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Bank segment
 9 Months Ended
Sep. 30, 2020
Bank Subsidiary [Abstract]  
Bank segment Bank segment
Selected financial information
American Savings Bank, F.S.B.
Statements of Income and Comprehensive Income Data
 Three months ended September 30Nine months ended September 30
(in thousands)2020201920202019
Interest and dividend income    
Interest and fees on loans$52,419 $59,260 $161,505 $175,740 
Interest and dividends on investment securities7,221 7,599 22,939 25,762 
Total interest and dividend income59,640 66,859 184,444 201,502 
Interest expense    
Interest on deposit liabilities2,287 4,384 8,945 12,923 
Interest on other borrowings61 422 449 1,361 
Total interest expense2,348 4,806 9,394 14,284 
Net interest income57,292 62,053 175,050 187,218 
Provision for credit losses13,970 3,315 39,504 17,873 
Net interest income after provision for credit losses43,322 58,738 135,546 169,345 
Noninterest income    
Fees from other financial services4,233 5,085 11,906 14,445 
Fee income on deposit liabilities3,832 5,320 11,842 15,402 
Fee income on other financial products1,524 1,706 4,608 5,129 
Bank-owned life insurance1,965 1,660 4,432 6,309 
Mortgage banking income7,681 1,490 15,933 3,080 
Gain on sale of investment securities, net— 653 9,275 653 
Other income, net(231)428 (69)1,420 
Total noninterest income19,004 16,342 57,927 46,438 
Noninterest expense    
Compensation and employee benefits26,431 25,364 77,287 76,626 
Occupancy5,693 5,694 16,402 15,843 
Data processing3,366 3,763 11,052 11,353 
Services2,624 2,829 7,907 7,861 
Equipment2,001 2,163 6,630 6,416 
Office supplies, printing and postage1,187 1,297 3,577 4,320 
Marketing727 1,142 1,908 3,455 
FDIC insurance714 (5)1,567 1,249 
Other expense1
4,556 3,676 15,813 12,049 
Total noninterest expense47,299 45,923 142,143 139,172 
Income before income taxes15,027 29,157 51,330 76,611 
Income taxes2,877 6,269 9,405 15,868 
Net income12,150 22,888 41,925 60,743 
Other comprehensive income, net of taxes1,393 3,809 20,960 24,336 
Comprehensive income$13,543 $26,697 $62,885 $85,079 

1 The three and nine-month periods ended September 30, 2020 include approximately $0.7 million and $4.5 million, respectively, of certain direct and incremental COVID-19 related costs. For the nine months ended September 30, 2020, these costs, which have been recorded in Other expense, include $2.4 million of compensation expense and $1.7 million of enhanced cleaning and sanitation costs.
Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:
 Three months ended September 30,Nine months ended September 30
(in thousands)2020201920202019
Interest and dividend income$59,640 $66,859 $184,444 $201,502 
Noninterest income19,004 16,342 57,927 46,438 
Less: Gain on sale of investment securities, net— (653)(9,275)(653)
*Revenues-Bank78,644 82,548 233,096 247,287 
Total interest expense2,348 4,806 9,394 14,284 
Provision for credit losses13,970 3,315 39,504 17,873 
Noninterest expense47,299 45,923 142,143 139,172 
Less: Retirement defined benefits gain (expense)—other than service costs(473)196 (1,341)276 
*Expenses-Bank63,144 54,240 189,700 171,605 
*Operating income-Bank15,500 28,308 43,396 75,682 
Add back: Retirement defined benefits (gain) expense—other than service costs473 (196)1,341 (276)
Add back: Gain on sale of investment securities, net— (653)(9,275)(653)
Income before income taxes$15,027 $29,157 $51,330 $76,611 
American Savings Bank, F.S.B.
Balance Sheets Data
(in thousands)September 30, 2020December 31, 2019
Assets    
Cash and due from banks
 $150,087  $129,770 
Interest-bearing deposits10,918 48,628 
Investment securities
Available-for-sale, at fair value 1,747,658  1,232,826 
Held-to-maturity, at amortized cost (fair value of $138,622 and $143,467, respectively)
133,858 139,451 
Stock in Federal Home Loan Bank, at cost 10,920  8,434 
Loans held for investment 5,480,902  5,121,176 
Allowance for credit losses (91,459) (53,355)
Net loans 5,389,443  5,067,821 
Loans held for sale, at lower of cost or fair value 16,806  12,286 
Other 533,865  511,611 
Goodwill 82,190  82,190 
Total assets $8,075,745  $7,233,017 
Liabilities and shareholder’s equity    
Deposit liabilities—noninterest-bearing $2,424,539  $1,909,682 
Deposit liabilities—interest-bearing 4,613,598  4,362,220 
Other borrowings 151,875  115,110 
Other 165,300  146,954 
Total liabilities 7,355,312  6,533,966 
Commitments and contingencies  
Common stock 1  1 
Additional paid-in capital351,322 349,453 
Retained earnings 356,812  358,259 
Accumulated other comprehensive income (loss), net of taxes    
Net unrealized gains on securities$22,248  $2,481  
Retirement benefit plans(9,950)12,298 (11,143)(8,662)
Total shareholder’s equity 720,433  699,051 
Total liabilities and shareholder’s equity $8,075,745  $7,233,017 
Other assets    
Bank-owned life insurance $161,206  $157,465 
Premises and equipment, net 206,190  204,449 
Accrued interest receivable 24,770  19,365 
Mortgage-servicing rights 9,553  9,101 
Low-income housing investments71,467 66,302 
Real estate acquired in settlement of loans, net 42  — 
Other 60,637  54,929 
  $533,865  $511,611 
Other liabilities    
Accrued expenses $52,170  $45,822 
Federal and state income taxes payable 9,750  14,996 
Cashier’s checks 28,638  23,647 
Advance payments by borrowers 5,413  10,486 
Other 69,329  52,003 
  $165,300  $146,954 
    
Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.
Other borrowings consisted of securities sold under agreements to repurchase, federal funds purchased and advances from the Federal Home Loan Bank (FHLB) of $95.9 million, nil and $56.0 million, respectively, as of September 30, 2020 and $115.0 million, nil and nil, respectively, as of December 31, 2019.
Investment securities.  The major components of investment securities were as follows:
 Amortized costGross unrealized gainsGross unrealized lossesEstimated fair
value		Gross unrealized losses
 Less than 12 months12 months or longer
(dollars in thousands)Number of issuesFair 
value		AmountNumber of issuesFair 
value		Amount
September 30, 2020        
Available-for-sale
U.S. Treasury and federal agency obligations$61,359 $2,229 $— $63,588 — $— $— — $— $— 
Mortgage-backed securities*1,598,949 27,580 (981)1,625,548 17 304,930 (981)— — — 
Corporate bonds29,772 1,565 — 31,337 — — — — — — 
Mortgage revenue bonds27,185 — — 27,185 — — — — 
 $1,717,265 $31,374 $(981)$1,747,658 17 $304,930 $(981)— $— $— 
Held-to-maturity
Mortgage-backed securities*$133,858 $4,878 $(114)$138,622 2 $28,486 $(114)— $— $— 
 $133,858 $4,878 $(114)$138,622 2 $28,486 $(114)— $— $— 
December 31, 2019
Available-for-sale
U.S. Treasury and federal agency obligations$117,255 $652 $(120)$117,787 2 $4,110 $(11)3 $27,637 $(109)
Mortgage-backed securities*1,024,892 6,000 (4,507)1,026,385 19 152,071 (819)75 318,020 (3,688)
Corporate bonds58,694 1,363 — 60,057 — — — — — — 
Mortgage revenue bonds28,597 — — 28,597 — — — — — — 
 $1,229,438 $8,015 $(4,627)$1,232,826 21 $156,181 $(830)78 $345,657 $(3,797)
Held-to-maturity
Mortgage-backed securities* $139,451 $4,087 $(71)$143,467 1 $12,986 $(71)— $— $— 
 $139,451 $4,087 $(71)$143,467 1 $12,986 $(71)— $— $— 
* Issued or guaranteed by U.S. Government agencies or sponsored agencies
ASB does not believe that the investment securities that were in an unrealized loss position at September 30, 2020, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at September 30, 2020.
U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.
The contractual maturities of investment securities were as follows:
September 30, 2020Amortized costFair value
(in thousands)  
Available-for-sale
Due in one year or less$16,952 $17,193 
Due after one year through five years41,941 43,735 
Due after five years through ten years32,238 33,997 
Due after ten years27,185 27,185 
 118,316 122,110 
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies1,598,949 1,625,548 
Total available-for-sale securities$1,717,265 $1,747,658 
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies$133,858 $138,622 
Total held-to-maturity securities$133,858 $138,622 
Proceeds from the sale of available-for-sale securities, which also included the sale of ASB’s entire Visa Class B restricted stock holdings in the second quarter of 2020, were nil and $169.2 million for the three and nine month period ended September 30, 2020, respectively, and $19.8 million for each of the three and nine month periods ended September 30, 2019. Gross realized gains were nil and $9.3 million for the three and nine months ended September 30, 2020, respectively, and $0.7 million for each of the three and nine months ended September 30, 2019. Gross realized losses were nil for the three and nine months ended September 30, 2020 and 2019. Tax expense on realized gains were nil and $2.5 million for the three and nine months ended September 30, 2020, respectively and $0.2 million for each of the three and nine months ended September 30, 2019.
Loans. The components of loans were summarized as follows:
September 30, 2020December 31, 2019
(in thousands)  
Real estate:  
Residential 1-4 family$2,195,093 $2,178,135 
Commercial real estate900,912 824,830 
Home equity line of credit1,028,011 1,092,125 
Residential land14,310 14,704 
Commercial construction112,930 70,605 
Residential construction10,281 11,670 
Total real estate4,261,537 4,192,069 
Commercial1,042,435 670,674 
Consumer190,138 257,921 
Total loans5,494,110 5,120,664 
          Deferred fees and discounts(13,208)512 
          Allowance for credit losses(91,459)(53,355)
Total loans, net$5,389,443 $5,067,821 
ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.
Allowance for credit losses.  The allowance for credit losses by portfolio segment were as follows:
(in thousands)Residential
1-4 family		Commercial real
estate		Home
equity line of credit		Residential landCommercial constructionResidential constructionCommercial loansConsumer loansTotal
Three months ended September 30, 2020        
Allowance for credit losses:         
Beginning balance$3,911 $21,100 $6,214 $356 $4,757 $14 $13,868 $31,087 $81,307 
Charge-offs— — — — — — (1,727)(3,881)(5,608)
Recoveries12 — 50 12 — — 211 1,005 1,290 
Provision(286)11,049 (390)178 1,282 (3)5,840 (3,200)14,470 
Ending balance$3,637 $32,149 $5,874 $546 $6,039 $11 $18,192 $25,011 $91,459 
Three months ended September 30, 2019        
Allowance for credit 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)
Recoveries27 — 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 
Nine months ended September 30, 2020        
Allowance for credit losses:         
Beginning balance, prior to adoption of ASU No. 2016-13$2,380 $15,053 $6,922 $449 $2,097 $3 $10,245 $16,206 $53,355 
Impact of adopting ASU No. 2016-13
2,150 208 (541)(64)289 14 922 16,463 19,441 
Charge-offs(7)— — (351)— — (2,795)(16,466)(19,619)
Recoveries67 — 56 26 — — 503 2,426 3,078 
Provision(953)16,888 (563)486 3,653 (6)9,317 6,382 35,204 
Ending balance$3,637 $32,149 $5,874 $546 $6,039 $11 $18,192 $25,011 $91,459 
Nine months ended September 30, 2019        
Allowance for credit 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)
Recoveries644 — 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 
December 31, 2019
Ending balance: individually evaluated for impairment$898 $2 $322 $— $— $— $1,015 $454 $2,691 
Ending balance: collectively evaluated for impairment$1,482 $15,051 $6,600 $449 $2,097 $3 $9,230 $15,752 $50,664 
Financing Receivables:         
Ending balance$2,178,135 $824,830 $1,092,125 $14,704 $70,605 $11,670 $670,674 $257,921 $5,120,664 
Ending balance: individually evaluated for impairment$15,600 $1,048 $12,073 $3,091 $— $— $8,418 $507 $40,737 
Ending balance: collectively evaluated for impairment$2,162,535 $823,782 $1,080,052 $11,613 $70,605 $11,670 $662,256 $257,414 $5,079,927 
Allowance for loan commitments.  The allowance for loan commitments by portfolio segment were as follows:
(in thousands)Home equity
 line of credit		Commercial constructionCommercial loansTotal
Three months ended September 30, 2020
Allowance for loan commitments:
Beginning balance$300 $7,500 $300 $8,100 
Provision— (800)300 (500)
Ending balance$300 $6,700 $600 $7,600 
Nine months ended September 30, 2020
Allowance for loan commitments:
Beginning balance, prior to adoption of ASU No. 2016-13$392 $931 $418 $1,741 
Impact of adopting ASU No. 2016-13
(92)1,745 (94)1,559 
Provision— 4,024 276 4,300 
Ending balance$300 $6,700 $600 $7,600 
Credit quality.  ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.
Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications:  Pass, Special Mention, Substandard, Doubtful and Loss. The AQR is a function of the probability of default model rating, the loss given default and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.
The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows:
Term Loans by Origination YearRevolving Loans
(in thousands)20202019201820172016PriorRevolvingConverted to term loansTotal
September 30, 2020
Residential 1-4 family
Current$425,930 $242,811 $138,155 $233,944 $201,532 $947,343 $— $— $2,189,715 
30-59 days past due— — — — — 2,461 — — 2,461 
60-89 days past due— — — — — 1,028 — — 1,028 
Greater than 89 days past due— — — 353 — 1,536 — — 1,889 
425,930 242,811 138,155 234,297 201,532 952,368 — — 2,195,093 
Home equity line of credit
Current— — — — — — 991,199 33,800 1,024,999 
30-59 days past due— — — — — — 419 349 768 
60-89 days past due— — — — — — 158 — 158 
Greater than 89 days past due— — — — — — 1,287 799 2,086 
— — — — — — 993,063 34,948 1,028,011 
Residential land
Current4,606 4,433 1,598 1,600 22 1,751 — — 14,010 
30-59 days past due— — — — — 300 — — 300 
60-89 days past due— — — — — — — — — 
Greater than 89 days past due— — — — — — — — — 
4,606 4,433 1,598 1,600 22 2,051 — — 14,310 
Residential construction
Current4,368 4,897 386 630 — — — — 10,281 
30-59 days past due— — — — — — — — — 
60-89 days past due— — — — — — — — — 
Greater than 89 days past due— — — — — — — — — 
4,368 4,897 386 630 — — — — 10,281 
Consumer
Current25,661 77,454 45,485 10,916 764 423 19,906 3,221 183,830 
30-59 days past due387 981 723 239 13 — 467 131 2,941 
60-89 days past due95 717 674 152 5 — 70 87 1,800 
Greater than 89 days past due32 507 411 156 18 — 359 84 1,567 
26,175 79,659 47,293 11,463 800 423 20,802 3,523 190,138 
Commercial real estate
Pass161,130 73,086 63,082 28,685 55,742 154,297 11,000 — 547,022 
Special Mention9,634 38,908 65,840 33,921 68,502 65,431 — — 282,236 
Substandard— 3,165 4,193 1,896 4,461 57,939 — — 71,654 
Doubtful— — — — — — — — — 
170,764 115,159 133,115 64,502 128,705 277,667 11,000 — 900,912 
Commercial construction
Pass11,122 21,322 30,655 — 5,999 — 24,200 — 93,298 
Special Mention1,632 — — 18,000 — — — — 19,632 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
12,754 21,322 30,655 18,000 5,999 — 24,200 — 112,930 
Commercial
Pass454,219 131,481 91,147 30,680 13,067 37,580 76,449 13,397 848,020 
Special Mention36,029 23,458 3,681 7,176 30,864 15,105 32,494 11,221 160,028 
Substandard132 9,420 371 4,402 8,547 3,742 6,943 830 34,387 
Doubtful— — — — — — — — — 
490,380 164,359 95,199 42,258 52,478 56,427 115,886 25,448 1,042,435 
Total loans$1,134,977 $632,640 $446,401 $372,750 $389,536 $1,288,936 $1,164,951 $63,919 $5,494,110 
Revolving loans converted to term loans during the nine months ended September 30, 2020 in the commercial, home equity line of credit and consumer portfolios was $13.8 million, $10.0 million, and $2.0 million, respectively.
The credit risk profile based on payment activity for loans was as follows:
(in thousands)30-59
days
past due		60-89
days
past due		 90 days or more past dueTotal
past due		CurrentTotal
financing
receivables		Amortized cost>
90 days and
accruing
September 30, 2020       
Real estate:       
Residential 1-4 family$2,461 $1,028 $1,889 $5,378 $2,189,715 $2,195,093 $— 
Commercial real estate— — — — 900,912 900,912 — 
Home equity line of credit768 158 2,086 3,012 1,024,999 1,028,011 — 
Residential land300 — — 300 14,010 14,310 — 
Commercial construction— — — — 112,930 112,930 — 
Residential construction— — — — 10,281 10,281 — 
Commercial1,702 326 105 2,133 1,040,302 1,042,435 — 
Consumer2,941 1,800 1,567 6,308 183,830 190,138 — 
Total loans$8,172 $3,312 $5,647 $17,131 $5,476,979 $5,494,110 $— 
December 31, 2019       
Real estate:       
Residential 1-4 family$2,588 $290 $1,808 $4,686 $2,173,449 $2,178,135 $— 
Commercial real estate— — — — 824,830 824,830 — 
Home equity line of credit813 — 2,117 2,930 1,089,195 1,092,125 — 
Residential land— — 25 25 14,679 14,704 — 
Commercial construction— — — — 70,605 70,605 — 
Residential construction— — — — 11,670 11,670 — 
Commercial1,077 311 172 1,560 669,114 670,674 — 
Consumer4,386 3,257 2,907 10,550 247,371 257,921 — 
Total loans$8,864 $3,858 $7,029 $19,751 $5,100,913 $5,120,664 $— 
The credit risk profile based on nonaccrual loans were as follows:
(in thousands)September 30, 2020December 31, 2019
With a Related ACLWithout a Related ACLTotalTotal
Real estate:
Residential 1-4 family$8,271 $1,919 $10,190 $11,395 
Commercial real estate15,965 — 15,965 195 
Home equity line of credit6,246 1,555 7,801 6,638 
Residential land410 — 410 448 
Commercial construction— — — — 
Residential construction— — — — 
Commercial 758 2,552 3,310 5,947 
Consumer 4,304 — 4,304 5,113 
  Total nonaccrual loans$35,954 $6,026 $41,980 $29,736 


The credit risk profile based on loans whose terms have been modified and accruing interest were as follows:
(in thousands)September 30, 2020December 31, 2019
Real estate:
Residential 1-4 family$8,224 $9,869 
Commercial real estate997 853 
Home equity line of credit8,809 10,376 
Residential land1,891 2,644 
Commercial construction— — 
Residential construction— — 
Commercial2,531 2,614 
Consumer54 57 
Total troubled debt restructured loans accruing interest$22,506 $26,413 

ASB did not recognize interest on nonaccrual loans for the three and nine months ended September 30, 2020.
Troubled debt restructurings.  A loan modification is deemed to be a TDR when the borrower is determined to be experiencing financial difficulties and ASB grants a concession it would not otherwise consider.
The allowance for credit losses on TDR loans that do not share risk characteristics are individually evaluated based on the present value of expected future cash flows discounted at the loan’s effective original contractual rate or based on the fair value of collateral less cost to sell. The financial impact of the estimated loss is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for credit losses.
Loan modifications that occurred during the first nine months of 2020 and 2019 were as follows:
Loans modified as a TDRThree months ended September 30, 2020Nine months ended September 30, 2020
(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 $146 $7 
Commercial real estate— — — 2 16,149 4,019 
Home equity line of credit— — — 2 22 1 
Residential land— — — 2 228 15 
Commercial construction— — — — — — 
Residential construction— — — — — — 
Commercial2 52 45 5 207 180 
Consumer — — — — — — 
 2 $52 $45 12 $16,752 $4,222 
Three months ended September 30, 2019Nine 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 family1 $324 $— 10 $1,563 $165 
Commercial real estate— — — — — — 
Home equity line of credit— — — 3 429 85 
Residential land1 350 — 3 1,169 — 
Commercial construction— — — — — — 
Residential construction— — — — — — 
Commercial3 275 58 6 1,761 218 
Consumer — — — — — — 
 5 $949 $58 22 $4,922 $468 

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 2020 and 2019.
If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at September 30, 2020 and December 31, 2019.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes.
In response to the COVID-19 pandemic, the Board of Governors of the FRB, the FDIC, the National Credit Union Administration, the OCC, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to accounting for loan modifications, past due reporting and nonaccrual status and charge-offs.
Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with the FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. Financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral. Lastly, during short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.
Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Loans considered collateral-dependent were as follows:
September 30, 2020Amortized costCollateral type
(in thousands)
Real estate:
   Residential 1-4 family$2,057  Residential real estate property
   Home equity line of credit1,555  Residential real estate property
Commercial construction— 
     Total real estate3,612 
Commercial— 
     Total $3,612 
ASB had $3.0 million and $3.5 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2020 and December 31, 2019, respectively.
The credit risk profile by internally assigned grade for loans was as follows:
 December 31, 2019
(in thousands)Commercial
real estate		Commercial
construction		CommercialTotal
Grade:   
Pass$756,747 $68,316 $621,657 $1,446,720 
Special mention4,451 — 29,921 34,372 
Substandard63,632 2,289 19,096 85,017 
Doubtful— — — — 
Loss— — — — 
Total$824,830 $70,605 $670,674 $1,566,109 
The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
 December 31, 2019Three months ended September 30, 2019Nine 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$6,817 $7,207 $— $8,562 $175 $8,515 $422 
Commercial real estate195 200 — — — — — 
Home equity line of credit1,984 2,135 — 1,797 12 2,091 78 
Residential land3,091 3,294 — 3,205 40 2,507 90 
Commercial construction— — — — — — — 
Residential construction— — — — — — — 
Commercial1,948 2,285 — 4,812 239 4,470 239 
Consumer2 2 — 21 4 27 4 
 $14,037 $15,123 $— $18,397 $470 $17,610 $833 
With an allowance recorded       
Real estate:       
Residential 1-4 family$8,783 $8,835 $898 $8,296 $86 $8,377 $265 
Commercial real estate853 853 2 881 9 894 28 
Home equity line of credit10,089 10,099 322 11,332 143 11,606 425 
Residential land— — — — — 36 — 
Commercial construction— — — — — — — 
Residential construction— — — — — — — 
Commercial6,470 6,470 1,015 8,330 38 8,026 94 
Consumer505 505 454 556 12 301 14 
 $26,700 $26,762 $2,691 $29,395 $288 $29,240 $826 
Total       
Real estate:       
Residential 1-4 family$15,600 $16,042 $898 $16,858 $261 $16,892 $687 
Commercial real estate1,048 1,053 2 881 9 894 28 
Home equity line of credit12,073 12,234 322 13,129 155 13,697 503 
Residential land3,091 3,294 — 3,205 40 2,543 90 
Commercial construction— — — — — — — 
Residential construction— — — — — — — 
Commercial8,418 8,755 1,015 13,142 277 12,496 333 
Consumer507 507 454 577 16 328 18 
 $40,737 $41,885 $2,691 $47,792 $758 $46,850 $1,659 
*     Since loan was classified as impaired.
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 $128.0 million and $87.8 million for the three months ended September 30, 2020 and 2019, respectively, and $387.2 million and $177.3 million for the nine months ended September 30, 2020 and 2019, respectively, and recognized gains on such sales of $7.7 million and $1.5 million for the three months ended September 30, 2020 and 2019, respectively, and $15.9 million and $3.1 million for the nine months ended September 30, 2020 and 2019, respectively.
There were no repurchased mortgage loans for the three and nine months ended September 30, 2020 and 2019. The repurchase reserve was $0.1 million as of September 30, 2020 and 2019.
Mortgage servicing fees, a component of other income, net, were $0.9 million and $0.8 million for the three months ended September 30, 2020 and 2019, respectively, and $2.5 million and $2.2 million for the nine months ended September 30, 2020 and 2019, respectively.
Changes in the carrying value of MSRs were as follows:
(in thousands)
Gross
carrying amount1
Accumulated amortizationValuation allowanceNet
carrying amount
September 30, 2020$25,024 $(15,089)$(382)$9,553 
December 31, 201921,543 (12,442)— 9,101 
1     Reflects impact of loans paid in full
Changes related to MSRs were as follows:
Three months ended September 30,Nine months ended September 30
(in thousands)2020201920202019
Mortgage servicing rights
Beginning balance$9,911 $8,103 $9,101 $8,062 
Amount capitalized1,119 995 3,481 1,857 
Amortization(1,095)(531)(2,647)(1,352)
Other-than-temporary impairment— — — — 
Carrying amount before valuation allowance9,935 8,567 9,935 8,567 
Valuation allowance for mortgage servicing rights
Beginning balance264 — — — 
Provision118 — 382 — 
Other-than-temporary impairment— — — — 
Ending balance382 — 382 — 
Net carrying value of mortgage servicing rights$9,553 $8,567 $9,553 $8,567 
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, 2020December 31, 2019
Unpaid principal balance$1,456,434 $1,276,437 
Weighted average note rate3.77 %3.96 %
Weighted average discount rate9.3 %9.3 %
Weighted average prepayment speed17.8 %11.4 %
The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:
(dollars in thousands)September 30, 2020December 31, 2019
Prepayment rate:
  25 basis points adverse rate change$(826)$(950)
  50 basis points adverse rate change(1,524)(1,947)
Discount rate:
  25 basis points adverse rate change(65)(102)
  50 basis points adverse rate change(129)(202)
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, 2020, ASB had $56.0 million of FHLB advances outstanding. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of September 30, 2020. ASB also had no federal funds purchased with the Federal Reserve Bank as of September 30, 2020. There were no FHLB advances or federal funds purchased with the Federal Reserve Bank as of December 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   
September 30, 2020$96 $— $96 
December 31, 2019115 — 115 

 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, 2020$96 $116 $— 
December 31, 2019115 130 — 
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. 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, 2020December 31, 2019
(in thousands)Notional amountFair valueNotional amountFair value
Interest rate lock commitments$129,806 $5,271 $23,171 $297 
Forward commitments104,500 (243)29,383 (42)
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, 2020December 31, 2019
(in thousands) Asset derivatives Liability
derivatives 		 Asset derivatives Liability
derivatives
Interest rate lock commitments$5,271 $— $297 $— 
Forward commitments— 243 3 45 
 $5,271 $243 $300 $45 
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 IncomeThree months ended September 30,Nine months ended September 30
(in thousands)2020201920202019
Interest rate lock commitmentsMortgage banking income$2,930 $(3)$4,974 $379 
Forward commitmentsMortgage banking income44 39 (201)(33)
 $2,974 $36 $4,773 $346 
Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $31.3 million and $23.4 million at September 30, 2020 and December 31, 2019, 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, 2020, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.