	—
Forward commitments	10		125		—		43
	$	483	$	125	$	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 June 30					Six months ended June 30
(in thousands)		2019		2018			2019			2018
Interest rate lock commitments	Mortgage banking income	$	11	$	(7	)	$	382		$	117
Forward commitments	Mortgage banking income	46		(2		)	(72		)	(38		)
		$	57	$	(9	)	$	310		$	79

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $22.3 million and $18.1 million at June 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 June 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.