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Bank subsidiary | 3 Months Ended
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Mar. 31, 2014
Bank subsidiary |
Bank subsidiary | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income Data
|  | Three months ended March 31
(in thousands) |  | 2014 |  | 2013
Interest and dividend income |  |  |  |  |  |
Interest and fees on loans |  | $ | 43,682 |  |  | $ | 42,603 |
Interest and dividends on investment and mortgage-related securities |  | 3,035 |  |  | 3,464 |
Total interest and dividend income |  | 46,717 |  |  | 46,067 |
Interest expense |  |  |  |  |  |
Interest on deposit liabilities |  | 1,225 |  |  | 1,312 |
Interest on other borrowings |  | 1,405 |  |  | 1,164 |
Total interest expense |  | 2,630 |  |  | 2,476 |
Net interest income |  | 44,087 |  |  | 43,591 |
Provision for loan losses |  | 995 |  |  | 1,858 |
Net interest income after provision for loan losses |  | 43,092 |  |  | 41,733 |
Noninterest income |  |  |  |  |  |
Fees from other financial services |  | 5,128 |  |  | 7,643 |
Fee income on deposit liabilities |  | 4,421 |  |  | 4,314 |
Fee income on other financial products |  | 2,290 |  |  | 1,794 |
Mortgage banking income |  | 628 |  |  | 3,346 |
Gain on sale of securities |  | 2,847 |  |  | — |
Other income, net |  | 1,588 |  |  | 1,592 |
Total noninterest income |  | 16,902 |  |  | 18,689 |
Noninterest expense |  |  |  |  |  |
Compensation and employee benefits |  | 20,286 |  |  | 20,088 |
Occupancy |  | 3,953 |  |  | 4,123 |
Data processing |  | 3,060 |  |  | 2,987 |
Services |  | 2,273 |  |  | 2,103 |
Equipment |  | 1,645 |  |  | 1,774 |
Other expense |  | 7,153 |  |  | 7,595 |
Total noninterest expense |  | 38,370 |  |  | 38,670 |
Income before income taxes |  | 21,624 |  |  | 21,752 |
Income taxes |  | 7,085 |  |  | 7,597 |
Net income |  | $ | 14,539 |  |  | $ | 14,155 |
American Savings Bank, F.S.B. Statements of Comprehensive Income Data
|  | Three months ended March 31
(in thousands) |  | 2014 |  | 2013
Net income |  | $ | 14,539 |  |  | $ | 14,155 |
Other comprehensive income (loss), net of taxes: |  |  |  |  |  |
Net unrealized gains (losses) on securities: |  |  |  |  |  |
Net unrealized gains (losses) on securities arising during the period, net of (taxes) benefits, of ($1,664) and $547 for the respective periods |  | 2,520 |  |  | (828 | )
Less: reclassification adjustment for net realized gains included in net income, net of taxes, of $1,132 and nil for the respective periods |  | (1,715 | ) |  | — |
Retirement benefit plans: |  |  |  |  |  |
Less: amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $144 and $1,424 for the respective periods |  | 219 |  |  | 2,157 |
Other comprehensive income, net of taxes |  | 1,024 |  |  | 1,329 |
Comprehensive income |  | $ | 15,563 |  |  | $ | 15,484 |
American Savings Bank, F.S.B. Balance Sheets Data
(in thousands) |  | March 31, 2014 |  | December 31, 2013
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents (including $40 million of securities purchased under resale agreements at March 31, 2014) |  |  |  |  | $ | 251,083 |  |  |  |  |  | $ | 156,603 |
Available-for-sale investment and mortgage-related securities |  |  |  |  | 517,534 |  |  |  |  |  | 529,007 |
Investment in stock of Federal Home Loan Bank of Seattle |  |  |  |  | 86,697 |  |  |  |  |  | 92,546 |
Loans receivable held for investment |  |  |  |  | 4,188,460 |  |  |  |  |  | 4,150,229 |
Allowance for loan losses |  |  |  |  | (40,923 | ) |  |  |  |  | (40,116 | )
Loans receivable held for investment, net |  |  |  |  | 4,147,537 |  |  |  |  |  | 4,110,113 |
Loans held for sale, at lower of cost or fair value |  |  |  |  | 4,363 |  |  |  |  |  | 5,302 |
Other |  |  |  |  | 282,079 |  |  |  |  |  | 268,063 |
Goodwill |  |  |  |  | 82,190 |  |  |  |  |  | 82,190 |
Total assets |  |  |  |  | $ | 5,371,483 |  |  |  |  |  | $ | 5,243,824 |
Liabilities and shareholder’s equity |  |  |  |  |  |  |  |  |  |  |  |
Deposit liabilities—noninterest-bearing |  |  |  |  | $ | 1,284,957 |  |  |  |  |  | $ | 1,214,418 |
Deposit liabilities—interest-bearing |  |  |  |  | 3,193,030 |  |  |  |  |  | 3,158,059 |
Other borrowings |  |  |  |  | 244,642 |  |  |  |  |  | 244,514 |
Other |  |  |  |  | 120,324 |  |  |  |  |  | 105,679 |
Total liabilities |  |  |  |  | 4,842,953 |  |  |  |  |  | 4,722,670 |
Commitments and contingencies (see “Litigation” below) |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  |  |  | 336,617 |  |  |  |  |  | 336,054 |
Retained earnings |  |  |  |  | 203,086 |  |  |  |  |  | 197,297 |
Accumulated other comprehensive loss, net of tax benefits |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized losses on securities |  | $ | (2,858 | ) |  |  |  |  | $ | (3,663 | ) |  |  |
Retirement benefit plans |  | (8,315 | ) |  | (11,173 | ) |  | (8,534 | ) |  | (12,197 | )
Total shareholder’s equity |  |  |  |  | 528,530 |  |  |  |  |  | 521,154 |
Total liabilities and shareholder’s equity |  |  |  |  | $ | 5,371,483 |  |  |  |  |  | $ | 5,243,824 |
Other assets |  |  |  |  |  |  |  |  |  |  |  |
Bank-owned life insurance |  |  |  |  | $ | 130,977 |  |  |  |  |  | $ | 129,963 |
Premises and equipment, net |  |  |  |  | 67,628 |  |  |  |  |  | 67,766 |
Prepaid expenses |  |  |  |  | 4,617 |  |  |  |  |  | 3,616 |
Accrued interest receivable |  |  |  |  | 13,119 |  |  |  |  |  | 13,133 |
Mortgage-servicing rights |  |  |  |  | 11,757 |  |  |  |  |  | 11,687 |
Low-income housing equity investments |  |  |  | 24,730 |  |  |  |  | 14,543 |
Real estate acquired in settlement of loans, net |  |  |  |  | 542 |  |  |  |  |  | 1,205 |
Other |  |  |  |  | 28,709 |  |  |  |  |  | 26,150 |
|  |  |  |  | $ | 282,079 |  |  |  |  |  | $ | 268,063 |
Other liabilities |  |  |  |  |  |  |  |  |  |  |  |
Accrued expenses |  |  |  |  | $ | 26,003 |  |  |  |  |  | $ | 19,989 |
Federal and state income taxes payable |  |  |  |  | 43,110 |  |  |  |  |  | 37,807 |
Cashier’s checks |  |  |  |  | 25,363 |  |  |  |  |  | 21,110 |
Advance payments by borrowers |  |  |  |  | 6,084 |  |  |  |  |  | 9,647 |
Other |  |  |  |  | 19,764 |  |  |  |  |  | 17,126 |
|  |  |  |  | $ | 120,324 |  |  |  |  |  | $ | 105,679 |
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. ASB invests, as a limited partner, in Low-Income Housing Tax Credit (LIHTC) investment partnerships formed for the purpose of providing funding for affordable multifamily rental properties. These properties are rented to qualified low-income tenants, pursuant to Section 42 of the Internal Revenue Code, allowing the properties to be eligible for federal and, for some properties, state tax credits. ASB realizes a return on its investment through reductions in income tax expense that result from tax credits and the deductibility of the operating losses of these partnerships. The partnership agreements are typically structured to meet a required 15-year period of occupancy by qualified low-income tenants. ASB’s exposure is limited to the amount of its investment. Other borrowings consisted of securities sold under agreements to repurchase and advances from the Federal Home Loan Bank (FHLB) of Seattle of $145 million and $100 million, respectively, as of March 31, 2014 and December 31, 2013. 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 balance sheet. All such agreements are subject to master netting arrangements, which provide for 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 Sheet |  | Net amount of liabilities presented in the Balance Sheet
Repurchase agreements |  |  |  |  |  |  |  |  |
March 31, 2014 |  | $ | 145 |  |  | $ | — |  |  | $ | 145 |
December 31, 2013 |  | 145 |  |  | — |  |  | 145 |
|  | Gross amount not offset in the Balance Sheet
(in millions) |  | Net amount of liabilities presented in the Balance Sheet |  | Financial instruments |  | Cash collateral pledged |  | Net amount
March 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |
Financial institution |  | $ | 50 |  |  | $ | 50 |  |  | $ | — |  |  | $ | — |
Commercial account holders |  | 95 |  |  | 95 |  |  | — |  |  | — |
Total |  | $ | 145 |  |  | $ | 145 |  |  | $ | — |  |  | $ | — |
December 31, 2013 |  |  |  |  |  |  |  |  |  |  |  |
Financial institution |  | $ | 51 |  |  | $ | 51 |  |  | $ | — |  |  | $ | — |
Commercial account holders |  | 94 |  |  | 94 |  |  | — |  |  | — |
Total |  | $ | 145 |  |  | $ | 145 |  |  | $ | — |  |  | $ | — |
Investment and mortgage-related securities portfolio. Available-for-sale securities. The book value (amortized cost), gross unrealized gains and losses, estimated fair value and gross unrealized losses (fair value and amount by duration of time in which positions have been held in a continuous loss position) for securities held in ASB’s “available-for-sale” portfolio by major security type 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
(in thousands) |  |  |  |  |  | Fair value |  | Amount |  | Fair value |  | Amount
March 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and federal agency obligations |  | $ | 87,916 |  |  | $ | 489 |  |  | $ | (1,885 | ) |  | $ | 86,520 |  |  | $ | 44,700 |  |  | $ | (1,508 | ) |  | $ | 4,402 |  |  | $ | (377 | )
Mortgage-related securities- FNMA, FHLMC and GNMA |  | 434,364 |  |  | 4,769 |  |  | (8,119 | ) |  | 431,014 |  |  | 229,667 |  |  | (5,807 | ) |  | 49,547 |  |  | (2,312 | )
Municipal bonds |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 522,280 |  |  | $ | 5,258 |  |  | $ | (10,004 | ) |  | $ | 517,534 |  |  | $ | 274,367 |  |  | $ | (7,315 | ) |  | $ | 53,949 |  |  | $ | (2,689 | )
December 31, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal agency obligations |  | $ | 83,193 |  |  | $ | 174 |  |  | $ | (2,394 | ) |  | $ | 80,973 |  |  | $ | 70,779 |  |  | $ | (2,394 | ) |  | $ | — |  |  | $ | — |
Mortgage-related securities- FNMA, FHLMC and GNMA |  | 374,993 |  |  | 4,911 |  |  | (10,460 | ) |  | 369,444 |  |  | 228,543 |  |  | (8,819 | ) |  | 19,655 |  |  | (1,641 | )
Municipal bonds |  | 76,904 |  |  | 1,826 |  |  | (140 | ) |  | 78,590 |  |  | 14,478 |  |  | (140 | ) |  | — |  |  | — |
|  | $ | 535,090 |  |  | $ | 6,911 |  |  | $ | (12,994 | ) |  | $ | 529,007 |  |  | $ | 313,800 |  |  | $ | (11,353 | ) |  | $ | 19,655 |  |  | $ | (1,641 | )
The unrealized losses on ASB’s investments in mortgage-related securities and obligations issued by federal agencies were caused by interest rate movements. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because ASB does not intend to sell the securities and has determined it is more likely than not that it will not be required to sell the investments before recovery of their amortized costs basis, which may be at maturity, ASB did not consider these investments to be other-than-temporarily impaired at March 31, 2014. The fair values of ASB’s investment securities could decline if interest rates rise or spreads widen. The following table details the contractual maturities of available-for-sale securities. 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 have the right to prepay obligations with or without prepayment penalties.
March 31, 2014 |  | Amortized cost |  | Fair value
(in thousands) |  |  |  |
Due in one year or less |  | $ | — |  |  | $ | — |
Due after one year through five years |  | 34,456 |  |  | 34,446 |
Due after five years through ten years |  | 32,321 |  |  | 32,370 |
Due after ten years |  | 21,139 |  |  | 19,704 |
|  | 87,916 |  |  | 86,520 |
Mortgage-related securities-FNMA,FHLMC and GNMA |  | 434,364 |  |  | 431,014 |
Total available-for-sale securities |  | $ | 522,280 |  |  | $ | 517,534 |
Allowance for loan losses. 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. The allowance for loan losses (balances and changes) and financing receivables were as follows:
(in thousands) |  | Residential 1-4 family |  | Commercial real estate |  | Home equity line of credit |  | Residential land |  | Commercial construction |  | Residential construction |  | Commercial loans |  | Consumer loans |  | Unallocated |  | Total
Three months ended March 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 5,534 |  |  | $ | 5,059 |  |  | $ | 5,229 |  |  | $ | 1,817 |  |  | $ | 2,397 |  |  | $ | 19 |  |  | $ | 15,803 |  |  | $ | 2,367 |  |  | $ | 1,891 |  |  | $ | 40,116 |
Charge-offs |  | (266 | ) |  | — |  |  | — |  |  | (6 | ) |  | — |  |  | — |  |  | (124 | ) |  | (561 | ) |  | — |  |  | (957 | )
Recoveries |  | 341 |  |  | — |  |  | 11 |  |  | 86 |  |  | — |  |  | — |  |  | 100 |  |  | 231 |  |  | — |  |  | 769 |
Provision |  | (134 | ) |  | 656 |  |  | 729 |  |  | (322 | ) |  | 666 |  |  | 5 |  |  | (187 | ) |  | 279 |  |  | (697 | ) |  | 995 |
Ending balance |  | $ | 5,475 |  |  | $ | 5,715 |  |  | $ | 5,969 |  |  | $ | 1,575 |  |  | $ | 3,063 |  |  | $ | 24 |  |  | $ | 15,592 |  |  | $ | 2,316 |  |  | $ | 1,194 |  |  | $ | 40,923 |
Ending balance: individually evaluated for impairment |  | $ | 906 |  |  | $ | 1,544 |  |  | $ | — |  |  | $ | 1,102 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,133 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,685 |
Ending balance: collectively evaluated for impairment |  | $ | 4,569 |  |  | $ | 4,171 |  |  | $ | 5,969 |  |  | $ | 473 |  |  | $ | 3,063 |  |  | $ | 24 |  |  | $ | 13,459 |  |  | $ | 2,316 |  |  | $ | 1,194 |  |  | $ | 35,238 |
Financing Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 1,985,812 |  |  | $ | 452,303 |  |  | $ | 764,483 |  |  | $ | 15,906 |  |  | $ | 66,578 |  |  | $ | 16,474 |  |  | $ | 786,611 |  |  | $ | 108,202 |  |  | $ | — |  |  | $ | 4,196,369 |
Ending balance: individually evaluated for impairment |  | $ | 20,141 |  |  | $ | 4,558 |  |  | $ | 1,164 |  |  | $ | 10,351 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,399 |  |  | $ | 18 |  |  | $ | — |  |  | $ | 55,631 |
Ending balance: collectively evaluated for impairment |  | $ | 1,965,671 |  |  | $ | 447,745 |  |  | $ | 763,319 |  |  | $ | 5,555 |  |  | $ | 66,578 |  |  | $ | 16,474 |  |  | $ | 767,212 |  |  | $ | 108,184 |  |  | $ | — |  |  | $ | 4,140,738 |
Three months ended March 31, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 6,068 |  |  | $ | 2,965 |  |  | $ | 4,493 |  |  | $ | 4,275 |  |  | $ | 2,023 |  |  | $ | 9 |  |  | $ | 15,931 |  |  | $ | 4,019 |  |  | $ | 2,202 |  |  | $ | 41,985 |
Charge-offs |  | (210 | ) |  | — |  |  | (670 | ) |  | (227 | ) |  | — |  |  | — |  |  | (426 | ) |  | (645 | ) |  | — |  |  | (2,178 | )
Recoveries |  | 192 |  |  | — |  |  | 194 |  |  | 137 |  |  | — |  |  | — |  |  | 392 |  |  | 150 |  |  | — |  |  | 1,065 |
Provision |  | (39 | ) |  | 3,691 |  |  | 540 |  |  | (1,442 | ) |  | (151 | ) |  | 3 |  |  | (934 | ) |  | 131 |  |  | 59 |  |  | 1,858 |
Ending balance |  | $ | 6,011 |  |  | $ | 6,656 |  |  | $ | 4,557 |  |  | $ | 2,743 |  |  | $ | 1,872 |  |  | $ | 12 |  |  | $ | 14,963 |  |  | $ | 3,655 |  |  | $ | 2,261 |  |  | $ | 42,730 |
Ending balance: individually evaluated for impairment |  | $ | 454 |  |  | $ | 3,169 |  |  | $ | — |  |  | $ | 1,943 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,285 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,851 |
Ending balance: collectively evaluated for impairment |  | $ | 5,557 |  |  | $ | 3,487 |  |  | $ | 4,557 |  |  | $ | 800 |  |  | $ | 1,872 |  |  | $ | 12 |  |  | $ | 12,678 |  |  | $ | 3,655 |  |  | $ | 2,261 |  |  | $ | 34,879 |
Financing Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0 |
Ending balance |  | $ | 1,915,207 |  |  | $ | 391,679 |  |  | $ | 648,904 |  |  | $ | 23,894 |  |  | $ | 40,698 |  |  | $ | 8,275 |  |  | $ | 699,918 |  |  | $ | 127,260 |  |  | $ | — |  |  | $ | 3,855,835 |
Ending balance: individually evaluated for impairment |  | $ | 25,320 |  |  | $ | 10,662 |  |  | $ | 1,259 |  |  | $ | 17,618 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,302 |  |  | $ | 21 |  |  | $ | — |  |  | $ | 74,182 |
Ending balance: collectively evaluated for impairment |  | $ | 1,889,887 |  |  | $ | 381,017 |  |  | $ | 647,645 |  |  | $ | 6,276 |  |  | $ | 40,698 |  |  | $ | 8,275 |  |  | $ | 680,616 |  |  | $ | 127,239 |  |  | $ | — |  |  | $ | 3,781,653 |
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 and industrial, commercial real estate and commercial construction loans. A dual ten-point risk rating system is used to reflect the probability of default (borrower risk rating) and loss given default (transaction risk rating). The borrower risk rating addresses risk presented by the individual borrower and is 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 quality and industry/economic factors. Separately, the transaction risk rating addresses risk in the transaction and is a function of specific loan attributes which impact the ultimate collectability of the loan such as collateral, loan structure, guarantees, and other structural support or enhancements to the loan. The numerical representation of the risk 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:
|  | March 31, 2014 |  | December 31, 2013
(in thousands) |  | Commercial real estate |  | Commercial construction |  | Commercial |  | Commercial real estate |  | Commercial construction |  | Commercial
Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 393,888 |  |  | $ | 66,578 |  |  | $ | 708,268 |  |  | $ | 375,217 |  |  | $ | 52,112 |  |  | $ | 703,053 |
Special mention |  | 25,651 |  |  | — |  |  | 20,315 |  |  | 33,436 |  |  | — |  |  | 17,634 |
Substandard |  | 29,014 |  |  | — |  |  | 55,079 |  |  | 28,020 |  |  | — |  |  | 59,663 |
Doubtful |  | 3,750 |  |  | — |  |  | 2,949 |  |  | 3,770 |  |  | — |  |  | 3,038 |
Loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | 452,303 |  |  | $ | 66,578 |  |  | $ | 786,611 |  |  | $ | 440,443 |  |  | $ | 52,112 |  |  | $ | 783,388 |
The credit risk profile based on payment activity for loans was as follows:
(in thousands) |  | 30-59 days past due |  | 60-89 days past due |  | Greater than 90 days |  | Total past due |  | Current |  | Total financing receivables |  | Recorded investment> 90 days and accruing
March 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 4,209 |  |  | $ | 1,635 |  |  | $ | 14,321 |  |  | $ | 20,165 |  |  | $ | 1,965,647 |  |  | $ | 1,985,812 |  |  | $ | — |
Commercial real estate |  | 71 |  |  | — |  |  | 3,750 |  |  | 3,821 |  |  | 448,482 |  |  | 452,303 |  |  | — |
Home equity line of credit |  | 640 |  |  | 98 |  |  | 928 |  |  | 1,666 |  |  | 762,817 |  |  | 764,483 |  |  | — |
Residential land |  | 96 |  |  | 191 |  |  | 2,223 |  |  | 2,510 |  |  | 13,396 |  |  | 15,906 |  |  | 52 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 66,578 |  |  | 66,578 |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 16,474 |  |  | 16,474 |  |  | — |
Commercial loans |  | 1,794 |  |  | 5,050 |  |  | 2,406 |  |  | 9,250 |  |  | 777,361 |  |  | 786,611 |  |  | — |
Consumer loans |  | 431 |  |  | 187 |  |  | 163 |  |  | 781 |  |  | 107,421 |  |  | 108,202 |  |  | — |
Total loans |  | $ | 7,241 |  |  | $ | 7,161 |  |  | $ | 23,791 |  |  | $ | 38,193 |  |  | $ | 4,158,176 |  |  | $ | 4,196,369 |  |  | $ | 52 |
December 31, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 2,728 |  |  | $ | 622 |  |  | $ | 15,411 |  |  | $ | 18,761 |  |  | $ | 1,987,246 |  |  | $ | 2,006,007 |  |  | $ | — |
Commercial real estate |  | — |  |  | — |  |  | 3,770 |  |  | 3,770 |  |  | 436,673 |  |  | 440,443 |  |  | — |
Home equity line of credit |  | 765 |  |  | 312 |  |  | 960 |  |  | 2,037 |  |  | 737,294 |  |  | 739,331 |  |  | — |
Residential land |  | 184 |  |  | 48 |  |  | 2,756 |  |  | 2,988 |  |  | 13,188 |  |  | 16,176 |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 52,112 |  |  | 52,112 |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 12,774 |  |  | 12,774 |  |  | — |
Commercial loans |  | 1,668 |  |  | 612 |  |  | 3,026 |  |  | 5,306 |  |  | 778,082 |  |  | 783,388 |  |  | — |
Consumer loans |  | 436 |  |  | 158 |  |  | 304 |  |  | 898 |  |  | 107,824 |  |  | 108,722 |  |  | — |
Total loans |  | $ | 5,781 |  |  | $ | 1,752 |  |  | $ | 26,227 |  |  | $ | 33,760 |  |  | $ | 4,125,193 |  |  | $ | 4,158,953 |  |  | $ | — |
The credit risk profile based on nonaccrual loans and accruing loans 90 days or more past due was as follows:
|  | March 31, 2014 |  | December 31, 2013
(in thousands) |  | Nonaccrual loans |  | Accruing loans 90 days or more past due |  | Nonaccrual loans |  | Accruing loans 90 days or more past due
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 18,795 |  |  | $ | — |  |  | $ | 19,679 |  |  | $ | — |
Commercial real estate |  | 4,395 |  |  | — |  |  | 4,439 |  |  | — |
Home equity line of credit |  | 2,060 |  |  | — |  |  | 2,060 |  |  | — |
Residential land |  | 3,136 |  |  | 52 |  |  | 3,161 |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |
Commercial loans |  | 17,641 |  |  | — |  |  | 18,781 |  |  | — |
Consumer loans |  | 310 |  |  | — |  |  | 401 |  |  | — |
Total |  | $ | 46,337 |  |  | $ | 52 |  |  | $ | 48,521 |  |  | $ | — |
The total carrying amount and the total unpaid principal balance of impaired loans, with and without recorded allowance for loan losses and combined, were as follows:
|  | March 31, 2014 |  | Three months ended March 31, 2014
(in thousands) |  | 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 |  | $ | 9,573 |  |  | $ | 11,874 |  |  | $ | — |  |  | $ | 10,480 |  |  | $ | 88 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Home equity line of credit |  | 641 |  |  | 1,205 |  |  | — |  |  | 649 |  |  | 3 |
Residential land |  | 3,080 |  |  | 4,047 |  |  | — |  |  | 3,016 |  |  | 56 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial loans |  | 3,320 |  |  | 4,613 |  |  | — |  |  | 3,381 |  |  | — |
Consumer loans |  | 18 |  |  | 18 |  |  | — |  |  | 18 |  |  | — |
|  | 16,632 |  |  | 21,757 |  |  | — |  |  | 17,544 |  |  | 147 |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 6,764 |  |  | 6,784 |  |  | 906 |  |  | 5,605 |  |  | 103 |
Commercial real estate |  | 4,558 |  |  | 4,668 |  |  | 1,543 |  |  | 4,573 |  |  | 2 |
Home equity line of credit |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential land |  | 7,271 |  |  | 7,442 |  |  | 1,102 |  |  | 7,168 |  |  | 132 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial loans |  | 16,079 |  |  | 19,235 |  |  | 2,134 |  |  | 16,550 |  |  | 44 |
Consumer loans |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | 34,672 |  |  | 38,129 |  |  | 5,685 |  |  | 33,896 |  |  | 281 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 16,337 |  |  | 18,658 |  |  | 906 |  |  | 16,085 |  |  | 191 |
Commercial real estate |  | 4,558 |  |  | 4,668 |  |  | 1,543 |  |  | 4,573 |  |  | 2 |
Home equity line of credit |  | 641 |  |  | 1,205 |  |  | — |  |  | 649 |  |  | 3 |
Residential land |  | 10,351 |  |  | 11,489 |  |  | 1,102 |  |  | 10,184 |  |  | 188 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial loans |  | 19,399 |  |  | 23,848 |  |  | 2,134 |  |  | 19,931 |  |  | 44 |
Consumer loans |  | 18 |  |  | 18 |  |  | — |  |  | 18 |  |  | — |
|  | $ | 51,304 |  |  | $ | 59,886 |  |  | $ | 5,685 |  |  | $ | 51,440 |  |  | $ | 428 |
|  | December 31, 2013 |  | Year ended December 31, 2013
(in thousands) |  | 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 |  | $ | 9,708 |  |  | $ | 12,144 |  |  | $ | — |  |  | $ | 11,674 |  |  | $ | 386 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | 802 |  |  | — |
Home equity line of credit |  | 672 |  |  | 1,227 |  |  | — |  |  | 623 |  |  | 2 |
Residential land |  | 2,622 |  |  | 3,612 |  |  | — |  |  | 6,675 |  |  | 482 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial loans |  | 3,466 |  |  | 4,715 |  |  | — |  |  | 4,837 |  |  | 12 |
Consumer loans |  | 19 |  |  | 19 |  |  | — |  |  | 20 |  |  | — |
|  | 16,487 |  |  | 21,717 |  |  | — |  |  | 24,631 |  |  | 882 |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 6,216 |  |  | 6,236 |  |  | 642 |  |  | 6,455 |  |  | 372 |
Commercial real estate |  | 4,604 |  |  | 4,686 |  |  | 1,118 |  |  | 5,745 |  |  | 152 |
Home equity line of credit |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential land |  | 7,452 |  |  | 7,623 |  |  | 1,332 |  |  | 6,844 |  |  | 409 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial loans |  | 17,759 |  |  | 20,640 |  |  | 2,246 |  |  | 15,635 |  |  | 139 |
Consumer loans |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | 36,031 |  |  | 39,185 |  |  | 5,338 |  |  | 34,679 |  |  | 1,072 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 15,924 |  |  | 18,380 |  |  | 642 |  |  | 18,129 |  |  | 758 |
Commercial real estate |  | 4,604 |  |  | 4,686 |  |  | 1,118 |  |  | 6,547 |  |  | 152 |
Home equity line of credit |  | 672 |  |  | 1,227 |  |  | — |  |  | 623 |  |  | 2 |
Residential land |  | 10,074 |  |  | 11,235 |  |  | 1,332 |  |  | 13,519 |  |  | 891 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial loans |  | 21,225 |  |  | 25,355 |  |  | 2,246 |  |  | 20,472 |  |  | 151 |
Consumer loans |  | 19 |  |  | 19 |  |  | — |  |  | 20 |  |  | — |
|  | $ | 52,518 |  |  | $ | 60,902 |  |  | $ | 5,338 |  |  | $ | 59,310 |  |  | $ | 1,954 |
* Since loan was classified as impaired. Troubled debt restructurings. A loan modification is deemed to be a troubled debt restructuring (TDR) when ASB grants a concession it would not otherwise consider were it not for the borrower’s financial difficulty. When a borrower experiencing financial difficulty fails to make a required payment on a loan or is in imminent default, ASB takes a number of steps to improve the collectability of the loan and maximize the likelihood of full repayment. At times, ASB may modify or restructure a loan to help a distressed borrower improve its financial position to eventually be able to fully repay the loan, provided the borrower has demonstrated both the willingness and the ability to fulfill 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, extended amortization of principal, temporary deferral of principal payments, and temporary interest rate reductions. ASB rarely grants principal forgiveness in its TDR modifications. Residential loan modifications generally involve interest rate reduction, extending the amortization period, or capitalizing certain delinquent amounts owed not to exceed the original loan balance. Land loans at origination 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 up to five 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, extending the amortization period, and temporary deferral of principal payments. ASB generally does not reduce the interest rate on commercial loan TDR modifications. Occasionally, additional collateral and/or guaranties are obtained. All TDR loans are classified as impaired and are segregated and reviewed separately when assessing the adequacy of the allowance for loan losses based on the appropriate method of measuring impairment: (1) present value of expected future cash flows discounted at the loan’s effective original contractual rate, (2) fair value of collateral less cost to sell, or (3) observable market price. The financial impact of the calculated impairment amount is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for loan losses. Loan modifications that occurred were as follows for the indicated periods:
|  | Three months ended March 31, 2014 |  | Three months ended March 31, 2013
|  | Number of |  | Outstanding recorded investment |  | Number of |  | Outstanding recorded investment
(dollars in thousands) |  | contracts |  | Pre-modification |  | Post-modification |  | contracts |  | Pre-modification |  | Post-modification
Troubled debt restructurings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 5 |  | $ | 921 |  |  | $ | 935 |  |  | 4 |  | $ | 1,122 |  |  | $ | 1,063 |
Commercial real estate |  | — |  | — |  |  | — |  |  | — |  | — |  |  | — |
Home equity line of credit |  | — |  | — |  |  | — |  |  | 4 |  | 462 |  |  | 215 |
Residential land |  | 7 |  | 1,133 |  |  | 1,133 |  |  | 3 |  | 924 |  |  | 868 |
Commercial loans |  | 3 |  | 473 |  |  | 473 |  |  | — |  | — |  |  | — |
Consumer loans |  | — |  | — |  |  | — |  |  | — |  | — |  |  | — |
|  | 15 |  | $ | 2,527 |  |  | $ | 2,541 |  |  | 11 |  | $ | 2,508 |  |  | $ | 2,146 |
There were no loans modified in TDRs that experienced a payment default of 90 days or more in the first quarters of 2014 and 2013, and for which the payment default occurred within one year of the modification. If loans modified in a TDR subsequently default, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loans have been designated impaired or whose terms have been modified in TDRs totaled $0.3 million as of March 31, 2014. Amortized intangible assets. The table below presents the gross carrying amount, accumulated amortization, valuation allowance and net carrying amount of ASB’s mortgage servicing assets as of March 31, 2014 and 2013:
March 31 |  | 2014 |  | 2013
(in thousands) |  | Gross carrying amount |  | Accumulated amortization |  | Valuation allowance |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization |  | Valuation allowance |  | Net carrying amount
Mortgage servicing assets |  | $ | 26,097 |  |  | (14,138 | ) |  | (202 | ) |  | $ | 11,757 |  |  | $ | 24,150 |  |  | (12,399 | ) |  | (351 | ) |  | $ | 11,400 |
Changes in the valuation allowance for mortgage servicing assets were as follows:
(in thousands) |  | 2014 |  |  | 2013 |
Valuation allowance, January 1 |  | $ | 251 |  |  | $ | 498 |
Provision (recovery) |  | (35 | ) |  | (107 | )
Other-than-temporary impairment |  | (14 | ) |  | (40 | )
Valuation allowance, March 31 |  | $ | 202 |  |  | $ | 351 |
ASB recognizes a mortgage servicing asset when a mortgage loan is sold with servicing rights retained. This mortgage servicing right (MSR) is initially capitalized at its presumed fair value based on market data at the time of sale and accounted for in subsequent periods at the lower of amortized cost or fair value. The MSR is amortized in proportion to and over the period of estimated net servicing income and assessed for impairment at each reporting date. ASB stratifies the MSR based on predominant risk characteristics of the underlying loans including loan type and note rate. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and expenses associated with servicing residential mortgage loans for others. 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 ASB’s noninterest 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 the bank’s mortgage servicing rights were as follows:
|  | March 31, 2014 |  |  | March 31, 2013 |
Unpaid principal balance (000s) |  | $ | 1,382,731 |  |  | $ | 1,305,811 |
Weighted average note-rate |  | 4.07 | % |  | 4.11 | %
Weighted average discount rate |  | 9.8 | % |  | 9.7 | %
Weighted average prepayment speed |  | 8.7 | % |  | 10.8 | %
Derivative Financial Instruments. ASB enters into interest rate lock commitments 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 risk associated with selling loans. ASB enters into interest rate lock commitments (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 as of March 31, 2014 and December 31, 2013 were as follows:
|  | March 31, 2014 |  | December 31, 2013
(dollars in thousands) |  | Notional amount |  | Fair value |  | Notional amount |  | Fair value
Interest rate lock commitments |  | $ | 17,871 |  |  | $ | 194 |  |  | $ | 25,070 |  |  | $ | 464 |
Forward commitments |  | 19,693 |  |  | 33 |  |  | 26,018 |  |  | 139 |
The following table presents ASB’s derivative financial instruments, their fair values, and balance sheet location as of March 31, 2014 and December 31, 2013:
Derivative Financial Instruments Not Designated |  |  |  |  |  |  |  |
as Hedging Instruments 1 |  | March 31, 2014 |  | December 31, 2013
(dollars in thousands) |  | Derivative asset |  | Derivative liability |  | Derivative asset |  | Derivative liability
Interest rate lock commitments |  | $ | 199 |  |  | $ | 5 |  |  | $ | 488 |  |  | $ | 24 |
Forward commitments |  | 35 |  |  | 2 |  |  | 141 |  |  | 2 |
|  | $ | 234 |  |  | $ | 7 |  |  | $ | 629 |  |  | $ | 26 |
1 Derivative assets are included in other assets and derivative liabilities 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 the statements of income for the three months ended March 31, 2014 and 2013.
Derivative Financial Instruments Not Designated | Location of net gains |  |  |  |
as Hedging Instruments | (losses) recognized in |  | Three months ended March 31
(dollars in thousands) | the Statement of Income |  | 2014 |  | 2013
Interest rate lock commitments | Mortgage banking income |  | $ | (270 | ) |  | $ | — |
Forward commitments | Mortgage banking income |  | (106 | ) |  | — |
|  |  | $ | (376 | ) |  | $ | — |
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. The lawsuit is still in its preliminary stage. ASB filed a motion to dismiss the lawsuit on the basis that as a bank chartered under federal law, ASB believes its business practices are governed by federal regulations established for federal savings banks and not by state law. In July 2011, the Circuit Court denied ASB’s motion and ASB appealed that decision. ASB’s appeal is currently pending before the Hawaii Supreme Court. The probable outcome and range of reasonably possible loss remains indeterminable at this time. 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.

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