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Bank subsidiary
 12 Months Ended
Dec. 31, 2011
Bank subsidiary  
Bank subsidiary

4 ·  Bank subsidiary

 

Selected financial information

American Savings Bank, F.S.B. and Subsidiaries

 

Consolidated Statements of Income Data

Years ended December 31

 

201

1

2010

 

2009

 

(in thousands)

 

 

 

 

 

 

 

Interest and dividend income

 

 

 

 

 

 

 

Interest and fees on loans

 

$184,485

 

$195,192

 

$217,838

 

Interest and dividends on investment and mortgage-related securities

 

14,568

 

14,946

 

26,977

 

Total interest and dividend income

 

199,053

 

210,138

 

244,815

 

Interest expense

 

 

 

 

 

 

 

Interest on deposit liabilities

 

8,983

 

14,696

 

34,046

 

Interest on other borrowings

 

5,486

 

5,653

 

9,497

 

Total interest expense

 

14,469

 

20,349

 

43,543

 

Net interest income

 

184,584

 

189,789

 

201,272

 

Provision for loan losses

 

15,009

 

20,894

 

32,000

 

Net interest income after provision for loan losses

 

169,575

 

168,895

 

169,272

 

Noninterest income

 

 

 

 

 

 

 

Fee income on deposit liabilities

 

18,026

 

26,369

 

30,713

 

Fees from other financial services

 

28,881

 

27,280

 

25,267

 

Fee income on other financial products

 

6,704

 

6,487

 

5,833

 

Net gains (losses) on sale of securities

 

371

 

–

 

(32,034

)

Net losses on available-for-sale securities
(includes $32,167 of other-than-temporary impairment losses, net of $16,723 of non-credit losses recognized in other comprehensive income, for 2009)

 

–

 

–

 

(15,444

)

Other income

 

11,372

 

12,419

 

15,569

 

Total noninterest income

 

65,354

 

72,555

 

29,904

 

Noninterest expense

 

 

 

 

 

 

 

Compensation and employee benefits

 

71,137

 

71,476

 

73,990

 

Occupancy

 

17,154

 

16,548

 

22,057

 

Data processing

 

8,155

 

13,213

 

14,382

 

Services

 

7,396

 

6,594

 

11,189

 

Equipment

 

6,903

 

6,620

 

8,849

 

Office supplies, printing and postage

 

3,934

 

3,928

 

3,758

 

Marketing

 

3,001

 

2,418

 

2,134

 

Communication

 

1,764

 

2,221

 

2,446

 

Loss on early extinguishment of debt

 

–

 

–

 

760

 

Other expense

 

23,949

 

25,920

 

27,906

 

Total noninterest expense

 

143,393

 

148,938

 

167,471

 

Income before income taxes

 

91,536

 

92,512

 

31,705

 

Income taxes

 

31,693

 

34,056

 

9,938

 

Net income

 

$  59,843

 

$  58,456

 

$  21,767

 

 

Consolidated Balance Sheet Data

December 31

 

2011

 

2010

 

(in thousands)

 

 

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$   219,678

 

$   204,397

 

Federal funds sold

 

–

 

1,721

 

Available-for-sale investment and mortgage-related securities

 

624,331

 

678,152

 

Investment in stock of Federal Home Loan Bank of Seattle

 

97,764

 

97,764

 

Loans receivable held for investment, net

 

3,642,818

 

3,489,880

 

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

 

9,601

 

7,849

 

Other

 

233,592

 

234,806

 

Goodwill

 

82,190

 

82,190

 

Total assets

 

$4,909,974

 

$4,796,759

 

Liabilities and shareholder’s equity

 

 

 

 

 

Deposit liabilities–noninterest-bearing

 

$   993,828

 

$   865,642

 

Deposit liabilities–interest-bearing

 

3,076,204

 

3,109,730

 

Other borrowings

 

233,229

 

237,319

 

Other

 

118,078

 

90,683

 

Total liabilities

 

4,421,339

 

4,303,374

 

Commitments and contingencies (see below)

 

 

 

 

 

Common stock

 

331,880

 

330,562

 

Retained earnings

 

166,126

 

169,111

 

Accumulated other comprehensive loss, net of tax benefits

 

(9,371

)

(6,288

)

Total shareholder’s equity

 

488,635

 

493,385

 

Total liabilities and shareholder’s equity

 

$4,909,974

 

$4,796,759

 

Other assets

 

 

 

 

 

Bank-owned life insurance

 

$121,470

 

$117,565

 

Premises and equipment, net

 

52,940

 

56,495

 

Prepaid expenses

 

15,297

 

18,608

 

Accrued interest receivable

 

14,190

 

14,887

 

Mortgage-servicing rights

 

8,227

 

6,699

 

Real estate acquired in settlement of loans, net

 

7,260

 

4,292

 

Other

 

14,208

 

16,260

 

 

 

$233,592

 

$234,806

 

Other liabilities

 

 

 

 

 

Accrued expenses

 

$  21,216

 

$16,426

 

Federal and state income taxes payable

 

35,002

 

28,372

 

Cashier’s checks

 

22,802

 

22,396

 

Advance payments by borrowers

 

10,100

 

10,216

 

Other

 

28,958

 

13,273

 

 

 

$118,078

 

$ 90,683

 

 

Investment and mortgage-related securities.  ASB owns investment securities (federal agency obligations) and mortgage-related securities issued by the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and municipal bonds.

In the past, ASB owned private-issue mortgage-related securities (PMRS). To further improve its credit risk profile and reduce the potential volatility of future earnings, and in light of the improvement in the fixed-income securities markets, ASB sold the PMRS held in its investment portfolio in the fourth quarter of 2009.

As of December 31, 2011, ASB’s investment portfolio distribution was 55% mortgage-related securities issued by FNMA, FHLMC or GNMA, 35% federal agency obligations and 10% municipal bonds. These investment and mortgage-related securities are all active and readily priced.

Prices for investments and mortgage-related securities are provided by an independent third party pricing service and are based on observable inputs, including historical trading levels or sector yields, using market-based valuation techniques. The price of these securities is generally based on observable inputs, which includes market liquidity, credit considerations of the underlying collateral, the levels of interest rates, expectations of prepayments and defaults, limited investor base, market sector concerns and overall market psychology. To validate the accuracy and completeness of security pricing, a separate third party pricing service is used on a quarterly basis to compare prices that were received from the initial third party pricing service. If the pricing differential between the two pricing sources exceeds an established threshold, the security price will be re-evaluated by sending a re-pricing request to both independent third party pricing services, to another third party vendor, or to an independent broker to determine the most accurate price based on all observable inputs found in the market place. The third party price selected will be based on the value that best reflects the data and observable characteristics of the security.

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

Gross unrealized losses

 

 

Amortized

 

unrealized

 

unrealized

 

fair

 

Less than 12 months

 

12 months or longer

(dollars in thousands)

 

cost

 

gains

 

losses

 

value

 

Fair value

 

Amount

 

Fair value

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency obligations

 

$218,342

 

$ 2,393

 

$  (8)

 

$220,727

 

$  19,992

 

$  (8)

 

$  –

 

$  –

 

Mortgage-related securities-FNMA, FHLMC and GNMA

 

334,183

 

10,699

 

(17)

 

344,865

 

11,994

 

(17)

 

–

 

–

 

Municipal bonds

 

55,393

 

3,346

 

–

 

58,739

 

– 

 

–

 

–

 

–

 

 

 

$607,918

 

$16,438

 

$(25)

 

$624,331

 

$31,986

 

$(25)

 

$  –

 

$  –

 

 

December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

Gross unrealized losses

 

 

Amortized

 

unrealized

 

unrealized

 

fair

 

Less than 12 months

 

12 months or longer

(dollars in thousands)

 

cost

 

gains

 

losses

 

value

 

Fair value

 

Amount

 

Fair value

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency obligations

 

$317,945

 

$   171

 

$(2,220)

 

$315,896

 

$205,316

 

$(2,220)

 

$  –

 

$  –

 

Mortgage-related securities- FNMA, FHLMC and GNMA

 

310,711

 

9,570

 

(311)

 

319,970

 

30,986

 

(311)

 

–

 

–

 

Municipal bonds

 

43,632

 

7

 

(1,353)

 

42,286

 

41,479

 

(1,353)

 

–

 

–

 

 

 

$672,288

 

$9,748

 

$(3,884)

 

$678,152

 

$277,781

 

$(3,884)

 

$  –

 

$  –

 

 

Federal agency obligations have contractual terms to maturity. Mortgage-related 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 (see contractual maturities table below).

The contractual maturities of available-for-sale securities were as follows:

 

 

 

Amortized

 

Fair

 

(in thousands)

 

Cost

 

value

 

 

 

 

 

 

 

Due in one year or less

 

$           –

 

$           –

 

Due after one year through five years

 

208,342

 

210,106

 

Due after five years through ten years

 

58,113

 

61,585

 

Due after ten years

 

7,280

 

7,775

 

 

 

273,735

 

279,466

 

Mortgage-related securities-FNMA,FHLMC and GNMA

 

334,183

 

344,865

 

Total available-for-sale securities

 

$607,918

 

$624,331

 

 

All positions with variable maturities (e.g. callable debentures and mortgage-related securities) are disclosed based upon the bond’s contractual maturity. Actual maturities will likely differ from these contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

In 2011, 2010 and 2009, proceeds from sales of available-for-sale mortgage-related securities were $30.7 million, nil and $185.1 million, resulting in gross realized gains of $0.4 million, nil and $0.8 million and gross realized losses of nil, nil and $32.9 million, respectively. In 2011, proceeds from the sale of municipal bonds were $2.1 million resulting in gross realized gains of $5,000 and no gross realized losses. There were no sales of municipal bonds in 2010 and 2009.

ASB pledged mortgage-related securities and federal agency obligations with a carrying value of approximately $91.9 million and $60.8 million as of December 31, 2011 and 2010, respectively, as collateral for public funds deposits, automated clearinghouse transactions with Bank of Hawaii, and deposits in ASB’s bankruptcy and treasury, tax, and loan accounts with the Federal Reserve Bank of San Francisco. As of December 31, 2011 and 2010, mortgage-related securities and federal agency obligations with a carrying value of $219.7 million and $204.8 million, respectively, were pledged as collateral for securities sold under agreements to repurchase.

 

FHLB of Seattle stock.  As of December 31, 2011 and 2010, ASB’s investment in stock of the FHLB of Seattle was carried at cost because it can only be redeemed at par and it is a required investment based on measurements of ASB’s capital, assets and/or borrowing levels. Periodically and as conditions warrant, ASB reviews its investment in the stock of the FHLB of Seattle for impairment. ASB evaluated its investment in FHLB stock for OTTI as of December 31, 2011, consistent with its accounting policy. ASB did not recognize an OTTI loss for 2011 based on its evaluation of the underlying investment, including:

 

·                 the net income recorded by the FHLB of Seattle in the first nine months of 2011;

·                 the significance of the decline in net assets of the FHLB of Seattle as compared to its capital stock amount and the length of time this situation has persisted;

·                 commitments by the FHLB of Seattle to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB of Seattle;

·                 the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB of Seattle;

·                 the liquidity position of the FHLB of Seattle; and

·                 ASB’s intent and assessment of whether it will more likely than not be required to sell before recovery of its par value.

 

Deterioration in the FHLB of Seattle’s financial position may result in future impairment losses.

 

Other-than-temporary impaired securities.  All securities are reviewed for impairment in accordance with accounting standards for OTTI recognition. Under these standards ASB’s intent to sell the security, the probability of more-likely-than-not being forced to sell the position prior to recovery of its cost basis and the probability of more-likely-than-not recovering the amortized cost of the position was determined. If ASB’s intent is to hold positions determined to be other-than-temporarily impaired, credit losses, which are recognized in earnings, are quantified using the position’s pre-impairment discount rate and the net present value of cash flows expected to be collected from the security. Non-credit related impairments are reflected in other comprehensive income.

Cumulative OTTIs for expected losses that have been recognized in earnings were as follows:

 

 

 

Nine months ended

(in thousands)

 

December 31, 2009

Balance, April 1, 2009

 

$   1,486

 

Additions:

 

 

 

Initial credit impairments

 

4,870

 

Subsequent credit impairments

 

10,574

 

Reductions:

 

 

 

For securities sold

 

(16,930

)

Balance, December 31, 2009

 

$       – 

 

 

The beginning balance for the nine months ended December 31, 2009 relates to credit losses realized prior to April 1, 2009 on debt securities held by ASB as of March 31, 2009. This beginning balance includes the net impact of non-credit losses that were originally reported as losses prior to March 31, 2009 and were subsequently recharacterized from retained earnings as a result of the adoption of new accounting standards for OTTI recognition effective April 1, 2009. Additions to this balance include new securities in which initial credit impairments have been identified and incremental increases of credit impairments on positions that had already taken similar impairments. In the fourth quarter of 2009, ASB sold its private-issue mortgage-related securities portfolio. ASB did not recognize OTTI for 2011 or 2010.

 

Loans receivable.

 

December 31

 

2011

 

2010

(in thousands)

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

Residential 1-4 family

 

$1,926,774

 

 

$2,087,813

 

Commercial real estate

 

331,931

 

 

300,689

 

Home equity line of credit

 

535,481

 

 

416,453

 

Residential land

 

45,392

 

 

65,599

 

Commercial construction

 

41,950

 

 

38,079

 

Residential construction

 

3,327

 

 

5,602

 

Total real estate loans

 

2,884,855

 

 

2,914,235

 

 

 

 

 

 

 

 

Commercial loans

 

716,427

 

 

551,683

 

Consumer loans

 

93,253

 

 

80,138

 

Total loans

 

3,694,535

 

 

3,546,056

 

Deferred loan fees, net and unamortized discounts

 

(13,811

)

 

(15,530

)

Allowance for loan losses

 

(37,906

)

 

(40,646

)

Total loans, net

 

$3,642,818

 

 

$3,489,880

 

 

As of December 31, 2011 and 2010, ASB’s commitments to originate loans, including the undisbursed portion of loans in process, approximated $95.4 million and $77.6 million, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitments. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. ASB minimizes its exposure to loss under these commitments by requiring that customers meet certain conditions prior to disbursing funds. The amount of collateral, if any, is based on a credit evaluation of the borrower and may include residential real estate, accounts receivable, inventory and property, plant and equipment.

As of December 31, 2011 and 2010, ASB had commitments to sell residential loans of $44.9 million and $21.9 million, respectively. The loans are included in loans receivable as held for sale or represent commitments to make loans at an interest rate set prior to funding (rate lock commitments). Rate lock commitments guarantee a specified interest rate for a loan if ASB’s underwriting standards are met, but do not obligate the potential borrower. Rate lock commitments on loans intended to be sold in the secondary market are derivative instruments, but have not been designated as hedges. Rate lock commitments are carried at fair value and adjustments are recorded in “Other income,” with an offset on the ASB balance sheet in “Other” liabilities. As of December 31, 2011 and 2010, ASB had rate lock commitments on outstanding loans totaling notional amounts of $35.8 million and $15.1 million, respectively. To offset the impact of changes in market interest rates on the rate lock commitments on loans held for sale, ASB utilizes short-term forward sale contracts. Forward sales contracts are also derivative instruments, but have not been designated as hedges, and thus any changes in fair value are also recorded in ASB “Other income,” with an offset in the ASB balance sheet in “Other” assets or liabilities. As of December 31, 2011 and 2010, the notional amounts for forward sales contracts were $44.9 million and $21.9 million, respectively. Valuation models are applied using current market information to estimate fair value. There were no significant gains or losses on derivatives in 2011, 2010 and 2009.

As of December 31, 2011 and 2010, standby, commercial and banker’s acceptance letters of credit totaled $10.8 million and $16.3 million, respectively. Letters of credit are conditional commitments issued by ASB to guarantee payment and performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. ASB holds collateral supporting those commitments for which collateral is deemed necessary. As of December 31, 2011 and 2010, undrawn consumer lines of credit, including credit cards, totaled $943.1 million and $856.7 million, respectively, and undrawn commercial loans including lines of credit totaled $289.3 million and $263.4 million, respectively.

ASB services real estate loans for investors ($1.0 billion, $0.8 billion and $0.6 billion as of December 31, 2011, 2010 and 2009, respectively), which are not included in the accompanying consolidated financial statements. ASB reports fees earned for servicing such loans as income when the related mortgage loan payments are collected and charges loan servicing costs to expense as incurred.

As of December 31, 2011 and 2010, ASB had pledged loans with an amortized cost of approximately $1.1 billion and $1.4 billion, respectively, as collateral to secure advances from the FHLB of Seattle.

As of December 31, 2011 and 2010, the aggregate amount of loans to directors and executive officers of ASB and its affiliates and any related interests (as defined in Federal Reserve Board (FRB) Regulation O) of such individuals, was $62.1 million and $60.9 million, respectively. The $1.2 million increase in such loans in 2011 was attributed to new commitments and loans of $15.9 million to new and existing directors and executive officers, offset by closed lines of credits and repayments of $14.7 million. As of December 31, 2011 and 2010, $56.4 million and $52.5 million of the loan balances, respectively, were to related interests of individuals who are directors of ASB. All such loans were made at ASB’s normal credit terms except that residential real estate loans and consumer loans to directors and executive officers of ASB were made at preferred employee interest rates. Management believes these loans do not represent more than a normal risk of collection.

 

Allowance for loan losses.  As discussed in Note 1, ASB must maintain an allowance for loan losses that is adequate to absorb estimated probable credit losses associated with its loan portfolio. The allowance for loan losses consists of an allocated portion, which estimates credit losses for specifically identified loans and pools of loans, and an unallocated portion.

 

Segmentation.  ASB segments its loan portfolio by three levels. In the first level, the loan portfolio is separated into homogeneous and non-homogeneous loan portfolios. Residential, consumer and credit scored business loans are considered homogeneous loans. These are loans that are typically underwritten based on common, uniform standards, and are generally classified as to the level of loss exposure based on delinquency status. Commercial loans and commercial real estate (CRE) loans are defined as non-homogeneous loans and ASB utilitizes a uniform ten–point risk rating system for evaluating the credit quality of the loans. These are loans where the underwriting criteria are not uniform and the risk rating classification is based upon considerations broader than just delinquency performance.

In the second level of segmentation, the loan portfolios are further stratified into individual products with common risk characteristics. For residential loans, the loan portfolio is segmented by loan categories and geographic location first within the State of Hawaii (Oahu vs. the neighbor islands) and second collectively outside of the state. The consumer loan portfolio is segmented into various secured and unsecured loan product types. The credit scored business loan portfolio is segmented by loans under lines of credit or term loans, and corporate credit cards. For commercial loans, the portfolio is differentiated by separating Commercial & Industrial (C&I) loans and C&I loans guaranteed by Small Business Administration programs while CRE loans are grouped by owner-occupied loans, investor loans, construction loans, and vacant land loans.

For the third and last level of segmentation, loans are categorized into the regulatory asset quality classifications – Pass, Substandard, and Loss for homogeneous loans based primarily on delinquency status, and Pass (Risk Rating 1 to 6), Special Mention (Risk Rating 7), Substandard (Risk Rating 8), Doubtful (Risk Rating 9), and Loss (Risk Rating 10) for non-homogeneous loans based on credit quality.

 

Specific allocation.

 

Residential real estate.  All residential real estate loans that are 180 days delinquent, or where ASB has initiated foreclosure action or have been modified in a TDR are reviewed for impairment based on the fair value of the collateral, net of costs to sell. Generally, impairment amounts derived under this method are immediately charged off.

 

Consumer.  The consumer loan portfolio specific allocation is determined based on delinquency; unsecured consumer loans are generally charged-off based on delinquency status varying from 120 to 180 days.

 

Commercial and CRE.  A specific allocation is determined for impaired commercial and CRE loans. See further discussion in Note 1.

 

Pooled allocation.

 

Residential real estate and consumer.  Pooled allocation for non-impaired residential real estate and consumer loans are determined using a historical loss rate analysis and qualitative factor considerations.

 

Commercial and CRE.  Pooled allocation for pass, special mention, substandard, and doubtful grade commercial and CRE loans that share common risk characteristics and properties are determined using a historical loss rate analysis and qualitative factor considerations.

 

Qualitative adjustments.  Qualitative adjustments to historical loss rates or other static sources may be necessary since these rates may not be an accurate guide to assessing losses inherent in the current portfolio. To estimate the level of adjustments, management considers factors including levels and trends in problem loans, volume and term of loans, changes in risk from changes in lending policies and practices, management expertise, economic conditions, industry trends, and the effect of credit concentrations.

 

Unallocated allowance.  ASB’s allowance incorporates an unallocated portion to cover risk factors and events that may have occurred as of the evaluation date that have not been reflected in the risk measures due to inherent limitations to the precision of the estimation process. These risk factors, in addition to micro- and macro- economic factors, past, current and anticipated events based on facts at the balance sheet date, and realistic courses of action that management expects to take, are assessed in determining the level of unallocated allowance.

 

The allowance for loan losses was comprised of the following:

 

 

 

Residential

 

Commercial
real

 

Home
equity line

 

Residential

 

Commercial

 

Residential

 

Commercial

 

Consumer

 

 

 

 

(in thousands)

 

1-4 family

 

estate

 

of credit

 

land

 

construction

 

construction

 

loans

 

loans

 

Unallocated

 

Total

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$ 6,497

 

$1,474

 

$ 4,269

 

$ 6,411

 

$ 1,714

 

$ 7

 

$16,015

 

$3,325

 

$ 934

 

$ 40,646

Charge-offs

 

(5,528)

 

– 

 

(1,439)

 

(4,071

)

– 

 

– 

 

(5,335

)

(3,117

)

– 

 

(19,490)

Recoveries

 

110

 

– 

 

25

 

170

 

– 

 

– 

 

869

 

567

 

– 

 

1,741

Provision

 

5,421

 

214

 

1,499

 

1,285

 

174

 

(3

)

3,318

 

3,031

 

70

 

15,009

Ending balance

 

$ 6,500

 

$1,688

 

$ 4,354

 

$ 3,795

 

$ 1,888

 

$ 4

 

$14,867

 

$3,806

 

$1,004

 

$ 37,906

Ending balance: individually evaluated for impairment

 

$203

 

$ – 

 

$ – 

 

$2,525

 

$ – 

 

$ – 

 

$976

 

$ – 

 

$ – 

 

$3,704

Ending balance: collectively evaluated for impairment

 

$6,297

 

$1,688

 

$4,354

 

$1,270

 

$1,888

 

$ 4

 

$13,891

 

$3,806

 

$1,004

 

$34,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$1,926,774

 

$331,931

 

$535,481

 

$45,392

 

$41,950

 

$3,327

 

$716,427

 

$93,253

 

$ – 

 

$3,694,535

Ending balance: individually evaluated for impairment

 

$26,012

 

$13,397

 

$1,450

 

$39,364

 

$ – 

 

$ – 

 

$48,241

 

$24

 

$ – 

 

$128,488

Ending balance: collectively evaluated for impairment

 

$1,900,762

 

$318,534

 

$534,031

 

$6,028

 

$41,950

 

$3,327

 

$668,186

 

$93,229

 

$ – 

 

$3,566,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$ 5,522

 

$ 861

 

$ 4,679

 

$ 4,252

 

$ 3,068

 

$ 19

 

$19,498

 

$ 2,590

 

$1,190

 

$ 41,679

Charge-offs

 

(6,142

)

– 

 

(2,517)

 

(6,487

)

– 

 

– 

 

(6,261

)

(3,408

)

– 

 

(24,815)

Recoveries

 

744

 

– 

 

63

 

63

 

– 

 

– 

 

1,537

 

481

 

– 

 

2,888

Provision

 

6,373

 

613

 

2,044

 

8,583

 

(1,354)

 

(12

)

1,241

 

3,662

 

(256

)

20,894

Ending balance

 

$ 6,497

 

$1,474

 

$ 4,269

 

$ 6,411

 

$ 1,714

 

$  7

 

$16,015

 

$3,325

 

$ 934

 

$ 40,646

Ending balance: individually evaluated for impairment

 

$230

 

$ – 

 

$ – 

 

$1,642

 

$ – 

 

$ – 

 

$ 1,588

 

$ – 

 

$ – 

 

$ 3,460

Ending balance: collectively evaluated for impairment

 

$6,267

 

$1,474

 

$4,269

 

$4,769

 

$1,714

 

$  7

 

$ 14,427

 

$3,325

 

$934

 

$37,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$2,087,813

 

$300,689

 

$416,453

 

$65,599

 

$38,079

 

$5,602

 

$551,683

 

$80,138

 

$ – 

 

$3,546,056

Ending balance: individually evaluated for impairment

 

$34,615

 

$12,156

 

$827

 

$39,631

 

$ – 

 

$ – 

 

$28,886

 

$76

 

$ – 

 

$116,191

Ending balance: collectively evaluated for impairment

 

$2,053,198

 

$288,533

 

$415,626

 

$25,968

 

$38,079

 

$5,602

 

$522,797

 

$80,062

 

$ – 

 

$3,429,865

 

Changes in the allowance for loan losses were as follows:

 

(dollars in thousands)

 

2011

 

2010

 

2009

 

Allowance for loan losses, January 1

 

$40,646

 

$41,679

 

$35,798

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

15,009

 

20,894

 

32,000

 

 

 

 

 

 

 

 

 

Charge-offs, net of recoveries

 

 

 

 

 

 

 

Real estate loans

 

10,733

 

14,276

 

9,526

 

Other loans

 

7,016

 

7,651

 

16,593

 

Net charge-offs

 

17,749

 

21,927

 

26,119

 

Allowance for loan losses, December 31

 

$37,906

 

$40,646

 

$41,679

 

Ratio of net charge-offs to average loans outstanding

 

0.49%

 

0.61%

 

0.66%

 

 

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 quality problems so that appropriate steps can be initiated to avoid or minimize future losses. Loans subject to grading include commercial and CRE loans.

A ten-point risk rating system is used to determine loan grade and is based on borrower loan risk. The risk rating is a numerical representation of risk based on the overall assessment of the borrower’s financial and operating strength including earnings, operating cash flow, debt service capacity, asset and liability structure, competitive issues, experience and quality of management, financial reporting issues and industry/economic factors.

 

The loan grade categories are:

 

1- Substantially risk free

6- Acceptable risk

2- Minimal risk

7- Special mention

3- Modest risk

8- Substandard

4- Better than average risk

9- Doubtful

5- Average risk

10- Loss

 

Grades 1 through 6 are considered pass grades. 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.

 

The credit risk profile by internally assigned grade for loans was as follows:

 

December 31

 

2011

 

2010

 

(in thousands)

 

Commercial
real estate

 

Commercial
construction

 

Commercial

 

Commercial
real estate

 

Commercial
construction

 

Commercial

 

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$308,843

 

$41,950

 

$650,234

 

$285,624

 

 $38,079

 

$462,078

 

Special mention

 

8,594

 

– 

 

14,660

 

   526

 

– 

 

 44,759

 

Substandard

 

11,058

 

– 

 

47,607

 

14,539

 

– 

 

44,259

 

Doubtful

 

3,436

 

– 

 

3,926

 

– 

 

– 

 

556

 

Loss

 

– 

 

– 

 

– 

 

– 

 

– 

 

 31

 

Total

 

$331,931

 

$41,950

 

$716,427

 

 $300,689

 

 $38,079

 

$551,683

 

 

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

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$10,391

 

$4,583

 

$28,113

 

$43,087

 

$1,883,687

 

$1,926,774

 

$   – 

 

Commercial real estate

 

– 

 

– 

 

– 

 

– 

 

331,931

 

331,931

 

– 

 

Home equity line of credit

 

1,671

 

494

 

1,421

 

3,586

 

531,895

 

535,481

 

– 

 

Residential land

 

2,352

 

575

 

13,037

 

15,964

 

29,428

 

45,392

 

205

 

Commercial construction

 

– 

 

– 

 

– 

 

– 

 

41,950

 

41,950

 

– 

 

Residential construction

 

– 

 

– 

 

– 

 

– 

 

3,327

 

3,327

 

– 

 

Commercial loans

 

226

 

733

 

1,340

 

2,299

 

714,128

 

716,427

 

28

 

Consumer loans

 

553

 

344

 

486

 

1,383

 

91,870

 

93,253

 

308

 

Total loans

 

$15,193

 

$6,729

 

$44,397

 

$66,319

 

$3,628,216

 

$3,694,535

 

$541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$ 8,245

 

$3,719

 

$36,419

 

$48,383

 

$2,039,430

 

$2,087,813

 

$   – 

 

Commercial real estate

 

– 

 

4

 

– 

 

4

 

300,685

 

300,689

 

– 

 

Home equity line of credit

 

1,103

 

227

 

1,659

 

2,989

 

413,464

 

416,453

 

– 

 

Residential land

 

1,543

 

1,218

 

16,060

 

18,821

 

46,778

 

65,599

 

581

 

Commercial construction

 

– 

 

– 

 

– 

 

– 

 

38,079

 

38,079

 

– 

 

Residential construction

 

– 

 

– 

 

– 

 

– 

 

5,602

 

5,602

 

– 

 

Commercial loans

 

892

 

1,317

 

3,191

 

5,400

 

546,283

 

551,683

 

64

 

Consumer loans

 

629

 

410

 

617

 

1,656

 

78,482

 

80,138

 

320

 

Total loans

 

$12,412

 

$6,895

 

$57,946

 

$77,253

 

$3,468,803

 

$3,546,056

 

$965

 

 

The credit risk profile based on nonaccrual loans and accruing loans 90 days or more past was as follows:

 

December 31

 

2011

 

2010

 

 

 

Nonaccrual
loans

 

Accruing loans
90 days or
more past due

 

Nonaccrual
loans

 

Accruing loans
90 days or
more past due

 

(in thousands)

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$28,298

 

$   – 

 

$36,420

 

$   – 

 

Commercial real estate

 

3,436

 

– 

 

– 

 

– 

 

Home equity line of credit

 

2,258

 

– 

 

1,659

 

– 

 

Residential land

 

14,535

 

205

 

15,479

 

581

 

Commercial construction

 

– 

 

– 

 

– 

 

– 

 

Residential construction

 

– 

 

– 

 

– 

 

– 

 

Commercial loans

 

17,946

 

28

 

4,956

 

64

 

Consumer loans

 

281

 

308

 

341

 

320

 

Total

 

$66,754

 

$541

 

$58,855

 

$965

 

 

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

 

December 31

 

2011

 

 

2010

 

(in thousands)

 

Recorded
investment

 

Unpaid
principal
balance

 

Related
Allowance

 

Average
recorded
investment

 

Interest
income
recognized

 

 

Recorded
investment

 

Unpaid
principal
balance

 

Related
allowance

 

Average
recorded
investment

 

Interest
income
recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$  19,217

 

$ 26,614

 

$      – 

 

$ 21,385

 

$   282

 

 

$ 18,205

 

$ 24,692

 

$      – 

 

$14,609

 

$   278

 

Commercial real estate

 

13,397

 

13,397

 

– 

 

13,404

 

747

 

 

12,156

 

12,156

 

– 

 

14,276

 

979

 

Home equity line of credit

 

711

 

1,612

 

– 

 

954

 

6

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Residential land

 

30,781

 

39,136

 

– 

 

33,398

 

1,779

 

 

33,777

 

40,802

 

– 

 

29,914

 

1,499

 

Commercial construction

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Residential construction

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Commercial loans

 

41,680

 

43,516

 

– 

 

40,952

 

2,912

 

 

22,041

 

22,041

 

– 

 

29,636

 

1,846

 

Consumer loans

 

25

 

25

 

– 

 

16

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

 

105,811

 

124,300

 

– 

 

110,109

 

5,726

 

 

86,179

 

99,691

 

– 

 

88,435

 

4,602

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

3,525

 

3,525

 

203

 

3,527

 

201

 

 

3,917

 

3,917

 

230

 

2,807

 

175

 

Commercial real estate

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Home equity line of credit

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Residential land

 

7,792

 

7,852

 

2,525

 

8,158

 

603

 

 

5,041

 

5,090

 

1,642

 

3,753

 

327

 

Commercial construction

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Residential construction

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Commercial loans

 

6,561

 

6,561

 

976

 

8,131

 

737

 

 

6,845

 

6,845

 

1,588

 

2,796

 

182

 

Consumer loans

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

 

17,878

 

17,938

 

3,704

 

19,816

 

1,541

 

 

15,803

 

15,852

 

3,460

 

9,356

 

684

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

22,742

 

30,139

 

203

 

24,912

 

483

 

 

22,122

 

28,609

 

230

 

17,416

 

453

 

Commercial real estate

 

13,397

 

13,397

 

– 

 

13,404

 

747

 

 

12,156

 

12,156

 

– 

 

14,276

 

979

 

Home equity line of credit

 

711

 

1,612

 

– 

 

954

 

6

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Residential land

 

38,573

 

46,988

 

2,525

 

41,556

 

2,382

 

 

38,818

 

45,892

 

1,642

 

33,667

 

1,826

 

Commercial construction

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Residential construction

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

Commercial loans

 

48,241

 

50,077

 

976

 

49,083

 

3,649

 

 

28,886

 

28,886

 

1,588

 

32,432

 

2,028

 

Consumer loans

 

25

 

25

 

– 

 

16

 

– 

 

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

 

$123,689

 

$142,238

 

$3,704

 

$129,925

 

$7,267

 

 

$101,982

 

$115,543

 

$3,460

 

$97,791

 

$5,286

 

 

Troubled debt restructurings.  A loan modification is deemed to be a TDR when ASB grants a concession it would not otherwise consider were it not for the borrower’s financial difficulty.  When a borrower fails to make a required payment on a loan or is in imminent default, ASB takes a number of steps to induce the borrower to cure the delinquency and restore the loan to current status or to avoid payment default. At times, ASB may restructure a loan to help a distressed borrower improve their financial position to eventually be able to fully repay the loan, provided the borrower has demonstrated both the willingness and the ability to handle the modified terms. TDR loans are considered an alternative to foreclosure or liquidation with the goal of minimizing losses to ASB and maximizing recovery.

ASB may consider various types of concessions in granting a TDR including maturity date extensions, temporary deferral of principal payments, temporary interest rate reductions, and covenant amendments or waivers. ASB does not grant principal forgiveness in its TDR modifications. Residential loan modifications generally involve the deferral of principal payments for a period of time not exceeding one year or a temporary reduction of principal and/or interest rate for a period of time generally not exceeding two years. Land loans are typically structured as a three-year term, interest-only monthly payment with a balloon payment due at maturity. Land loan TDR modifications typically involve extending the maturity date another one to three years and converting the payments from interest-only to principal and interest monthly, at the same or higher interest rate. Commercial loan modifications generally involve extensions of maturity dates, amendment or waiver of financial covenants, and to a lesser extent temporary deferral of principal payments. ASB does not reduce the interest rate on commercial loan TDR modifications. Occasionally, additional collateral and/or guaranties are obtained.

All TDR loans are classified 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 original effective interest rate, (2) fair value of collateral less costs 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 2011 were as follows:

 

 

 

2011

 

 

 

 

Outstanding recorded investment

(dollars in thousands)

 

Number of contracts

 

Pre-modification

 

Post-modification

 

 

 

 

 

 

 

 

 

Troubled debt restructurings

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

Residential 1-4 family

 

42

 

$11,233 

 

$  9,853

 

Commercial real estate

 

– 

 

–  

 

– 

 

Home equity line of credit

 

1

 

93 

 

93

 

Residential land

 

46

 

9,965 

 

9,946

 

Commercial loans

 

56

 

35,349 

 

35,349

 

Consumer loans

 

1

 

25 

 

25

 

 

 

146

 

$56,665 

 

$55,266

 

 

Loans modified in TDRs that experienced a payment default of 90 days or more in 2011, and for which the payment default occurred within one year of the modification, were as follows:

 

 

 

2011

(dollars in thousands)

 

Number of contracts

 

Recorded investment

 

Troubled debt restructurings that subsequently defaulted

 

 

 

 

 

Real estate loans:

 

 

 

 

 

Residential 1-4 family

 

– 

 

$        – 

 

Commercial real estate

 

– 

 

– 

 

Home equity line of credit

 

– 

 

– 

 

Residential land

 

1

 

528

 

Commercial loans

 

4

 

799

 

Consumer loans

 

– 

 

– 

 

 

 

5

 

$1,327

 

 

The residential land loan TDR that subsequently defaulted was modified by extending the maturity date. The four commercial loans that subsequently defaulted were modified by extending the maturity date and deferring principal payments for a short period of time.

 

Deposit liabilities.

 

December 31

 

2011

 

2010

 

 

 

Weighted-average

 

 

 

Weighted-average

 

 

 

(dollars in thousands)

 

stated rate

 

Amount

 

stated rate

 

Amount

 

 

 

 

 

 

 

 

 

 

 

Savings

 

0.07%

 

$1,684,875

 

0.12%

 

$1,623,211

 

Other checking

 

 

 

 

 

 

 

 

 

Interest-bearing

 

0.02

 

610,542

 

0.05

 

589,228

 

Noninterest-bearing

 

–

 

538,214

 

–

 

473,297

 

Commercial checking

 

–

 

455,614

 

–

 

392,345

 

Money market

 

0.21

 

236,641

 

0.28

 

230,990

 

Term certificates

 

0.98

 

544,146

 

1.25

 

666,301

 

 

 

0.18%

 

$4,070,032

 

0.28%

 

$3,975,372

 

 

As of December 31, 2011 and 2010, certificate accounts of $100,000 or more totaled $119 million and $153 million, respectively.

The approximate amounts of term certificates outstanding as of December 31, 2011 with scheduled maturities for 2012 through 2016 were $325 million in 2012, $79 million in 2013, $45 million in 2014, $56 million in 2015, $26 million in 2016, and $13 million thereafter.

Interest expense on deposit liabilities by type of deposit was as follows:

 

(in thousands)

 

2011

 

2010 

 

2009

 

Term certificates

 

$6,393

 

$11,221

 

$27,369

 

Savings

 

1,756

 

2,262

 

4,952

 

Money market

 

650

 

884

 

886

 

Interest-bearing checking

 

184

 

329

 

839

 

 

 

$8,983

 

$14,696

 

$34,046

 

 

Other borrowings.

 

Securities sold under agreements to repurchase.

 

December 31, 2011

 

 

 

 

 

 

 

Maturity

 

Repurchase liability

 

Weighted-average
interest rate

 

Collateralized by mortgage-related
securities and federal
agency obligations–
fair value plus accrued interest

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overnight

 

$132,932

 

0.35%

 

$156,478

 

1 to 29 days

 

– 

 

–

 

– 

 

30 to 90 days

 

– 

 

–

 

– 

 

Over 90 days

 

50,297

 

4.75   

 

63,930

 

 

 

$183,229

 

1.56%

 

$220,408

 

 

At December 31, 2011, $50 million of securities sold under agreements to repurchase with a rate of 4.75% and maturity date over 90 days is callable quarterly at par until maturity.

The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts at the Federal Reserve System. 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 consolidated balance sheets. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts.

Information concerning securities sold under agreements to repurchase, which provided for the repurchase of identical securities, was as follows:

 

(dollars in millions)

 

2011 

 

2010

 

2009 

 

Amount outstanding as of December 31

 

$183

 

$172

 

$233

 

Average amount outstanding during the year

 

$183

 

$201

 

$230

 

Maximum amount outstanding as of any month-end

 

$186

 

$238

 

$241

 

Weighted-average interest rate as of December 31

 

1.56%

 

1.71%

 

1.38%

 

Weighted-average interest rate during the year

 

1.61%

 

1.53%

 

1.55%

 

Weighted-average remaining days to maturity as of December 31

 

490

 

628

 

544

 

 

Advances from Federal Home Loan Bank.

 

December 31, 2011

 

Weighted-average
stated rate

 

Amount

 

(dollars in thousands)

 

 

 

 

 

Due in

 

 

 

 

 

2012

 

–%

 

$        – 

 

2013

 

–

 

– 

 

2014

 

–

 

– 

 

2015

 

–

 

– 

 

2016

 

–

 

– 

 

Thereafter

 

4.28   

 

50,000

 

 

 

4.28%

 

$50,000

 

 

At December 31, 2011, $50 million of fixed rate FHLB advances with a rate of 4.28% is callable quarterly at par until maturity in 2017.

ASB and the FHLB of Seattle are parties to an Advances, Security and Deposit Agreement (Advances Agreement), which applies to currently outstanding and future advances, and governs the terms and conditions under which ASB borrows and the FHLB of Seattle makes loans or advances from time to time. Under the Advances Agreement, ASB agrees to abide by the FHLB of Seattle’s credit policies, and makes certain warranties and representations to the FHLB of Seattle. Upon the occurrence of and during the continuation of an “Event of Default” (which term includes any event of nonpayment of interest or principal of any advance when due or failure to perform any promise or obligation under the Advances Agreement or other credit arrangements between the parties), the FHLB of Seattle may, at its option, declare all indebtedness and accrued interest thereon, including any prepayment fees or charges, to be immediately due and payable. Advances from the FHLB of Seattle are collateralized by loans and stock in the FHLB of Seattle. ASB is required to obtain and hold a specific number of shares of capital stock of the FHLB of Seattle. ASB was in compliance with all Advances Agreement requirements as of December 31, 2011 and 2010.

 

Common stock equity.  In 1988, HEI agreed with the OTS predecessor regulatory agency at the time, to contribute additional capital to ASB up to a maximum aggregate amount of approximately $65.1 million (Capital Maintenance Agreement). As of December 31, 2011, as a result of capital contributions in prior years, HEI’s maximum obligation to contribute additional capital under the Capital Maintenance Agreement had been reduced to approximately $28.3 million. As of December 31, 2011, ASB was in compliance with the minimum capital requirements under OCC regulations.

In 2011, ASB paid cash dividends of $58 million and distributed noncash dividends of $5 million to HEI, compared to cash dividends of $62 million in 2010. The noncash dividend was the fair value of assets associated with an ASB office lease assumed by HEI. The FRB and OCC approved the dividends.

 

Guarantees.  In October 2007, ASB, as a member financial institution of Visa U.S.A. Inc., received restricted shares of Visa, Inc. (Visa) as a result of a restructuring of Visa U.S.A. Inc. in preparation for an initial public offering by Visa. As a part of the restructuring, ASB entered into a judgment and loss sharing agreement with Visa in order to apportion financial responsibilities arising from any potential adverse judgment or negotiated settlements related to indemnified litigation involving Visa. As of December 31, 2011, ASB had accrued $1.1 million related to the agreement. Because the extent of ASB’s obligations under this agreement depends entirely upon the occurrence of future events, ASB’s maximum potential future liability under this agreement is not determinable.

 

Federal Deposit Insurance Corporation restoration plan.  In November 2009, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved a restoration plan that required banks to prepay, by December 30, 2009, their estimated quarterly, risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. For the fourth quarter of 2009 and all of 2010, the prepaid assessment rate was assessed according to a risk-based premium schedule adopted earlier in 2009. The prepaid assessment rate for 2011 and 2012 was the current assessment rate plus 3 basis points. The prepaid assessment was recorded as a prepaid asset as of December 30, 2009, and each quarter thereafter ASB will record a charge to earnings for its regular quarterly assessment and offset the prepaid expense until the asset is exhausted. Once the asset is exhausted, ASB will record an accrued expense payable each quarter for the assessment to be paid. If the prepaid assessment is not exhausted by December 30, 2014, any remaining amount will be returned to ASB. ASB’s prepaid assessment was approximately $24 million. For the year ended December 31, 2010, ASB’s assessment rate was 14 basis points of deposits, or $5.7 million.

In February 2011, the FDIC finalized rules to change its assessment base from total domestic deposits to average total assets minus average tangible equity, as required in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Assessment rates were reduced to a range of 2.5 to 9 basis points on the new assessment base for financial institutions in the lowest risk category. Financial institutions in the highest risk category have assessment rates of 30 to 45 basis points. The new rate schedule was effective April 1, 2011. For the year ended December 31, 2011, ASB’s FDIC insurance assessment was $3.6 million.

The FDIC may impose additional special assessments in the future if it is deemed necessary to ensure the Deposit Insurance Fund ratio does not decline to a level that is close to zero or that could otherwise undermine public confidence in federal deposit insurance.

 

Deposit insurance coverage.  In July 2010, the Dodd-Frank Act permanently raised the current standard maximum deposit insurance amount to $250,000. Previously, the standard maximum deposit insurance amount of $100,000 had been temporarily raised to $250,000 through December 31, 2013.

 

Litigation.  In March 2011, a purported class action lawsuit was filed in the First Circuit Court of the state of Hawaii by a customer who claimed that ASB had improperly charged overdraft fees on debit card transactions. Management is evaluating the merits of the claims alleged in the lawsuit, which is still in its preliminary stage. Thus, the probable outcome and range of reasonably possible loss are not determinable.

ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.