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Bank segment | 9 Months Ended
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Sep. 30, 2015
Bank subsidiary |
Bank segment | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income Data
|  | Three months ended September 30 |  | Nine months ended September 30
(in thousands) |  | 2015 |  | 2014 |  | 2015 |  | 2014
Interest and dividend income |  |  |  |  |  |  |  |  |  |  |  |
Interest and fees on loans |  | $ | 46,413 |  |  | $ | 45,532 |  |  | $ | 137,646 |  |  | $ | 133,065 |
Interest and dividends on investment securities |  | 4,213 |  |  | 2,773 |  |  | 10,570 |  |  | 8,758 |
Total interest and dividend income |  | 50,626 |  |  | 48,305 |  |  | 148,216 |  |  | 141,823 |
Interest expense |  |  |  |  |  |  |  |  |  |  |  |
Interest on deposit liabilities |  | 1,355 |  |  | 1,312 |  |  | 3,881 |  |  | 3,774 |
Interest on other borrowings |  | 1,515 |  |  | 1,438 |  |  | 4,468 |  |  | 4,263 |
Total interest expense |  | 2,870 |  |  | 2,750 |  |  | 8,349 |  |  | 8,037 |
Net interest income |  | 47,756 |  |  | 45,555 |  |  | 139,867 |  |  | 133,786 |
Provision for loan losses |  | 2,997 |  |  | 1,550 |  |  | 5,436 |  |  | 3,566 |
Net interest income after provision for loan losses |  | 44,759 |  |  | 44,005 |  |  | 134,431 |  |  | 130,220 |
Noninterest income |  |  |  |  |  |  |  |  |  |  |  |
Fees from other financial services |  | 5,639 |  |  | 5,642 |  |  | 16,544 |  |  | 15,987 |
Fee income on deposit liabilities |  | 5,883 |  |  | 5,109 |  |  | 16,622 |  |  | 14,175 |
Fee income on other financial products |  | 2,096 |  |  | 1,971 |  |  | 6,088 |  |  | 6,325 |
Bank-owned life insurance |  | 1,021 |  |  | 1,000 |  |  | 3,062 |  |  | 2,945 |
Mortgage banking income |  | 1,437 |  |  | 875 |  |  | 5,327 |  |  | 1,749 |
Gains on sale of investment securities |  | — |  |  | — |  |  | — |  |  | 2,847 |
Other income, net |  | 2,389 |  |  | 634 |  |  | 3,363 |  |  | 1,920 |
Total noninterest income |  | 18,465 |  |  | 15,231 |  |  | 51,006 |  |  | 45,948 |
Noninterest expense |  |  |  |  |  |  |  |  |  |  |  |
Compensation and employee benefits |  | 22,728 |  |  | 19,892 |  |  | 66,813 |  |  | 60,050 |
Occupancy |  | 4,128 |  |  | 4,517 |  |  | 12,250 |  |  | 12,959 |
Data processing |  | 3,032 |  |  | 2,684 |  |  | 9,101 |  |  | 8,715 |
Services |  | 2,556 |  |  | 2,580 |  |  | 7,730 |  |  | 7,708 |
Equipment |  | 1,608 |  |  | 1,672 |  |  | 4,999 |  |  | 4,926 |
Office supplies, printing and postage |  | 1,511 |  |  | 1,415 |  |  | 4,297 |  |  | 4,487 |
Marketing |  | 934 |  |  | 948 |  |  | 2,619 |  |  | 2,690 |
FDIC insurance |  | 809 |  |  | 840 |  |  | 2,393 |  |  | 2,441 |
Other expense |  | 5,116 |  |  | 4,182 |  |  | 14,076 |  |  | 11,198 |
Total noninterest expense |  | 42,422 |  |  | 38,730 |  |  | 124,278 |  |  | 115,174 |
Income before income taxes |  | 20,802 |  |  | 20,506 |  |  | 61,159 |  |  | 60,994 |
Income taxes |  | 7,351 |  |  | 7,253 |  |  | 21,382 |  |  | 21,806 |
Net income |  | $ | 13,451 |  |  | $ | 13,253 |  |  | $ | 39,777 |  |  | $ | 39,188 |
American Savings Bank, F.S.B. Statements of Comprehensive Income Data
|  | Three months ended September 30 |  | Nine months ended September 30
(in thousands) |  | 2015 |  | 2014 |  | 2015 |  | 2014
Net income |  | $ | 13,451 |  |  | $ | 13,253 |  |  | $ | 39,777 |  |  | $ | 39,188 |
Other comprehensive income (loss), net of taxes: |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) on available-for-sale investment securities: |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of (taxes) benefits of $(2,543), $1,094, $(2,382) and $(2,249) for the respective periods |  | 3,851 |  |  | (1,657 | ) |  | 3,608 |  |  | 3,406 |
Less: reclassification adjustment for net realized gains included in net income, net of taxes of nil, nil, nil and $1,132 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 $249, $138, $763 and $424 for the respective periods |  | 376 |  |  | 208 |  |  | 1,155 |  |  | 642 |
Other comprehensive income (loss), net of taxes |  | 4,227 |  |  | (1,449 | ) |  | 4,763 |  |  | 2,333 |
Comprehensive income |  | $ | 17,678 |  |  | $ | 11,804 |  |  | $ | 44,540 |  |  | $ | 41,521 |
American Savings Bank, F.S.B. Balance Sheets Data
(in thousands) |  | September 30, 2015 |  | December 31, 2014
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  |  |  |  | $ | 103,934 |  |  |  |  |  | $ | 107,233 |
Interest-bearing deposits |  |  |  | 73,041 |  |  |  |  | 54,230 |
Available-for-sale investment securities, at fair value |  |  |  |  | 785,837 |  |  |  |  |  | 550,394 |
Stock in Federal Home Loan Bank, at cost |  |  |  |  | 10,678 |  |  |  |  |  | 69,302 |
Loans receivable held for investment |  |  |  |  | 4,535,404 |  |  |  |  |  | 4,434,651 |
Allowance for loan losses |  |  |  |  | (48,274 | ) |  |  |  |  | (45,618 | )
Net loans |  |  |  |  | 4,487,130 |  |  |  |  |  | 4,389,033 |
Loans held for sale, at lower of cost or fair value |  |  |  |  | 5,598 |  |  |  |  |  | 8,424 |
Other |  |  |  |  | 307,089 |  |  |  |  |  | 305,416 |
Goodwill |  |  |  |  | 82,190 |  |  |  |  |  | 82,190 |
Total assets |  |  |  |  | $ | 5,855,497 |  |  |  |  |  | $ | 5,566,222 |
Liabilities and shareholder’s equity |  |  |  |  |  |  |  |  |  |  |  |
Deposit liabilities—noninterest-bearing |  |  |  |  | $ | 1,422,843 |  |  |  |  |  | $ | 1,342,794 |
Deposit liabilities—interest-bearing |  |  |  |  | 3,403,111 |  |  |  |  |  | 3,280,621 |
Other borrowings |  |  |  |  | 368,593 |  |  |  |  |  | 290,656 |
Other |  |  |  |  | 103,553 |  |  |  |  |  | 118,363 |
Total liabilities |  |  |  |  | 5,298,100 |  |  |  |  |  | 5,032,434 |
Commitments and contingencies |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  |  |  | 1 |  |  |  |  |  | 1 |
Additional paid in capital |  |  |  | 339,980 |  |  |  |  | 338,411 |
Retained earnings |  |  |  |  | 229,211 |  |  |  |  |  | 211,934 |
Accumulated other comprehensive loss, net of tax benefits |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains on securities |  | $ | 4,070 |  |  |  |  |  | $ | 462 |  |  |  |
Retirement benefit plans |  | (15,865 | ) |  | (11,795 | ) |  | (17,020 | ) |  | (16,558 | )
Total shareholder’s equity |  |  |  |  | 557,397 |  |  |  |  |  | 533,788 |
Total liabilities and shareholder’s equity |  |  |  |  | $ | 5,855,497 |  |  |  |  |  | $ | 5,566,222 |
Other assets |  |  |  |  |  |  |  |  |  |  |  |
Bank-owned life insurance |  |  |  |  | $ | 136,969 |  |  |  |  |  | $ | 134,115 |
Premises and equipment, net |  |  |  |  | 87,432 |  |  |  |  |  | 92,407 |
Prepaid expenses |  |  |  |  | 3,879 |  |  |  |  |  | 3,196 |
Accrued interest receivable |  |  |  |  | 14,577 |  |  |  |  |  | 13,632 |
Mortgage-servicing rights |  |  |  |  | 12,258 |  |  |  |  |  | 11,540 |
Low-income housing equity investments |  |  |  | 34,323 |  |  |  |  | 33,438 |
Real estate acquired in settlement of loans, net |  |  |  |  | 247 |  |  |  |  |  | 891 |
Other |  |  |  |  | 17,404 |  |  |  |  |  | 16,197 |
|  |  |  |  | $ | 307,089 |  |  |  |  |  | $ | 305,416 |
Other liabilities |  |  |  |  |  |  |  |  |  |  |  |
Accrued expenses |  |  |  |  | $ | 28,952 |  |  |  |  |  | $ | 37,880 |
Federal and state income taxes payable |  |  |  |  | 21,565 |  |  |  |  |  | 28,642 |
Cashier’s checks |  |  |  |  | 25,852 |  |  |  |  |  | 20,509 |
Advance payments by borrowers |  |  |  |  | 5,389 |  |  |  |  |  | 9,652 |
Other |  |  |  |  | 21,795 |  |  |  |  |  | 21,680 |
|  |  |  |  | $ | 103,553 |  |  |  |  |  | $ | 118,363 |
Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death. Other borrowings consisted of securities sold under agreements to repurchase and advances from the Federal Home Loan Bank (FHLB) of $269 million and $100 million, respectively, as of September 30, 2015 and $191 million and $100 million, respectively, as of December 31, 2014. Available-for-sale investment securities. The major components of investment securities were as follows:
|  | Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value |  |  |  | Gross unrealized losses
|  |  |  |  |  | Less than 12 months |  | 12 months or longer
(dollar in thousands) |  |  |  |  |  | Number of issues |  | Fair value |  | Amount |  | Number of issues |  | Fair value |  | Amount
September 30, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and federal agency obligations |  | $ | 209,025 |  |  | $ | 2,435 |  |  | $ | (342 | ) |  | $ | 211,118 |  |  | 4 |  |  | $ | 24,676 |  |  | $ | (46 | ) |  | 3 |  |  | $ | 18,218 |  |  | $ | (296 | )
Mortgage-related securities- FNMA, FHLMC and GNMA |  | 570,055 |  |  | 6,884 |  |  | (2,220 | ) |  | 574,719 |  |  | 8 |  |  | 57,263 |  |  | (278 | ) |  | 25 |  |  | 132,874 |  |  | (1,942 | )
|  | $ | 779,080 |  |  | $ | 9,319 |  |  | $ | (2,562 | ) |  | $ | 785,837 |  |  | 12 |  |  | $ | 81,939 |  |  | $ | (324 | ) |  | 28 |  |  | $ | 151,092 |  |  | $ | (2,238 | )
December 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and federal agency obligations |  | $ | 119,507 |  |  | $ | 1,092 |  |  | $ | (1,039 | ) |  | $ | 119,560 |  |  | 6 |  |  | $ | 41,970 |  |  | $ | (361 | ) |  | 5 |  |  | $ | 29,168 |  |  | $ | (678 | )
Mortgage-related securities- FNMA, FHLMC and GNMA |  | 430,120 |  |  | 5,653 |  |  | (4,939 | ) |  | 430,834 |  |  | 6 |  |  | 47,029 |  |  | (164 | ) |  | 29 |  |  | 172,623 |  |  | (4,775 | )
|  | $ | 549,627 |  |  | $ | 6,745 |  |  | $ | (5,978 | ) |  | $ | 550,394 |  |  | 12 |  |  | $ | 88,999 |  |  | $ | (525 | ) |  | 34 |  |  | $ | 201,791 |  |  | $ | (5,453 | )
The unrealized losses on ASB’s investments in mortgage-related securities and obligations issued by federal agencies were caused by interest rate movements. 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 cost basis, which may be at maturity, ASB did not consider these investments to be other-than-temporarily impaired at September 30, 2015. The fair values of ASB’s investment securities could decline if interest rates rise or spreads widen. U.S. Treasury and 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.The contractual maturities of available-for-sale investment securities were as follows:
September 30, 2015 |  | Amortized cost |  | Fair value
(in thousands) |  |  |  |
Due in one year or less |  | $ | — |  |  | $ | — |
Due after one year through five years |  | 75,332 |  |  | 76,786 |
Due after five years through ten years |  | 71,667 |  |  | 72,198 |
Due after ten years |  | 62,026 |  |  | 62,134 |
|  | 209,025 |  |  | 211,118 |
Mortgage-related securities-FNMA,FHLMC and GNMA |  | 570,055 |  |  | 574,719 |
Total available-for-sale securities |  | $ | 779,080 |  |  | $ | 785,837 |
Allowance for loan losses. The allowance for loan losses (balances and changes) and financing receivables were as follows:
(in thousands) |  | Residential 1-4 family |  | Commercial real estate |  | Home equity line of credit |  | Residential land |  | Commercial construction |  | Residential construction |  | Commercial loans |  | Consumer loans |  | Unallocated |  | Total
Three months ended September 30, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 4,291 |  |  | $ | 10,420 |  |  | $ | 6,613 |  |  | $ | 2,103 |  |  | $ | 2,575 |  |  | $ | 18 |  |  | $ | 17,469 |  |  | $ | 2,876 |  |  | $ | — |  |  | $ | 46,365 |
Charge-offs |  | (138 | ) |  | — |  |  | (185 | ) |  | — |  |  | — |  |  | — |  |  | (126 | ) |  | (1,271 | ) |  | — |  |  | (1,720 | )
Recoveries |  | 45 |  |  | — |  |  | 33 |  |  | 34 |  |  | — |  |  | — |  |  | 279 |  |  | 241 |  |  | — |  |  | 632 |
Provision |  | 285 |  |  | 987 |  |  | 446 |  |  | (73 | ) |  | 944 |  |  | (5 | ) |  | (920 | ) |  | 1,333 |  |  | — |  |  | 2,997 |
Ending balance |  | $ | 4,483 |  |  | $ | 11,407 |  |  | $ | 6,907 |  |  | $ | 2,064 |  |  | $ | 3,519 |  |  | $ | 13 |  |  | $ | 16,702 |  |  | $ | 3,179 |  |  | $ | — |  |  | $ | 48,274 |
Three months ended September 30, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 5,667 |  |  | $ | 7,230 |  |  | $ | 7,081 |  |  | $ | 1,837 |  |  | $ | 3,390 |  |  | $ | 26 |  |  | $ | 15,144 |  |  | $ | 1,997 |  |  | $ | — |  |  | $ | 42,372 |
Charge-offs |  | (632 | ) |  | — |  |  | (46 | ) |  | (28 | ) |  | — |  |  | — |  |  | (886 | ) |  | (592 | ) |  | — |  |  | (2,184 | )
Recoveries |  | 160 |  |  | — |  |  | 299 |  |  | 90 |  |  | — |  |  | — |  |  | 952 |  |  | 222 |  |  | — |  |  | 1,723 |
Provision |  | 670 |  |  | 3 |  |  | (119 | ) |  | (92 | ) |  | 1,724 |  |  | 3 |  |  | (1,130 | ) |  | 491 |  |  | — |  |  | 1,550 |
Ending balance |  | $ | 5,865 |  |  | $ | 7,233 |  |  | $ | 7,215 |  |  | $ | 1,807 |  |  | $ | 5,114 |  |  | $ | 29 |  |  | $ | 14,080 |  |  | $ | 2,118 |  |  | $ | — |  |  | $ | 43,461 |
Nine months ended September 30, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 4,662 |  |  | $ | 8,954 |  |  | $ | 6,982 |  |  | $ | 1,875 |  |  | $ | 5,471 |  |  | $ | 28 |  |  | $ | 14,017 |  |  | $ | 3,629 |  |  | $ | — |  |  | $ | 45,618 |
Charge-offs |  | (352 | ) |  | — |  |  | (205 | ) |  | — |  |  | — |  |  | — |  |  | (928 | ) |  | (3,196 | ) |  | — |  |  | (4,681 | )
Recoveries |  | 112 |  |  | — |  |  | 72 |  |  | 219 |  |  | — |  |  | — |  |  | 726 |  |  | 772 |  |  | — |  |  | 1,901 |
Provision |  | 61 |  |  | 2,453 |  |  | 58 |  |  | (30 | ) |  | (1,952 | ) |  | (15 | ) |  | 2,887 |  |  | 1,974 |  |  | — |  |  | 5,436 |
Ending balance |  | $ | 4,483 |  |  | $ | 11,407 |  |  | $ | 6,907 |  |  | $ | 2,064 |  |  | $ | 3,519 |  |  | $ | 13 |  |  | $ | 16,702 |  |  | $ | 3,179 |  |  | $ | — |  |  | $ | 48,274 |
Ending balance: individually evaluated for impairment |  | $ | 1,388 |  |  | $ | — |  |  | $ | 469 |  |  | $ | 919 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,084 |  |  | $ | 7 |  |  |  |  | $ | 5,867 |
Ending balance: collectively evaluated for impairment |  | $ | 3,095 |  |  | $ | 11,407 |  |  | $ | 6,438 |  |  | $ | 1,145 |  |  | $ | 3,519 |  |  | $ | 13 |  |  | $ | 13,618 |  |  | $ | 3,172 |  |  | $ | — |  |  | $ | 42,407 |
Financing Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 2,062,458 |  |  | $ | 618,113 |  |  | $ | 832,267 |  |  | $ | 17,369 |  |  | $ | 80,230 |  |  | $ | 14,318 |  |  | $ | 798,428 |  |  | $ | 118,450 |  |  |  |  | $ | 4,541,633 |
Ending balance: individually evaluated for impairment |  | $ | 22,560 |  |  | $ | — |  |  | $ | 2,909 |  |  | $ | 5,710 |  |  | $ | — |  |  | $ | — |  |  | $ | 22,853 |  |  | $ | 14 |  |  |  |  | $ | 54,046 |
Ending balance: collectively evaluated for impairment |  | $ | 2,039,898 |  |  | $ | 618,113 |  |  | $ | 829,358 |  |  | $ | 11,659 |  |  | $ | 80,230 |  |  | $ | 14,318 |  |  | $ | 775,575 |  |  | $ | 118,436 |  |  |  |  | $ | 4,487,587 |
Nine months ended September 30, 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 |  | (992 | ) |  | — |  |  | (182 | ) |  | (81 | ) |  | — |  |  | — |  |  | (1,256 | ) |  | (1,614 | ) |  | — |  |  | (4,125 | )
Recoveries |  | 1,056 |  |  | — |  |  | 624 |  |  | 253 |  |  | — |  |  | — |  |  | 1,277 |  |  | 694 |  |  | — |  |  | 3,904 |
Provision |  | 267 |  |  | 2,174 |  |  | 1,544 |  |  | (182 | ) |  | 2,717 |  |  | 10 |  |  | (1,744 | ) |  | 671 |  |  | (1,891 | ) |  | 3,566 |
Ending balance |  | $ | 5,865 |  |  | $ | 7,233 |  |  | $ | 7,215 |  |  | $ | 1,807 |  |  | $ | 5,114 |  |  | $ | 29 |  |  | $ | 14,080 |  |  | $ | 2,118 |  |  | $ | — |  |  | $ | 43,461 |
Ending balance: individually evaluated for impairment |  | $ | 917 |  |  | $ | 4 |  |  | $ | 8 |  |  | $ | 1,171 |  |  | $ | — |  |  | $ | — |  |  | $ | 810 |  |  | $ | 5 |  |  |  |  | $ | 2,915 |
Ending balance: collectively evaluated for impairment |  | $ | 4,948 |  |  | $ | 7,229 |  |  | $ | 7,207 |  |  | $ | 636 |  |  | $ | 5,114 |  |  | $ | 29 |  |  | $ | 13,270 |  |  | $ | 2,113 |  |  | $ | — |  |  | $ | 40,546 |
Financing Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 2,030,337 |  |  | $ | 502,356 |  |  | $ | 808,991 |  |  | $ | 16,935 |  |  | $ | 87,461 |  |  | $ | 18,699 |  |  | $ | 770,079 |  |  | $ | 107,531 |  |  |  |  | $ | 4,342,389 |
Ending balance: individually evaluated for impairment |  | $ | 20,015 |  |  | $ | 754 |  |  | $ | 392 |  |  | $ | 8,872 |  |  | $ | — |  |  | $ | — |  |  | $ | 15,058 |  |  | $ | 16 |  |  |  |  | $ | 45,107 |
Ending balance: collectively evaluated for impairment |  | $ | 2,010,322 |  |  | $ | 501,602 |  |  | $ | 808,599 |  |  | $ | 8,063 |  |  | $ | 87,461 |  |  | $ | 18,699 |  |  | $ | 755,021 |  |  | $ | 107,515 |  |  |  |  | $ | 4,297,282 |
Credit quality. ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans. Each loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications: Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the PD Model rating, the loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens, and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the Bank may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The credit risk profile by internally assigned grade for loans was as follows:
|  | September 30, 2015 |  | December 31, 2014
(in thousands) |  | Commercial real estate |  | Commercial construction |  | Commercial |  | Commercial real estate |  | Commercial construction |  | Commercial
Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 563,734 |  |  | $ | 70,950 |  |  | $ | 745,624 |  |  | $ | 493,105 |  |  | $ | 79,312 |  |  | $ | 743,334 |
Special mention |  | 9,460 |  |  | 9,280 |  |  | 10,316 |  |  | 5,209 |  |  | — |  |  | 16,095 |
Substandard |  | 44,919 |  |  | — |  |  | 40,662 |  |  | 33,603 |  |  | 17,126 |  |  | 31,665 |
Doubtful |  | — |  |  | — |  |  | 1,826 |  |  | — |  |  | — |  |  | 663 |
Loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | 618,113 |  |  | $ | 80,230 |  |  | $ | 798,428 |  |  | $ | 531,917 |  |  | $ | 96,438 |  |  | $ | 791,757 |
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
September 30, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 6,354 |  |  | $ | 1,722 |  |  | $ | 11,852 |  |  | $ | 19,928 |  |  | $ | 2,042,530 |  |  | $ | 2,062,458 |  |  | $ | — |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 618,113 |  |  | 618,113 |  |  | — |
Home equity line of credit |  | 1,192 |  |  | 81 |  |  | 436 |  |  | 1,709 |  |  | 830,558 |  |  | 832,267 |  |  | — |
Residential land |  | 120 |  |  | — |  |  | 415 |  |  | 535 |  |  | 16,834 |  |  | 17,369 |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 80,230 |  |  | 80,230 |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 14,318 |  |  | 14,318 |  |  | — |
Commercial |  | 546 |  |  | 312 |  |  | 1,005 |  |  | 1,863 |  |  | 796,565 |  |  | 798,428 |  |  | — |
Consumer |  | 1,357 |  |  | 491 |  |  | 377 |  |  | 2,225 |  |  | 116,225 |  |  | 118,450 |  |  | — |
Total loans |  | $ | 9,569 |  |  | $ | 2,606 |  |  | $ | 14,085 |  |  | $ | 26,260 |  |  | $ | 4,515,373 |  |  | $ | 4,541,633 |  |  | $ | — |
December 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 6,124 |  |  | $ | 1,732 |  |  | $ | 12,632 |  |  | $ | 20,488 |  |  | $ | 2,023,717 |  |  | $ | 2,044,205 |  |  | $ | — |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 531,917 |  |  | 531,917 |  |  | — |
Home equity line of credit |  | 1,341 |  |  | 501 |  |  | 194 |  |  | 2,036 |  |  | 816,779 |  |  | 818,815 |  |  | — |
Residential land |  | — |  |  | — |  |  | — |  |  | — |  |  | 16,240 |  |  | 16,240 |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 96,438 |  |  | 96,438 |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 18,961 |  |  | 18,961 |  |  | — |
Commercial |  | 699 |  |  | 145 |  |  | 569 |  |  | 1,413 |  |  | 790,344 |  |  | 791,757 |  |  | — |
Consumer |  | 829 |  |  | 333 |  |  | 403 |  |  | 1,565 |  |  | 121,091 |  |  | 122,656 |  |  | — |
Total loans |  | $ | 8,993 |  |  | $ | 2,711 |  |  | $ | 13,798 |  |  | $ | 25,502 |  |  | $ | 4,415,487 |  |  | $ | 4,440,989 |  |  | $ | — |
The credit risk profile based on nonaccrual loans, accruing loans 90 days or more past due and TDR loans was as follows:
(in thousands) |  | September 30, 2015 |  | December 31, 2014
Real estate: |  |  |  |  |  |
Residential 1-4 family |  | $ | 19,987 |  |  | $ | 19,253 |
Commercial real estate |  | — |  |  | 5,112 |
Home equity line of credit |  | 1,982 |  |  | 1,087 |
Residential land |  | 975 |  |  | 720 |
Commercial construction |  | — |  |  | — |
Residential construction |  | — |  |  | — |
Commercial |  | 21,767 |  |  | 10,053 |
Consumer |  | 645 |  |  | 661 |
Total nonaccrual loans |  | $ | 45,356 |  |  | $ | 36,886 |
Real estate: |  |  |  |
Residential 1-4 family |  | $ | — |  |  | $ | — |
Commercial real estate |  | — |  |  | — |
Home equity line of credit |  | — |  |  | — |
Residential land |  | — |  |  | — |
Commercial construction |  | — |  |  | — |
Residential construction |  | — |  |  | — |
Commercial |  | — |  |  | — |
Consumer |  | — |  |  | — |
Total accruing loans 90 days or more past due |  | $ | — |  |  | $ | — |
Real estate: |  |  |  |
Residential 1-4 family |  | $ | 14,182 |  |  | $ | 13,525 |
Commercial real estate |  | — |  |  | — |
Home equity line of credit |  | 2,297 |  |  | 480 |
Residential land |  | 4,735 |  |  | 7,130 |
Commercial construction |  | — |  |  | — |
Residential construction |  | — |  |  | — |
Commercial |  | 1,212 |  |  | 2,972 |
Consumer |  | — |  |  | — |
Total troubled debt restructured loans not included above |  | $ | 22,426 |  |  | $ | 24,107 |
The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
|  | September 30, 2015 |  | Three months ended September 30, 2015 |  | Nine months ended September 30, 2015
(in thousands) |  | Recorded investment |  | Unpaid principal balance |  | Related Allowance |  | Average recorded investment |  | Interest income recognized* |  | Average recorded investment |  | Interest income recognized*
With no related allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 11,125 |  |  | $ | 12,476 |  |  | $ | — |  |  | $ | 11,159 |  |  | $ | 119 |  |  | $ | 11,301 |  |  | $ | 274 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 74 |  |  | 362 |  |  | 74 |
Home equity line of credit |  | 507 |  |  | 744 |  |  | — |  |  | 498 |  |  | 1 |  |  | 444 |  |  | 3 |
Residential land |  | 1,652 |  |  | 2,421 |  |  | — |  |  | 2,280 |  |  | 29 |  |  | 2,647 |  |  | 125 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 3,152 |  |  | 4,765 |  |  | — |  |  | 4,250 |  |  | 3 |  |  | 5,659 |  |  | 144 |
Consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 16,436 |  |  | $ | 20,406 |  |  | $ | — |  |  | $ | 18,187 |  |  | $ | 226 |  |  | $ | 20,413 |  |  | $ | 620 |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 11,435 |  |  | $ | 11,488 |  |  | $ | 1,388 |  |  | $ | 11,451 |  |  | $ | 174 |  |  | $ | 11,585 |  |  | $ | 430 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,985 |  |  | — |
Home equity line of credit |  | 2,402 |  |  | 2,464 |  |  | 469 |  |  | 2,048 |  |  | 13 |  |  | 1,295 |  |  | 27 |
Residential land |  | 4,058 |  |  | 4,136 |  |  | 919 |  |  | 3,971 |  |  | 74 |  |  | 4,435 |  |  | 241 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 19,701 |  |  | 21,976 |  |  | 3,084 |  |  | 18,487 |  |  | 106 |  |  | 10,942 |  |  | 192 |
Consumer |  | 14 |  |  | 14 |  |  | 7 |  |  | 14 |  |  | — |  |  | 15 |  |  | — |
|  | $ | 37,610 |  |  | $ | 40,078 |  |  | $ | 5,867 |  |  | $ | 35,971 |  |  | $ | 367 |  |  | $ | 30,257 |  |  | $ | 890 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 22,560 |  |  | $ | 23,964 |  |  | $ | 1,388 |  |  | $ | 22,610 |  |  | $ | 293 |  |  | $ | 22,886 |  |  | $ | 704 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 74 |  |  | 2,347 |  |  | 74 |
Home equity line of credit |  | 2,909 |  |  | 3,208 |  |  | 469 |  |  | 2,546 |  |  | 14 |  |  | 1,739 |  |  | 30 |
Residential land |  | 5,710 |  |  | 6,557 |  |  | 919 |  |  | 6,251 |  |  | 103 |  |  | 7,082 |  |  | 366 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 22,853 |  |  | 26,741 |  |  | 3,084 |  |  | 22,737 |  |  | 109 |  |  | 16,601 |  |  | 336 |
Consumer |  | 14 |  |  | 14 |  |  | 7 |  |  | 14 |  |  | — |  |  | 15 |  |  | — |
|  | $ | 54,046 |  |  | $ | 60,484 |  |  | $ | 5,867 |  |  | $ | 54,158 |  |  | $ | 593 |  |  | $ | 50,670 |  |  | $ | 1,510 |
|  | December 31, 2014 |  | Year ended December 31, 2014
(in thousands) |  | Recorded investment |  | Unpaid principal balance |  | Related allowance |  | Average recorded investment |  | Interest income recognized*
With no related allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 11,654 |  |  | $ | 12,987 |  |  | $ | — |  |  | $ | 9,056 |  |  | $ | 227 |
Commercial real estate |  | 571 |  |  | 626 |  |  | — |  |  | 194 |  |  | — |
Home equity line of credit |  | 363 |  |  | 606 |  |  | — |  |  | 402 |  |  | 5 |
Residential land |  | 2,344 |  |  | 3,200 |  |  | — |  |  | 2,728 |  |  | 172 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 8,235 |  |  | 11,471 |  |  | — |  |  | 5,204 |  |  | 38 |
Consumer |  | — |  |  | — |  |  | — |  |  | 8 |  |  | — |
|  | $ | 23,167 |  |  | $ | 28,890 |  |  | $ | — |  |  | $ | 17,592 |  |  | $ | 442 |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 11,327 |  |  | $ | 11,347 |  |  | $ | 951 |  |  | $ | 8,822 |  |  | $ | 419 |
Commercial real estate |  | 4,541 |  |  | 4,541 |  |  | 1,845 |  |  | 3,415 |  |  | 478 |
Home equity line of credit |  | 416 |  |  | 420 |  |  | 46 |  |  | 132 |  |  | 6 |
Residential land |  | 5,506 |  |  | 5,584 |  |  | 1,057 |  |  | 6,415 |  |  | 484 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 4,873 |  |  | 5,211 |  |  | 760 |  |  | 12,089 |  |  | 438 |
Consumer |  | 16 |  |  | 16 |  |  | 6 |  |  | 9 |  |  | — |
|  | $ | 26,679 |  |  | $ | 27,119 |  |  | $ | 4,665 |  |  | $ | 30,882 |  |  | $ | 1,825 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 22,981 |  |  | $ | 24,334 |  |  | $ | 951 |  |  | $ | 17,878 |  |  | $ | 646 |
Commercial real estate |  | 5,112 |  |  | 5,167 |  |  | 1,845 |  |  | 3,609 |  |  | 478 |
Home equity line of credit |  | 779 |  |  | 1,026 |  |  | 46 |  |  | 534 |  |  | 11 |
Residential land |  | 7,850 |  |  | 8,784 |  |  | 1,057 |  |  | 9,143 |  |  | 656 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 13,108 |  |  | 16,682 |  |  | 760 |  |  | 17,293 |  |  | 476 |
Consumer |  | 16 |  |  | 16 |  |  | 6 |  |  | 17 |  |  | — |
|  | $ | 49,846 |  |  | $ | 56,009 |  |  | $ | 4,665 |  |  | $ | 48,474 |  |  | $ | 2,267 |
* | 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 and the impact on the allowance for loan losses were as follows:
|  | Three months ended September 30, 2015 |  | Nine months ended September 30, 2015
|  | Number of contracts |  | Outstanding recorded investment 1 |  | Net increase in allowance |  | Number of contracts |  | Outstanding recorded investment 1 |  | Net increase in allowance
(dollars in thousands) |  |  | Pre-modification |  | Post-modification |  | (as of period end) |  |  | Pre-modification |  | Post-modification |  | (as of period end)
Troubled debt restructurings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 3 |  |  | $ | 860 |  |  | $ | 866 |  |  | $ | 1 |  |  | 10 |  |  | $ | 2,055 |  |  | $ | 2,079 |  |  | $ | 48 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Home equity line of credit |  | 10 |  |  | 943 |  |  | 943 |  |  | 140 |  |  | 32 |  |  | 2,062 |  |  | 2,062 |  |  | 300 |
Residential land |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 2 |  |  | 1,208 |  |  | 1,208 |  |  | 16 |  |  | 6 |  |  | 1,461 |  |  | 1,461 |  |  | 94 |
Consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | 15 |  |  | $ | 3,011 |  |  | $ | 3,017 |  |  | $ | 157 |  |  | 48 |  |  | $ | 5,578 |  |  | $ | 5,602 |  |  | $ | 442 |
|  | Three months ended September 30, 2014 |  | Nine months ended September 30, 2014
|  | Number of contracts |  | Outstanding recorded investment 1 |  | Net increase in allowance |  | Number of contracts |  | Outstanding recorded investment 1 |  | Net increase in allowance
(dollars in thousands) |  |  | Pre-modification |  | Post-modification |  | (as of period end) |  |  | Pre-modification |  | Post-modification |  | (as of period end)
Troubled debt restructurings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 6 |  |  | $ | 1,800 |  |  | $ | 1,825 |  |  | $ | 43 |  |  | 18 |  |  | $ | 4,915 |  |  | $ | 4,972 |  |  | $ | 294 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Home equity line of credit |  | 1 |  |  | 91 |  |  | 91 |  |  | — |  |  | 1 |  |  | 91 |  |  | 91 |  |  | — |
Residential land |  | 2 |  |  | 256 |  |  | 256 |  |  | — |  |  | 18 |  |  | 4,304 |  |  | 4,304 |  |  | 400 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 2 |  |  | 2,600 |  |  | 2,600 |  |  | — |  |  | 7 |  |  | 3,827 |  |  | 3,827 |  |  | 14 |
Consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | 11 |  |  | $ | 4,747 |  |  | $ | 4,772 |  |  | $ | 43 |  |  | 44 |  |  | $ | 13,137 |  |  | $ | 13,194 |  |  | $ | 708 |
1 | The reported balances include loans that became TDR during the period, and were fully paid-off, charged-off, or sold prior to period end.
Loans modified in TDRs that experienced a payment default of 90 days or more in for the indicated periods, and for which the payment of default occurred within one year of the modification, were as follows:
|  | Three months ended September 30, 2015 |  | Nine months ended September 30, 2015
(dollars in thousands) |  | Number of contracts |  | Recorded investment |  | 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 |  | 1 |  | 7 |  |  | 1 |  | 7 |
Residential land |  | — |  | — |  |  | — |  | — |
Commercial construction |  | — |  | — |  |  | — |  | — |
Residential construction |  | — |  | — |  |  | — |  | — |
Commercial loans |  | — |  | — |  |  | — |  | — |
Consumer loans |  | — |  | — |  |  | — |  | — |
|  | 1 |  | $ | 7 |  |  | 1 |  | $ | 7 |
|  | Three months ended September 30, 2014 |  | Nine months ended September 30, 2014
(dollars in thousands) |  | Number of contracts |  | Recorded investment |  | Number of contracts |  | Recorded investment
Troubled debt restructurings that subsequently defaulted |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | — |  | $ | — |  |  | 1 |  | $ | 390 |
Commercial real estate |  | — |  | — |  |  | — |  | — |
Home equity line of credit |  | — |  | — |  |  | — |  | — |
Residential land |  | — |  | — |  |  | — |  | — |
Commercial construction |  | — |  | — |  |  | — |  | — |
Residential construction |  | — |  | — |  |  | — |  | — |
Commercial loans |  | — |  | — |  |  | — |  | — |
Consumer loans |  | — |  | — |  |  | — |  | — |
|  | — |  | $ | — |  |  | 1 |  | $ | 390 |
If loans modified in a TDR subsequently default, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been impaired or modified in TDRs totaled $0.1 million at September 30, 2015. Mortgage servicing rights. In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these sales, but may retain the servicing rights of the loans sold. Mortgage servicing fees, a component of other income, net, were $0.9 million for the three months ended September 30, 2015 and 2014 and $2.7 million and $2.6 million for the nine months ended September 30, 2015 and 2014, respectively. The carrying values of mortgage servicing assets were as follows:
(in thousands) |  | Gross carrying amount |  | Accumulated amortization |  | Valuation allowance |  | Net carrying amount
September 30, 2015 |  | $ | 29,818 |  |  | $ | (17,560 | ) |  | $ | — |  |  | $ | 12,258 |
September 30, 2014 |  | 26,685 |  |  | (15,003 | ) |  | (158 | ) |  | 11,524 |
Changes related to mortgage servicing rights were as follows:
(in thousands) | 2015 |  |  | 2014 |
Mortgage servicing rights |  |  |
Balance, January 1 | $ | 11,749 |  |  | $ | 11,938 |
Amount capitalized | 2,636 |  |  | 1,098 |
Amortization | (2,123 | ) |  | (1,297 | )
Other-than-temporary impairment | (4 | ) |  | (57 | )
Carrying amount before valuation allowance, September 30 | 12,258 |  |  | 11,682 |
Valuation allowance for mortgage servicing rights |  |  |
Balance, January 1 | 209 |  |  | 251 |
Provision (recovery) | (205 | ) |  | (36 | )
Other-than-temporary impairment | (4 | ) |  | (57 | )
Balance, September 30 | — |  |  | 158 |
Net carrying value of mortgage servicing rights | $ | 12,258 |  |  | $ | 11,524 |
ASB capitalizes mortgage servicing rights acquired through either the purchase or origination of mortgage loans for sale with servicing rights retained. Changes in mortgage interest rates impact the value of ASB’s mortgage servicing rights. Rising interest rates typically result in slower prepayment speeds in the loans being serviced for others, which increases the value of mortgage servicing rights, whereas declining interest rates typically result in faster prepayment speeds which decrease the value of mortgage servicing rights and increase the amortization of the mortgage servicing rights. Key assumptions used in estimating the fair value of the bank’s mortgage servicing rights were as follows:
(dollars in thousands) |  | September 30, 2015 |  |  | December 31, 2014 |
Unpaid principal balance |  | $ | 1,503,369 |  |  | $ | 1,391,030 |
Weighted average note rate |  | 4.01 | % |  | 4.07 | %
Weighted average discount rate |  | 9.5 | % |  | 9.6 | %
Weighted average prepayment speed |  | 9.9 | % |  | 9.5 | %
The sensitivity analysis of fair value of MSR to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions is as follows:
(dollars in thousands) |  | September 30, 2015 |  |  | December 31, 2014 |
Prepayment rate: |  |  |  |
25 basis points adverse rate change |  | $ | (832 | ) |  | $ | (757 | )
50 basis points adverse rate change |  | (1,643 | ) |  | (1,524 | )
Discount rate: |  |  |  |
25 basis points adverse rate change |  | (148 | ) |  | (140 | )
50 basis points adverse rate change |  | (293 | ) |  | (278 | )
The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear. In October 2015, ASB entered into an agreement to sell certain MSRs for approximately 1,500 underlying fully amortizing, conventional residential mortgage loans with an unpaid principal balance of $419 million, subject to FNMA approval. Other borrowings. 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 |  |  |  |  |  |
September 30, 2015 |  | $269 |  | $— |  | $269
December 31, 2014 |  | 191 |  | — |  | 191
|  | 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
September 30, 2015 |  |  |  |  |  |  |  |  |  |  |  |
Financial institution |  | $ | 50 |  |  | $ | 50 |  |  | $ | — |  |  | $ | — |
Government entities |  | 66 |  |  | 66 |  |  | — |  |  | — |
Commercial account holders |  | 153 |  |  | 153 |  |  | — |  |  | — |
Total |  | $ | 269 |  |  | $ | 269 |  |  | $ | — |  |  | $ | — |
December 31, 2014 |  |  |  |  |  |  |  |  |  |  |  |
Financial institution |  | $ | 50 |  |  | $ | 50 |  |  | $ | — |  |  | $ | — |
Government entities |  | 56 |  |  | 56 |  |  | — |  |  | — |
Commercial account holders |  | 85 |  |  | 85 |  |  | — |  |  | — |
Total |  | $ | 191 |  |  | $ | 191 |  |  | $ | — |  |  | $ | — |
Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risk associated with selling loans. ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time. The notional amount and fair value of ASB’s derivative financial instruments were as follows:
|  | September 30, 2015 |  | December 31, 2014
(in thousands) |  | Notional amount |  | Fair value |  | Notional amount |  | Fair value
Interest rate lock commitments |  | $ | 27,587 |  |  | $ | 585 |  |  | $ | 29,330 |  |  | $ | 390 |
Forward commitments |  | 24,706 |  |  | (124 | ) |  | 32,833 |  |  | (106 | )
ASB’s derivative financial instruments, their fair values, and balance sheet location were as follows:
Derivative Financial Instruments Not Designated as Hedging Instruments 1 |  | September 30, 2015 |  | December 31, 2014
(in thousands) |  | Asset derivatives |  | Liability derivatives |  | Asset derivatives |  | Liability derivatives
Interest rate lock commitments |  | $ | 585 |  |  | $ | — |  |  | $ | 393 |  |  | $ | 3 |
Forward commitments |  | 1 |  |  | 125 |  |  | 5 |  |  | 111 |
|  | $ | 586 |  |  | $ | 125 |  |  | $ | 398 |  |  | $ | 114 |
1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets. The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in the statements of income:
Derivative Financial Instruments Not Designated as Hedging Instruments | Location of net gains (losses) recognized in the Statement of Income |  | Three months ended September 30 |  | Nine months ended September 30
(in thousands) |  | 2015 |  | 2014 |  | 2015 |  | 2014
Interest rate lock commitments | Mortgage banking income |  | $ | 139 |  |  | $ | 215 |  |  | $ | 195 |  |  | $ | (249 | )
Forward commitments | Mortgage banking income |  | (117 | ) |  | (25 | ) |  | (18 | ) |  | (164 | )
|  |  | $ | 22 |  |  | $ | 190 |  |  | $ | 177 |  |  | $ | (413 | )
Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $9.2 million and $14.8 million at September 30, 2015 and December 31, 2014, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. Cash contributions and payments made on commitments to LIHTC investment partnerships are classified as operating activities in the Company’s consolidated statements of cash flows. As of September 30, 2015, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships. Contingencies. 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. ASB filed a motion to dismiss the lawsuit on the basis that ASB’s overdraft practices are governed by federal regulations established for federal savings banks which preempt the customer’s state law claims. In July 2011, the Circuit Court denied ASB's motion without prejudice and ASB appealed that decision. ASB's appeal is pending before the Hawaii Supreme Court. However, in December 2014, through a voluntary mediation process, ASB reached a tentative settlement of the claims. The tentative settlement, which received final court approval on May 21, 2015, provided for a payment of $2.0 million into a class settlement fund, the proceeds of which would be used to refund class members and pay attorneys’ fees and administrative and other costs, in exchange for a complete release of all claims asserted against ASB. The $2.0 million settlement amount was fully reserved by ASB in December 2014 and paid into the settlement fund in January 2015.

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