Bank segment

3 Months Ended

Mar. 31, 2022

Bank Subsidiary [Abstract]

Bank segment

Bank segment

Selected financial information

American Savings Bank, F.S.B.

Statements of Income and Comprehensive Income Data

	Three months ended March 31
(in thousands)	2022		2021
Interest and dividend income
Interest and fees on loans	$	46,005	$	49,947
Interest and dividends on investment securities	13,984		8,673
Total interest and dividend income	59,989		58,620
Interest expense
Interest on deposit liabilities	947		1,462
Interest on other borrowings	5		27
Total interest expense	952		1,489
Net interest income	59,037		57,131
Provision for credit losses	(3,263)		(8,435)
Net interest income after provision for credit losses	62,300		65,566
Noninterest income
Fees from other financial services	5,587		5,073
Fee income on deposit liabilities	4,691		3,863
Fee income on other financial products	2,718		2,442
Bank-owned life insurance	681		2,561
Mortgage banking income	1,077		4,300
Gain on sale of real estate	1,002		—
Gain on sale of investment securities, net	—		528
Other income, net	372		272
Total noninterest income	16,128		19,039
Noninterest expense
Compensation and employee benefits	27,215		28,037
Occupancy	5,952		4,969
Data processing	4,151		4,351
Services	2,439		2,862
Equipment	2,329		2,222
Office supplies, printing and postage	1,060		1,044
Marketing	1,018		648
FDIC insurance	808		816
Other expense	3,241		2,554
Total noninterest expense	48,213		47,503
Income before income taxes	30,215		37,102
Income taxes	6,345		7,546
Net income	23,870		29,556
Other comprehensive loss, net of tax benefits	(122,441)		(45,754)
Comprehensive income (loss)	$	(98,571)	$	(16,198)

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

	Three months ended March 31
(in thousands)	2022		2021
Interest and dividend income	$	59,989	$	58,620
Noninterest income	16,128		19,039
Less: Gain on sale of real estate	1,002		—
Less: Gain on sale of investment securities, net	—		528
*Revenues-Bank	75,115		77,131
Total interest expense	952		1,489
Provision for credit losses	(3,263)		(8,435)
Noninterest expense	48,213		47,503
Less: Gain on sale of real estate	1,002		—
Less: Retirement defined benefits credit—other than service costs	(185)		(1,278)
*Expenses-Bank	45,085		41,835
*Operating income-Bank	30,030		35,296
Add back: Retirement defined benefits credit—other than service costs	(185)		(1,278)
Add back: Gain on sale of investment securities, net	—		528
Income before income taxes	$	30,215	$	37,102

American Savings Bank, F.S.B.

Balance Sheets Data

(in thousands)	March 31, 2022				December 31, 2021
Assets
Cash and due from banks			$	114,249			$	100,051
Interest-bearing deposits			155,279				151,189
Cash and cash equivalents			269,528				251,240
Investment securities
Available-for-sale, at fair value			2,621,375				2,574,618
Held-to-maturity, at amortized cost (fair value of $466,236 and $510,474, respectively)			517,150				522,270
Stock in Federal Home Loan Bank, at cost			10,000				10,000
Loans held for investment			5,184,733				5,211,114
Allowance for credit losses			(67,211)				(71,130)
Net loans			5,117,522				5,139,984
Loans held for sale, at lower of cost or fair value			7,961				10,404
Other			626,599				590,897
Goodwill			82,190				82,190
Total assets			$	9,252,325			$	9,181,603
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing			$	3,016,520			$	2,976,632
Deposit liabilities—interest-bearing			5,272,752				5,195,580
Other borrowings			137,385				88,305
Other			210,681				193,268
Total liabilities			8,637,338				8,453,785
Common stock			1				1
Additional paid-in capital			354,635				353,895
Retained earnings			420,574				411,704
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities	$	(152,444)			$	(32,037)
Retirement benefit plans	(7,779)		(160,223)		(5,745)		(37,782)
Total shareholder’s equity			614,987				727,818
Total liabilities and shareholder’s equity			$	9,252,325			$	9,181,603
Other assets
Bank-owned life insurance			$	176,301			$	177,566
Premises and equipment, net			199,949				202,299
Accrued interest receivable			21,133				20,854
Mortgage-servicing rights			10,024				9,950
Low-income housing investments			107,791				110,989
Deferred tax asset			51,720				7,699
Other			59,681				61,540
			$	626,599			$	590,897
Other liabilities
Accrued expenses			$	104,958			$	87,905
Federal and state income taxes payable			2,174				—
Cashier’s checks			36,586				33,675
Advance payments by borrowers			5,664				9,994
Other			61,299				61,694
			$	210,681			$	193,268

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 of $137.4 million and $88.3 million at March 31, 2022 and December 31, 2021, respectively.

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, 2022
Available-for-sale
U.S. Treasury and federal agency obligations	$	109,343	$	75	$	(3,216)	$	106,202	16	$	91,087	$	(3,216)	—	$	—	$	—
Mortgage-backed securities*	2,660,506		277		(204,029)		2,456,754		165	1,484,883		(97,460)		64	904,628		(106,569)
Corporate bonds	44,481		101		(1,459)		43,123		3	34,014		(1,459)		—	—		—
Mortgage revenue bonds	15,296		—		—		15,296		—	—		—		—	—		—
	$	2,829,626	$	453	$	(208,704)	$	2,621,375	184	$	1,609,984	$	(102,135)	64	$	904,628	$	(106,569)
Held-to-maturity
U.S. Treasury and Federal agency obligations	$	59,877	$	—	$	(3,831)	$	56,046	3	$	56,046	$	(3,831)	—	$	—	$	—
Mortgage-backed securities*	457,273		76		(47,159)		410,190		23	246,986		(23,964)		13	158,370		(23,195)
	$	517,150	$	76	$	(50,990)	$	466,236	26	$	303,032	$	(27,795)	13	$	158,370	$	(23,195)
December 31, 2021
Available-for-sale
U.S. Treasury and federal agency obligations	$	89,714	$	803	$	(427)	$	90,090	4	$	44,827	$	(427)	—	$	—	$	—
Mortgage-backed securities*	2,482,618		6,511		(51,206)		2,437,923		120	1,845,243		(38,321)		18	271,012		(12,885)
Corporate bonds	30,625		655		(102)		31,178		1	12,780		(102)		—	—		—
Mortgage revenue bonds	15,427		—		—		15,427		—	—		—		—	—		—
	$	2,618,384	$	7,969	$	(51,735)	$	2,574,618	125	$	1,902,850	$	(38,850)	18	$	271,012	$	(12,885)
Held-to-maturity
U.S. Treasury and Federal agency obligations	$	59,871	$	168	$	(170)	$	59,869	2	$	39,594	$	(170)	—	$	—	$	—
Mortgage-backed securities*	462,399		1,480		(13,274)		450,605		22	290,883		(7,665)		7	106,483		(5,609)
	$	522,270	$	1,648	$	(13,444)	$	510,474	24	$	330,477	$	(7,835)	7	$	106,483	$	(5,609)

* Issued or guaranteed by U.S. Government agencies or sponsored agencies

ASB does not believe that the investment securities that were in an unrealized loss position at March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021.

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, 2022	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	15,821	$	15,890
Due after one year through five years	81,524		79,931
Due after five years through ten years	71,775		68,800
Due after ten years	—		—
	169,120		164,621
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	2,660,506		2,456,754
Total available-for-sale securities	$	2,829,626	$	2,621,375
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	59,877		56,046
Due after ten years	—		—
	59,877		56,046
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	457,273		410,190
Total held-to-maturity securities	$	517,150	$	466,236

The proceeds, gross gains and losses from sales of available-for-sale securities were as follows:

	Three months ended March 31
	2022		2021
(in thousands)
Proceeds	$	—	$	197,354
Gross gains	—		974
Gross losses	—		446
Tax expense on realized gains	—		142

The components of loans were summarized as follows:

	March 31, 2022		December 31, 2021
(in thousands)
Real estate:
Residential 1-4 family	$	2,279,671	$	2,299,212
Commercial real estate	1,115,632		1,056,982
Home equity line of credit	845,271		835,663
Residential land	22,309		19,859
Commercial construction	90,332		91,080
Residential construction	15,508		11,138
Total real estate	4,368,723		4,313,934
Commercial	708,447		793,304
Consumer	116,090		113,966
Total loans	5,193,260		5,221,204
Less: Deferred fees and discounts	(8,527)		(10,090)
Allowance for credit losses	(67,211)		(71,130)
Total loans, net	$	5,117,522	$	5,139,984

ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.

Allowance for credit losses.  The allowance for credit losses (balances and changes) by portfolio segment were as follows:

(in thousands)	Residential 1-4 family		Commercial real estate		Home equity line of credit		Residential land		Commercial construction		Residential construction		Commercial loans		Consumer loans		Total
Three months ended March 31, 2022
Allowance for credit losses:
Beginning balance	$	6,545	$	24,696	$	5,657	$	646	$	2,186	$	18	$	15,798	$	15,584	$	71,130
Charge-offs	—		—		—		—		—		—		(76)		(1,482)		(1,558)
Recoveries	8		—		11		5		—		—		353		1,025		1,402
Provision	1,321		(4,520)		(18)		46		154		13		(1,761)		1,002		(3,763)
Ending balance	$	7,874	$	20,176	$	5,650	$	697	$	2,340	$	31	$	14,314	$	16,129	$	67,211
Three months ended March 31, 2021
Allowance for credit losses:
Beginning balance	$	4,600	$	35,607	$	6,813	$	609	$	4,149	$	11	$	25,462	$	23,950	$	101,201
Charge-offs	—		—		(50)		—		—		—		(771)		(2,860)		(3,681)
Recoveries	3		—		15		10		—		—		273		1,007		1,308
Provision	658		(1,262)		(877)		(46)		(2,696)		5		(460)		(2,357)		(7,035)
Ending balance	$	5,261	$	34,345	$	5,901	$	573	$	1,453	$	16	$	24,504	$	19,740	$	91,793

Allowance for loan commitments.  The allowance for loan commitments by portfolio segment were as follows:

(in thousands)	Home equity  line of credit		Commercial construction		Commercial loans		Total
Three months ended March 31, 2022
Allowance for loan commitments:
Beginning balance	$	400	$	3,700	$	800	$	4,900
Provision	—		(100)		600		500
Ending balance	$	400	$	3,600	$	1,400	$	5,400
Three months ended March 31, 2021
Allowance for loan commitments:
Beginning balance	$	300	$	3,000	$	1,000	$	4,300
Provision	100		(1,700)		200		(1,400)
Ending balance	$	400	$	1,300	$	1,200	$	2,900

Credit quality.  ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.

Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications:  Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the probability of default model rating, the loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.

The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows:

	Term Loans by Origination Year												Revolving Loans
(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Converted to term loans		Total
March 31, 2022
Residential 1-4 family
Current	$	77,374	$	779,764	$	448,738	$	125,136	$	58,967	$	781,055	$	—	$	—	$	2,271,034
30-59 days past due	—		—		—		—		—		1,920		—		—		1,920
60-89 days past due	—		—		—		—		—		2,414		—		—		2,414
Greater than 89 days past due	—		—		—		—		809		3,494		—		—		4,303
	77,374		779,764		448,738		125,136		59,776		788,883		—		—		2,279,671
Home equity line of credit
Current	—		—		—		—		—		—		803,515		39,683		843,198
30-59 days past due	—		—		—		—		—		—		457		512		969
60-89 days past due	—		—		—		—		—		—		64		—		64
Greater than 89 days past due	—		—		—		—		—		—		745		295		1,040
	—		—		—		—		—		—		804,781		40,490		845,271
Residential land
Current	2,703		10,550		6,725		958		530		446		—		—		21,912
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		397		—		—		397
	2,703		10,550		6,725		958		530		843		—		—		22,309
Residential construction
Current	2,423		10,493		2,336		—		—		256		—		—		15,508
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	2,423		10,493		2,336		—		—		256		—		—		15,508
Consumer
Current	22,938		32,765		12,643		22,292		6,434		318		11,886		4,163		113,439
30-59 days past due	185		187		126		377		170		2		96		35		1,178
60-89 days past due	—		56		115		278		97		4		23		48		621
Greater than 89 days past due	—		43		55		253		200		9		111		181		852
	23,123		33,051		12,939		23,200		6,901		333		12,116		4,427		116,090
Commercial real estate
Pass	72,390		171,541		292,533		53,006		61,639		296,669		4,235		—		952,013
Special Mention	—		19,600		3,508		41,925		14,250		43,372		—		—		122,655
Substandard	—		—		678		11,238		1,847		27,201		—		—		40,964
Doubtful	—		—		—		—		—		—		—		—		—
	72,390		191,141		296,719		106,169		77,736		367,242		4,235		—		1,115,632
Commercial construction
Pass	119		22,614		32,846		—		11,341		—		23,412		—		90,332
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	119		22,614		32,846		—		11,341		—		23,412		—		90,332
Commercial
Pass	8,521		234,161		83,927		75,241		46,058		89,119		89,919		14,951		641,897
Special Mention	—		31		10,012		9,540		117		7,680		18,364		17		45,761
Substandard	—		423		173		3,110		1,686		6,759		7,326		1,312		20,789
Doubtful	—		—		—		—		—		—		—		—		—
	8,521		234,615		94,112		87,891		47,861		103,558		115,609		16,280		708,447
Total loans	$	186,653	$	1,282,228	$	894,415	$	343,354	$	204,145	$	1,261,115	$	960,153	$	61,197	$	5,193,260

	Term Loans by Origination Year												Revolving Loans
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Converted to term loans		Total
December 31, 2021
Residential 1-4 family
Current	$	791,758	$	461,683	$	133,345	$	64,421	$	124,994	$	712,452	$	—	$	—	$	2,288,653
30-59 days past due	—		—		—		809		—		2,210		—		—		3,019
60-89 days past due	—		—		—		—		—		1,468		—		—		1,468
Greater than 89 days past due	—		—		2,987		—		—		3,085		—		—		6,072
	791,758		461,683		136,332		65,230		124,994		719,215		—		—		2,299,212
Home equity line of credit
Current	—		—		—		—		—		—		794,518		39,116		833,634
30-59 days past due	—		—		—		—		—		—		296		313		609
60-89 days past due	—		—		—		—		—		—		16		70		86
Greater than 89 days past due	—		—		—		—		—		—		838		496		1,334
	—		—		—		—		—		—		795,668		39,995		835,663
Residential land
Current	10,572		6,794		1,116		532		267		181		—		—		19,462
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		397		—		—		397
	10,572		6,794		1,116		532		267		578		—		—		19,859
Residential construction
Current	7,856		3,019		—		—		263		—		—		—		11,138
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	7,856		3,019		—		—		263		—		—		—		11,138
Consumer
Current	37,563		15,488		29,383		10,897		302		238		12,740		4,157		110,768
30-59 days past due	202		181		517		234		15		—		156		70		1,375
60-89 days past due	59		127		392		183		8		—		7		106		882
Greater than 89 days past due	14		93		387		192		27		—		141		87		941
	37,838		15,889		30,679		11,506		352		238		13,044		4,420		113,966
Commercial real estate
Pass	173,794		275,242		49,317		56,490		33,581		259,583		11,602		—		859,609
Special Mention	19,600		3,529		42,935		30,870		20,788		32,824		—		—		150,546
Substandard	—		684		13,936		1,859		1,805		28,543		—		—		46,827
Doubtful	—		—		—		—		—		—		—		—		—
	193,394		279,455		106,188		89,219		56,174		320,950		11,602		—		1,056,982
Commercial construction
Pass	17,140		43,261		—		11,342		—		—		19,337		—		91,080
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	17,140		43,261		—		11,342		—		—		19,337		—		91,080
Commercial
Pass	266,087		96,963		79,329		56,497		31,019		66,570		96,673		15,510		708,648
Special Mention	40		27,336		10,071		202		439		8,966		15,303		18		62,375
Substandard	427		184		3,737		1,777		4,457		2,961		7,083		1,655		22,281
Doubtful	—		—		—		—		—		—		—		—		—
	266,554		124,483		93,137		58,476		35,915		78,497		119,059		17,183		793,304
Total loans	$	1,325,112	$	934,584	$	367,452	$	236,305	$	217,965	$	1,119,478	$	958,710	$	61,598	$	5,221,204

Revolving loans converted to term loans during the three months ended March 31, 2022 in the commercial, home equity line of credit and consumer portfolios were $0.5 million, $4.4 million and $1.0 million, respectively. Revolving loans converted to term loans during the three months ended March 31, 2021 in the commercial, home equity line of credit and consumer portfolios were $0.5 million, $6.2 million and $0.7 million, respectively.

The credit risk profile based on payment activity for loans was as follows:

(in thousands)	30-59 days past due		60-89 days past due		Greater than 90 days		Total past due		Current		Total financing receivables		Amortized cost> 90 days and accruing
March 31, 2022
Real estate:
Residential 1-4 family	$	1,920	$	2,414	$	4,303	$	8,637	$	2,271,034	$	2,279,671	$	—
Commercial real estate	—		—		—		—		1,115,632		1,115,632		—
Home equity line of credit	969		64		1,040		2,073		843,198		845,271		—
Residential land	—		—		397		397		21,912		22,309		—
Commercial construction	—		—		—		—		90,332		90,332		—
Residential construction	—		—		—		—		15,508		15,508		—
Commercial	200		139		40		379		708,068		708,447		—
Consumer	1,178		621		852		2,651		113,439		116,090		—
Total loans	$	4,267	$	3,238	$	6,632	$	14,137	$	5,179,123	$	5,193,260	$	—
December 31, 2021
Real estate:
Residential 1-4 family	$	3,019	$	1,468	$	6,072	$	10,559	$	2,288,653	$	2,299,212	$	—
Commercial real estate	—		—		—		—		1,056,982		1,056,982		—
Home equity line of credit	609		86		1,334		2,029		833,634		835,663		—
Residential land	—		—		397		397		19,462		19,859		—
Commercial construction	—		—		—		—		91,080		91,080		—
Residential construction	—		—		—		—		11,138		11,138		—
Commercial	700		313		48		1,061		792,243		793,304		—
Consumer	1,375		882		941		3,198		110,768		113,966		—
Total loans	$	5,703	$	2,749	$	8,792	$	17,244	$	5,203,960	$	5,221,204	$	—

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

(in thousands)	March 31, 2022						December 31, 2021
	With a Related ACL		Without a Related ACL		Total		With a Related ACL		Without a Related ACL		Total
Real estate:
Residential 1-4 family	$	12,583	$	3,909	$	16,492	$	16,045	$	3,703	$	19,748
Commercial real estate	—		12,530		12,530		14,104		1,221		15,325
Home equity line of credit	3,371		1,054		4,425		4,227		1,294		5,521
Residential land	—		397		397		97		300		397
Commercial construction	—		—		—		—		—		—
Residential construction	—		—		—		—		—		—
Commercial	1,307		562		1,869		1,446		692		2,138
Consumer	1,555		—		1,555		1,845		—		1,845
Total	$	18,816	$	18,452	$	37,268	$	37,764	$	7,210	$	44,974

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

(in thousands)	March 31, 2022		December 31, 2021
Real estate:
Residential 1-4 family	$	7,296	$	6,949
Commercial real estate	2,888		3,055
Home equity line of credit	5,437		6,021
Residential land	976		980
Commercial construction	—		—
Residential construction	—		—
Commercial	7,079		7,860
Consumer	52		52
Total troubled debt restructured loans accruing interest	$	23,728	$	24,917

ASB did not recognize interest on nonaccrual loans for the three months ended March 31, 2022 and 2021.

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.

There were no loan modifications that occurred during the three months ended March 31, 2022. Loan modifications that occurred during the three months ended March 31, 2021 were as follows:

	Three months ended March 31, 2021
(dollars in thousands)	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	12	$	8,283	$	298
Commercial real estate	1	482		—
Home equity line of credit	1	170		21
Residential land	1	271		11
Commercial construction	—	—		—
Residential construction	—	—		—
Commercial	2	59		19
Consumer	—	—		—
	17	$	9,265	$	349

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 first three months of 2022 and 2021.

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 March 31, 2022 and December 31, 2021.

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:

	Amortized cost
(in thousands)	March 31, 2022		December 31, 2021		Collateral type
Real estate:
Residential 1-4 family	$	4,500	$	3,493	Residential real estate property
Commercial real estate	1,200		1,221		Commercial real estate property
Home equity line of credit	1,034		1,294		Residential real estate property
Residential land	397		300		Residential real estate property
Total real estate	7,131		6,308
Commercial	562		692		Business assets
Total	$	7,693	$	7,000

ASB had $4.0 million and $3.4 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2022 and December 31, 2021, 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 $75.6 million and $170.9 million for the three months ended March 31, 2022 and 2021, respectively, and recognized gains on such sales of $1.1 million and $4.3 million for the three months ended March 31, 2022 and 2021, respectively.

There were no repurchased mortgage loans for the three months ended March 31, 2022 and 2021.

Mortgage servicing fees, a component of other income, net, were $0.9 million for both the three months ended March 31, 2022 and 2021.

Changes in the carrying value of MSRs were as follows:

(in thousands)	Gross carrying amount		Accumulated amortization		Valuation allowance		Net carrying amount
March 31, 2022	$	19,137	$	(9,113)	$	—	$	10,024
December 31, 2021	18,674		(8,724)		—		9,950

Changes related to MSRs were as follows:

	Three months ended March 31
(in thousands)	2022		2021
Mortgage servicing rights
Beginning balance	$	9,950	$	10,280
Amount capitalized	719		1,547
Amortization	(645)		(1,138)
Other-than-temporary impairment	—		—
Carrying amount before valuation allowance	10,024		10,689
Valuation allowance for mortgage servicing rights
Beginning balance	—		260
Provision	—		(256)
Other-than-temporary impairment	—		—
Ending balance	—		4
Net carrying value of mortgage servicing rights	$	10,024	$	10,685

ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs.

ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the condensed consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.

Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows:

(dollars in thousands)	March 31, 2022			December 31, 2021
Unpaid principal balance	$	1,488,591		$	1,481,899
Weighted average note rate	3.34		%	3.38		%
Weighted average discount rate	9.25		%	9.25		%
Weighted average prepayment speed	7.06		%	9.77		%

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, 2022		December 31, 2021
Prepayment rate:
25 basis points adverse rate change	$	(360)	$	(714)
50 basis points adverse rate change	(809)		(1,608)
Discount rate:
25 basis points adverse rate change	(160)		(129)
50 basis points adverse rate change	(318)		(256)

The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear.

Other borrowings.  As of March 31, 2022 and December 31, 2021, ASB had no FHLB advances outstanding or federal funds purchased with the Federal Reserve Bank. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of March 31, 2022.

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, 2022	$	137	$	—	$	137
December 31, 2021	88		—		88

	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, 2022	$	137	$	161	$	—
December 31, 2021	88		161		—

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, 2022				December 31, 2021
(in thousands)	Notional amount		Fair value		Notional amount		Fair value
Interest rate lock commitments	$	12,342	$	(18)	$	39,377	$	638
Forward commitments	11,750		168		38,000		(11)

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, 2022				December 31, 2021
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	40	$	58	$	638	$	—
Forward commitments	168		—		—		11
	$	208	$	58	$	638	$	11

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)		2022		2021
Interest rate lock commitments	Mortgage banking income	$	(655)	$	(4,098)
Forward commitments	Mortgage banking income	178		840
		$	(477)	$	(3,258)

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $62.8 million at March 31, 2022 and December 31, 2021. 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, 2022, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.