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Bank segment | 3 Months Ended
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Mar. 31, 2017
Bank subsidiary |
Bank segment | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income Data (unaudited)
|  | Three months ended March 31
(in thousands) |  | 2017 |  | 2016
Interest and dividend income |  |  |  |  |  |
Interest and fees on loans |  | $ | 50,742 |  |  | $ | 48,437 |
Interest and dividends on investment securities |  | 6,980 |  |  | 5,017 |
Total interest and dividend income |  | 57,722 |  |  | 53,454 |
Interest expense |  |  |  |  |  |
Interest on deposit liabilities |  | 2,103 |  |  | 1,592 |
Interest on other borrowings |  | 816 |  |  | 1,485 |
Total interest expense |  | 2,919 |  |  | 3,077 |
Net interest income |  | 54,803 |  |  | 50,377 |
Provision for loan losses |  | 3,907 |  |  | 4,766 |
Net interest income after provision for loan losses |  | 50,896 |  |  | 45,611 |
Noninterest income |  |  |  |  |  |
Fees from other financial services |  | 5,610 |  |  | 5,499 |
Fee income on deposit liabilities |  | 5,428 |  |  | 5,156 |
Fee income on other financial products |  | 1,866 |  |  | 2,205 |
Bank-owned life insurance |  | 983 |  |  | 998 |
Mortgage banking income |  | 789 |  |  | 1,195 |
Other income, net |  | 458 |  |  | 333 |
Total noninterest income |  | 15,134 |  |  | 15,386 |
Noninterest expense |  |  |  |  |  |
Compensation and employee benefits |  | 23,237 |  |  | 22,434 |
Occupancy |  | 4,154 |  |  | 4,138 |
Data processing |  | 3,280 |  |  | 3,172 |
Services |  | 2,360 |  |  | 2,911 |
Equipment |  | 1,748 |  |  | 1,663 |
Office supplies, printing and postage |  | 1,535 |  |  | 1,365 |
Marketing |  | 517 |  |  | 861 |
FDIC insurance |  | 728 |  |  | 884 |
Other expense |  | 4,311 |  |  | 3,975 |
Total noninterest expense |  | 41,870 |  |  | 41,403 |
Income before income taxes |  | 24,160 |  |  | 19,594 |
Income taxes |  | 8,347 |  |  | 6,921 |
Net income |  | $ | 15,813 |  |  | $ | 12,673 |
American Savings Bank, F.S.B. Statements of Comprehensive Income Data (unaudited)
|  | Three months ended March 31
(in thousands) |  | 2017 |  | 2016
Net income |  | $ | 15,813 |  |  | $ | 12,673 |
Other comprehensive income, net of taxes: |  |  |  |  |  |
Net unrealized gains on available-for-sale investment securities: |  |  |  |  |  |
Net unrealized gains on available-for-sale investment securities arising during the period, net of taxes of $148 and $4,905, respectively |  | 223 |  |  | 7,429 |
Retirement benefit plans: |  |  |  |  |  |
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $404 and $137, respectively |  | 612 |  |  | 208 |
Other comprehensive income, net of taxes |  | 835 |  |  | 7,637 |
Comprehensive income |  | $ | 16,648 |  |  | $ | 20,310 |
American Savings Bank, F.S.B. Balance Sheets Data (unaudited)
(in thousands) |  | March 31, 2017 |  | December 31, 2016
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  |  |  |  | $ | 125,901 |  |  |  |  |  | $ | 137,083 |
Interest-bearing deposits |  |  |  | 94,573 |  |  |  |  | 52,128 |
Restricted cash |  |  |  | — |  |  |  |  | 1,764 |
Available-for-sale investment securities, at fair value |  |  |  |  | 1,228,922 |  |  |  |  |  | 1,105,182 |
Stock in Federal Home Loan Bank, at cost |  |  |  |  | 11,706 |  |  |  |  |  | 11,218 |
Loans receivable held for investment |  |  |  |  | 4,725,271 |  |  |  |  |  | 4,738,693 |
Allowance for loan losses |  |  |  |  | (55,997 | ) |  |  |  |  | (55,533 | )
Net loans |  |  |  |  | 4,669,274 |  |  |  |  |  | 4,683,160 |
Loans held for sale, at lower of cost or fair value |  |  |  |  | 10,454 |  |  |  |  |  | 18,817 |
Other |  |  |  |  | 336,626 |  |  |  |  |  | 329,815 |
Goodwill |  |  |  |  | 82,190 |  |  |  |  |  | 82,190 |
Total assets |  |  |  |  | $ | 6,559,646 |  |  |  |  |  | $ | 6,421,357 |
Liabilities and shareholder’s equity |  |  |  |  |  |  |  |  |  |  |  |
Deposit liabilities—noninterest-bearing |  |  |  |  | $ | 1,696,390 |  |  |  |  |  | $ | 1,639,051 |
Deposit liabilities—interest-bearing |  |  |  |  | 3,978,700 |  |  |  |  |  | 3,909,878 |
Other borrowings |  |  |  |  | 200,154 |  |  |  |  |  | 192,618 |
Other |  |  |  |  | 98,223 |  |  |  |  |  | 101,635 |
Total liabilities |  |  |  |  | 5,973,467 |  |  |  |  |  | 5,843,182 |
Commitments and contingencies |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  |  |  | 1 |  |  |  |  |  | 1 |
Additional paid in capital |  |  |  | 343,435 |  |  |  |  | 342,704 |
Retained earnings |  |  |  |  | 264,381 |  |  |  |  |  | 257,943 |
Accumulated other comprehensive loss, net of tax benefits |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized losses on securities |  | $ | (7,708 | ) |  |  |  |  | $ | (7,931 | ) |  |  |
Retirement benefit plans |  | (13,930 | ) |  | (21,638 | ) |  | (14,542 | ) |  | (22,473 | )
Total shareholder’s equity |  |  |  |  | 586,179 |  |  |  |  |  | 578,175 |
Total liabilities and shareholder’s equity |  |  |  |  | $ | 6,559,646 |  |  |  |  |  | $ | 6,421,357 |
Other assets |  |  |  |  |  |  |  |  |  |  |  |
Bank-owned life insurance |  |  |  |  | $ | 144,661 |  |  |  |  |  | $ | 143,197 |
Premises and equipment, net |  |  |  |  | 94,865 |  |  |  |  |  | 90,570 |
Prepaid expenses |  |  |  |  | 4,031 |  |  |  |  |  | 3,348 |
Accrued interest receivable |  |  |  |  | 16,508 |  |  |  |  |  | 16,824 |
Mortgage-servicing rights |  |  |  |  | 9,294 |  |  |  |  |  | 9,373 |
Low-income housing equity investments |  |  |  | 46,782 |  |  |  |  | 47,081 |
Real estate acquired in settlement of loans, net |  |  |  |  | 1,242 |  |  |  |  |  | 1,189 |
Other |  |  |  |  | 19,243 |  |  |  |  |  | 18,233 |
|  |  |  |  | $ | 336,626 |  |  |  |  |  | $ | 329,815 |
Other liabilities |  |  |  |  |  |  |  |  |  |  |  |
Accrued expenses |  |  |  |  | $ | 32,324 |  |  |  |  |  | $ | 36,754 |
Federal and state income taxes payable |  |  |  |  | 10,642 |  |  |  |  |  | 4,728 |
Cashier’s checks |  |  |  |  | 23,777 |  |  |  |  |  | 24,156 |
Advance payments by borrowers |  |  |  |  | 6,134 |  |  |  |  |  | 10,335 |
Other |  |  |  |  | 25,346 |  |  |  |  |  | 25,662 |
|  |  |  |  | $ | 98,223 |  |  |  |  |  | $ | 101,635 |
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 $100 million and $100 million, respectively, as of March 31, 2017 and $93 million and $100 million, respectively, as of December 31, 2016. 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
(dollars in thousands) |  |  |  |  |  | Number of issues |  | Fair value |  | Amount |  | Number of issues |  | Fair value |  | Amount
March 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and federal agency obligations |  | $ | 189,420 |  |  | $ | 928 |  |  | $ | (1,991 | ) |  | $ | 188,357 |  |  | 14 |  |  | $ | 97,572 |  |  | $ | (1,855 | ) |  | 1 |  |  | $ | 3,492 |  |  | $ | (136 | )
Mortgage-related securities- FNMA, FHLMC and GNMA |  | 1,036,872 |  |  | 1,719 |  |  | (13,453 | ) |  | 1,025,138 |  |  | 96 |  |  | 792,672 |  |  | (11,920 | ) |  | 13 |  |  | 45,025 |  |  | (1,533 | )
Mortgage revenue bond |  | 15,427 |  |  | — |  |  | — |  |  | 15,427 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 1,241,719 |  |  | $ | 2,647 |  |  | $ | (15,444 | ) |  | $ | 1,228,922 |  |  | 110 |  |  | $ | 890,244 |  |  | $ | (13,775 | ) |  | 14 |  |  | $ | 48,517 |  |  | $ | (1,669 | )
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and federal agency obligations |  | $ | 193,515 |  |  | $ | 920 |  |  | $ | (2,154 | ) |  | $ | 192,281 |  |  | 18 |  |  | $ | 123,475 |  |  | $ | (2,010 | ) |  | 1 |  |  | $ | 3,485 |  |  | $ | (144 | )
Mortgage-related securities- FNMA, FHLMC and GNMA |  | 909,408 |  |  | 1,742 |  |  | (13,676 | ) |  | 897,474 |  |  | 88 |  |  | 709,655 |  |  | (12,143 | ) |  | 13 |  |  | 47,485 |  |  | (1,533 | )
Mortgage revenue bond |  | 15,427 |  |  | — |  |  | — |  |  | 15,427 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 1,118,350 |  |  | $ | 2,662 |  |  | $ | (15,830 | ) |  | $ | 1,105,182 |  |  | 106 |  |  | $ | 833,130 |  |  | $ | (14,153 | ) |  | 14 |  |  | $ | 50,970 |  |  | $ | (1,677 | )
ASB does not believe that the investment securities that were in an unrealized loss position at March 31, 2017, represent an other-than-temporary impairment. Total gross unrealized losses were primarily attributable to rising interest rates relative to when the investment securities were purchased and not due to the credit quality of the investment securities. The contractual cash flows of the U.S. Treasury, federal agency obligations and mortgage-related securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB did not recognize OTTI for the quarters ended March 31, 2017 and 2016. U.S. Treasury, federal agency obligations, and the mortgage revenue bond 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:
March 31, 2017 |  | Amortized cost |  | Fair value
(in thousands) |  |  |  |
Due in one year or less |  | $ | 9,986 |  |  | $ | 9,993 |
Due after one year through five years |  | 77,165 |  |  | 77,274 |
Due after five years through ten years |  | 78,014 |  |  | 77,582 |
Due after ten years |  | 39,682 |  |  | 38,935 |
|  | 204,847 |  |  | 203,784 |
Mortgage-related securities-FNMA, FHLMC and GNMA |  | 1,036,872 |  |  | 1,025,138 |
Total available-for-sale securities |  | $ | 1,241,719 |  |  | $ | 1,228,922 |
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 |  | Unallo-cated |  | Total
Three months ended March 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 2,873 |  |  | $ | 16,004 |  |  | $ | 5,039 |  |  | $ | 1,738 |  |  | $ | 6,449 |  |  | $ | 12 |  |  | $ | 16,618 |  |  | $ | 6,800 |  |  | $ | — |  |  | $ | 55,533 |
Charge-offs |  | (6 | ) |  | — |  |  | (14 | ) |  | — |  |  | — |  |  | — |  |  | (1,510 | ) |  | (2,810 | ) |  | — |  |  | (4,340 | )
Recoveries |  | 9 |  |  | — |  |  | 91 |  |  | 203 |  |  | — |  |  | — |  |  | 297 |  |  | 297 |  |  | — |  |  | 897 |
Provision |  | (95 | ) |  | 500 |  |  | 301 |  |  | (462 | ) |  | 808 |  |  | (1 | ) |  | (503 | ) |  | 3,359 |  |  | — |  |  | 3,907 |
Ending balance |  | $ | 2,781 |  |  | $ | 16,504 |  |  | $ | 5,417 |  |  | $ | 1,479 |  |  | $ | 7,257 |  |  | $ | 11 |  |  | $ | 14,902 |  |  | $ | 7,646 |  |  | $ | — |  |  | $ | 55,997 |
March 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance: individually evaluated for impairment |  | $ | 1,386 |  |  | $ | 74 |  |  | $ | 228 |  |  | $ | 660 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,318 |  |  | $ | 34 |  |  |  |  | $ | 3,700 |
Ending balance: collectively evaluated for impairment |  | $ | 1,395 |  |  | $ | 16,430 |  |  | $ | 5,189 |  |  | $ | 819 |  |  | $ | 7,257 |  |  | $ | 11 |  |  | $ | 13,584 |  |  | $ | 7,612 |  |  | $ | — |  |  | $ | 52,297 |
Financing Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 2,058,202 |  |  | $ | 790,191 |  |  | $ | 866,880 |  |  | $ | 16,888 |  |  | $ | 130,808 |  |  | $ | 13,694 |  |  | $ | 661,016 |  |  | $ | 192,113 |  |  |  |  | $ | 4,729,792 |
Ending balance: individually evaluated for impairment |  | $ | 19,340 |  |  | $ | 1,515 |  |  | $ | 6,803 |  |  | $ | 2,863 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,175 |  |  | $ | 69 |  |  |  |  | $ | 39,765 |
Ending balance: collectively evaluated for impairment |  | $ | 2,038,862 |  |  | $ | 788,676 |  |  | $ | 860,077 |  |  | $ | 14,025 |  |  | $ | 130,808 |  |  | $ | 13,694 |  |  | $ | 651,841 |  |  | $ | 192,044 |  |  |  |  | $ | 4,690,027 |
Three months ended March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 4,186 |  |  | $ | 11,342 |  |  | $ | 7,260 |  |  | $ | 1,671 |  |  | $ | 4,461 |  |  | $ | 13 |  |  | $ | 17,208 |  |  | $ | 3,897 |  |  | $ | — |  |  | $ | 50,038 |
Charge-offs |  | (45 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,343 | ) |  | (1,570 | ) |  | — |  |  | (2,958 | )
Recoveries |  | 17 |  |  | — |  |  | 15 |  |  | 103 |  |  | — |  |  | — |  |  | 135 |  |  | 210 |  |  | — |  |  | 480 |
Provision |  | 435 |  |  | 464 |  |  | (103 | ) |  | (34 | ) |  | 1,703 |  |  | (1 | ) |  | 991 |  |  | 1,311 |  |  | — |  |  | 4,766 |
Ending balance |  | $ | 4,593 |  |  | $ | 11,806 |  |  | $ | 7,172 |  |  | $ | 1,740 |  |  | $ | 6,164 |  |  | $ | 12 |  |  | $ | 16,991 |  |  | $ | 3,848 |  |  | $ | — |  |  | $ | 52,326 |
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance: individually evaluated for impairment |  | $ | 1,352 |  |  | $ | 80 |  |  | $ | 215 |  |  | $ | 789 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,641 |  |  | $ | 6 |  |  |  |  | $ | 4,083 |
Ending balance: collectively evaluated for impairment |  | $ | 1,521 |  |  | $ | 15,924 |  |  | $ | 4,824 |  |  | $ | 949 |  |  | $ | 6,449 |  |  | $ | 12 |  |  | $ | 14,977 |  |  | $ | 6,794 |  |  | $ | — |  |  | $ | 51,450 |
Financing Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 2,048,051 |  |  | $ | 800,395 |  |  | $ | 863,163 |  |  | $ | 18,889 |  |  | $ | 126,768 |  |  | $ | 16,080 |  |  | $ | 692,051 |  |  | $ | 178,222 |  |  |  |  | $ | 4,743,619 |
Ending balance: individually evaluated for impairment |  | $ | 19,854 |  |  | $ | 1,569 |  |  | $ | 6,158 |  |  | $ | 3,629 |  |  | $ | — |  |  | $ | — |  |  | $ | 20,539 |  |  | $ | 10 |  |  |  |  | $ | 51,759 |
Ending balance: collectively evaluated for impairment |  | $ | 2,028,197 |  |  | $ | 798,826 |  |  | $ | 857,005 |  |  | $ | 15,260 |  |  | $ | 126,768 |  |  | $ | 16,080 |  |  | $ | 671,512 |  |  | $ | 178,212 |  |  |  |  | $ | 4,691,860 |
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 probability of default model rating, the loss given default and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that 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. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted. The credit risk profile by internally assigned grade for loans was as follows:
|  | March 31, 2017 |  | December 31, 2016
(in thousands) |  | Commercial real estate |  | Commercial construction |  | Commercial |  | Commercial real estate |  | Commercial construction |  | Commercial
Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 669,117 |  |  | $ | 84,495 |  |  | $ | 605,256 |  |  | $ | 701,657 |  |  | $ | 102,955 |  |  | $ | 614,139 |
Special mention |  | 89,370 |  |  | 22,500 |  |  | 22,568 |  |  | 65,541 |  |  | — |  |  | 25,229 |
Substandard |  | 31,704 |  |  | 23,813 |  |  | 33,192 |  |  | 33,197 |  |  | 23,813 |  |  | 52,683 |
Doubtful |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | 790,191 |  |  | $ | 130,808 |  |  | $ | 661,016 |  |  | $ | 800,395 |  |  | $ | 126,768 |  |  | $ | 692,051 |
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, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 3,557 |  |  | $ | 2,982 |  |  | $ | 3,419 |  |  | $ | 9,958 |  |  | $ | 2,048,244 |  |  | $ | 2,058,202 |  |  | $ | — |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 790,191 |  |  | 790,191 |  |  | — |
Home equity line of credit |  | 594 |  |  | 571 |  |  | 1,532 |  |  | 2,697 |  |  | 864,183 |  |  | 866,880 |  |  | — |
Residential land |  | — |  |  | 318 |  |  | 79 |  |  | 397 |  |  | 16,491 |  |  | 16,888 |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 130,808 |  |  | 130,808 |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 13,694 |  |  | 13,694 |  |  | — |
Commercial |  | 1,255 |  |  | 928 |  |  | 847 |  |  | 3,030 |  |  | 657,986 |  |  | 661,016 |  |  | — |
Consumer |  | 1,809 |  |  | 917 |  |  | 908 |  |  | 3,634 |  |  | 188,479 |  |  | 192,113 |  |  | — |
Total loans |  | $ | 7,215 |  |  | $ | 5,716 |  |  | $ | 6,785 |  |  | $ | 19,716 |  |  | $ | 4,710,076 |  |  | $ | 4,729,792 |  |  | $ | — |
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 5,467 |  |  | $ | 2,338 |  |  | $ | 3,505 |  |  | $ | 11,310 |  |  | $ | 2,036,741 |  |  | $ | 2,048,051 |  |  | $ | — |
Commercial real estate |  | 2,416 |  |  | — |  |  | — |  |  | 2,416 |  |  | 797,979 |  |  | 800,395 |  |  | — |
Home equity line of credit |  | 1,263 |  |  | 381 |  |  | 1,342 |  |  | 2,986 |  |  | 860,177 |  |  | 863,163 |  |  | — |
Residential land |  | — |  |  | — |  |  | 255 |  |  | 255 |  |  | 18,634 |  |  | 18,889 |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 126,768 |  |  | 126,768 |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 16,080 |  |  | 16,080 |  |  | — |
Commercial |  | 413 |  |  | 510 |  |  | 1,303 |  |  | 2,226 |  |  | 689,825 |  |  | 692,051 |  |  | — |
Consumer |  | 1,945 |  |  | 1,001 |  |  | 963 |  |  | 3,909 |  |  | 174,313 |  |  | 178,222 |  |  | — |
Total loans |  | $ | 11,504 |  |  | $ | 4,230 |  |  | $ | 7,368 |  |  | $ | 23,102 |  |  | $ | 4,720,517 |  |  | $ | 4,743,619 |  |  | $ | — |
The credit risk profile based on nonaccrual loans, accruing loans 90 days or more past due and TDR loans was as follows:
(in thousands) |  | March 31, 2017 |  | December 31, 2016
Real estate: |  |  |  |  |  |
Residential 1-4 family |  | $ | 11,709 |  |  | $ | 11,154 |
Commercial real estate |  | 218 |  |  | 223 |
Home equity line of credit |  | 3,340 |  |  | 3,080 |
Residential land |  | 695 |  |  | 878 |
Commercial construction |  | — |  |  | — |
Residential construction |  | — |  |  | — |
Commercial |  | 2,016 |  |  | 6,708 |
Consumer |  | 1,410 |  |  | 1,282 |
Total nonaccrual loans |  | $ | 19,388 |  |  | $ | 23,325 |
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 |  | $ | 13,661 |  |  | $ | 14,450 |
Commercial real estate |  | 1,297 |  |  | 1,346 |
Home equity line of credit |  | 4,894 |  |  | 4,934 |
Residential land |  | 2,246 |  |  | 2,751 |
Commercial construction |  | — |  |  | — |
Residential construction |  | — |  |  | — |
Commercial |  | 7,234 |  |  | 14,146 |
Consumer |  | 69 |  |  | 10 |
Total troubled debt restructured loans not included above |  | $ | 29,401 |  |  | $ | 37,637 |
The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
|  | March 31, 2017 |  | Three months ended March 31, 2017
(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 |  | $ | 9,145 |  |  | $ | 9,980 |  |  | $ | — |  |  | $ | 9,555 |  |  | $ | 84 |
Commercial real estate |  | 218 |  |  | 227 |  |  | — |  |  | 220 |  |  | — |
Home equity line of credit |  | 2,376 |  |  | 2,829 |  |  | — |  |  | 2,004 |  |  | 14 |
Residential land |  | 954 |  |  | 1,401 |  |  | — |  |  | 957 |  |  | 26 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 2,315 |  |  | 5,391 |  |  | — |  |  | 4,907 |  |  | 6 |
Consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 15,008 |  |  | $ | 19,828 |  |  | $ | — |  |  | $ | 17,643 |  |  | $ | 130 |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 10,195 |  |  | $ | 10,398 |  |  | $ | 1,386 |  |  | $ | 10,048 |  |  | $ | 119 |
Commercial real estate |  | 1,297 |  |  | 1,297 |  |  | 74 |  |  | 1,300 |  |  | 14 |
Home equity line of credit |  | 4,427 |  |  | 4,443 |  |  | 228 |  |  | 4,562 |  |  | 49 |
Residential land |  | 1,909 |  |  | 1,909 |  |  | 660 |  |  | 2,076 |  |  | 37 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 6,860 |  |  | 6,860 |  |  | 1,318 |  |  | 7,268 |  |  | 401 |
Consumer |  | 69 |  |  | 69 |  |  | 34 |  |  | 30 |  |  | — |
|  | $ | 24,757 |  |  | $ | 24,976 |  |  | $ | 3,700 |  |  | $ | 25,284 |  |  | $ | 620 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 19,340 |  |  | $ | 20,378 |  |  | $ | 1,386 |  |  | $ | 19,603 |  |  | $ | 203 |
Commercial real estate |  | 1,515 |  |  | 1,524 |  |  | 74 |  |  | 1,520 |  |  | 14 |
Home equity line of credit |  | 6,803 |  |  | 7,272 |  |  | 228 |  |  | 6,566 |  |  | 63 |
Residential land |  | 2,863 |  |  | 3,310 |  |  | 660 |  |  | 3,033 |  |  | 63 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 9,175 |  |  | 12,251 |  |  | 1,318 |  |  | 12,175 |  |  | 407 |
Consumer |  | 69 |  |  | 69 |  |  | 34 |  |  | 30 |  |  | — |
|  | $ | 39,765 |  |  | $ | 44,804 |  |  | $ | 3,700 |  |  | $ | 42,927 |  |  | $ | 750 |
|  | December 31, 2016 |  | Three months ended March 31, 2016
(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 |  | $ | 9,571 |  |  | $ | 10,400 |  |  | $ | — |  |  | $ | 10,392 |  |  | $ | 51 |
Commercial real estate |  | 223 |  |  | 228 |  |  | — |  |  | 1,173 |  |  | — |
Home equity line of credit |  | 1,500 |  |  | 1,900 |  |  | — |  |  | 849 |  |  | — |
Residential land |  | 1,218 |  |  | 1,803 |  |  | — |  |  | 1,590 |  |  | 16 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 6,299 |  |  | 8,869 |  |  | — |  |  | 4,999 |  |  | 6 |
Consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 18,811 |  |  | $ | 23,200 |  |  | $ | — |  |  | $ | 19,003 |  |  | $ | 73 |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 10,283 |  |  | $ | 10,486 |  |  | $ | 1,352 |  |  | $ | 12,018 |  |  | $ | 122 |
Commercial real estate |  | 1,346 |  |  | 1,346 |  |  | 80 |  |  | 854 |  |  | — |
Home equity line of credit |  | 4,658 |  |  | 4,712 |  |  | 215 |  |  | 2,944 |  |  | 27 |
Residential land |  | 2,411 |  |  | 2,411 |  |  | 789 |  |  | 3,378 |  |  | 67 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 14,240 |  |  | 14,240 |  |  | 1,641 |  |  | 16,970 |  |  | 30 |
Consumer |  | 10 |  |  | 10 |  |  | 6 |  |  | 13 |  |  | — |
|  | $ | 32,948 |  |  | $ | 33,205 |  |  | $ | 4,083 |  |  | $ | 36,177 |  |  | $ | 246 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | $ | 19,854 |  |  | $ | 20,886 |  |  | $ | 1,352 |  |  | $ | 22,410 |  |  | $ | 173 |
Commercial real estate |  | 1,569 |  |  | 1,574 |  |  | 80 |  |  | 2,027 |  |  | — |
Home equity line of credit |  | 6,158 |  |  | 6,612 |  |  | 215 |  |  | 3,793 |  |  | 27 |
Residential land |  | 3,629 |  |  | 4,214 |  |  | 789 |  |  | 4,968 |  |  | 83 |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 20,539 |  |  | 23,109 |  |  | 1,641 |  |  | 21,969 |  |  | 36 |
Consumer |  | 10 |  |  | 10 |  |  | 6 |  |  | 13 |  |  | — |
|  | $ | 51,759 |  |  | $ | 56,405 |  |  | $ | 4,083 |  |  | $ | 55,180 |  |  | $ | 319 |
* | 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 collectibility 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 or reduction 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 during the first quarters of 2017 and 2016 and the impact on the allowance for loan losses were as follows:
|  | Three months ended March 31, 2017
|  | Number of contracts |  | Outstanding recorded investment 1 |  | Net increase in allowance
(dollars in thousands) |  |  | Pre-modification |  | Post-modification |  | (as of period end)
Troubled debt restructurings |  |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 3 |  |  | $ | 512 |  |  | $ | 520 |  |  | $ | 45 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |
Home equity line of credit |  | 8 |  |  | 226 |  |  | 212 |  |  | 34 |
Residential land |  | — |  |  | — |  |  | — |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 1 |  |  | 342 |  |  | 342 |  |  | — |
Consumer |  | 1 |  |  | 59 |  |  | 59 |  |  | 27 |
|  | 13 |  |  | $ | 1,139 |  |  | $ | 1,133 |  |  | $ | 106 |
|  | Three months ended March 31, 2016
|  | Number of contracts |  | Outstanding recorded investment 1 |  | Net increase in allowance
(dollars in thousands) |  |  | Pre-modification |  | Post-modification |  | (as of period end)
Troubled debt restructurings |  |  |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 4 |  |  | $ | 1,097 |  |  | $ | 1,215 |  |  | $ | 161 |
Commercial real estate |  | — |  |  | — |  |  | — |  |  | — |
Home equity line of credit |  | 10 |  |  | 669 |  |  | 669 |  |  | 74 |
Residential land |  | — |  |  | — |  |  | — |  |  | — |
Commercial construction |  | — |  |  | — |  |  | — |  |  | — |
Residential construction |  | — |  |  | — |  |  | — |  |  | — |
Commercial |  | 3 |  |  | 16,200 |  |  | 16,200 |  |  | 525 |
Consumer |  | — |  |  | — |  |  | — |  |  | — |
|  | 17 |  |  | $ | 17,966 |  |  | $ | 18,084 |  |  | $ | 760 |
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 during the first quarters of 2017 and 2016, and for which the payment of default occurred within one year of the modification, were as follows:
|  | Three months ended March 31, 2017 |  | Three months ended March 31, 2016
(dollars in thousands) |  | Number of contracts |  | Recorded investment |  | Number of contracts |  | Recorded investment
Troubled debt restructurings that subsequently defaulted |  |  |  |  |  |  |  |
Real estate: |  |  |  |  |  |  |  |  |  |
Residential 1-4 family |  | 1 |  | $ | 301 |  |  | 1 |  | $ | 488 |
Commercial real estate |  | — |  | — |  |  | — |  | — |
Home equity line of credit |  | — |  | — |  |  | — |  | — |
Residential land |  | — |  | — |  |  | — |  | — |
Commercial construction |  | — |  | — |  |  | — |  | — |
Residential construction |  | — |  | — |  |  | — |  | — |
Commercial |  | — |  | — |  |  | — |  | — |
Consumer |  | — |  | — |  |  | — |  | — |
|  | 1 |  | $ | 301 |  |  | 1 |  | $ | 488 |
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 modified in a TDR totaled $2.1 million at March 31, 2017. 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 loans other than the servicing rights of certain loans sold. ASB received proceeds from the sale of residential mortgages of $40.6 million and $40.4 million for the three months ended March 31, 2017 and 2016, respectively, and recognized gains on such sales of $0.8 million and $1.2 million for the three months ended March 31, 2017 and 2016, respectively. There were no repurchased mortgage loans for the three months ended March 31, 2017 and 2016. The repurchase reserve was $0.1 million as of March 31, 2017 and 2016. Mortgage servicing fees, a component of other income, net, were $0.8 million and $0.7 million for the three months ended March 31, 2017 and 2016, respectively. Changes in the carrying value of mortgage servicing rights were as follows:
(in thousands) |  | Gross carrying amount 1 |  | Accumulated amortization 1 |  | Valuation allowance |  | Net carrying amount
March 31, 2017 |  | $ | 17,707 |  |  | $ | (8,413 | ) |  | $ | — |  |  | $ | 9,294 |
December 31, 2016 |  | 17,271 |  |  | (7,898 | ) |  | — |  |  | 9,373 |
1 Reflects the impact of loans paid in full. Changes related to mortgage servicing rights were as follows:
(in thousands) |  | 2017 |  |  | 2016 |
Mortgage servicing rights |  |  |  |
Balance, January 1 |  | $ | 9,373 |  |  | $ | 8,884 |
Amount capitalized |  | 436 |  |  | 455 |
Amortization |  | (515 | ) |  | (482 | )
Other-than-temporary impairment |  | — |  |  | — |
Carrying amount before valuation allowance, March 31 |  | 9,294 |  |  | 8,857 |
Valuation allowance for mortgage servicing rights |  |  |  |
Balance, January 1 |  | — |  |  | — |
Provision (recovery) |  | — |  |  | — |
Other-than-temporary impairment |  | — |  |  | — |
Balance, March 31 |  | — |  |  | — |
Net carrying value of mortgage servicing rights |  | $ | 9,294 |  |  | $ | 8,857 |
ASB capitalizes mortgage servicing rights acquired through either the purchase or origination of mortgage loans for sale with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the mortgage servicing rights to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the mortgage servicing rights. ASB’s MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type such as fixed-rate 15 and 30 year mortgages and note rate in bands of 50 to 100 basis points. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. 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. 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. ASB uses a present value cash flow model using techniques described above to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in other income, net in the consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. Key assumptions used in estimating the fair value of ASB’s mortgage servicing rights used in the impairment analysis were as follows:
(dollars in thousands) |  | March 31, 2017 |  |  | December 31, 2016 |
Unpaid principal balance |  | $ | 1,205,197 |  |  | $ | 1,188,380 |
Weighted average note rate |  | 3.95 | % |  | 3.96 | %
Weighted average discount rate |  | 9.5 | % |  | 9.4 | %
Weighted average prepayment speed |  | 8.2 | % |  | 8.5 | %
The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:
(dollars in thousands) |  | March 31, 2017 |  |  | December 31, 2016 |
Prepayment rate: |  |  |  |
25 basis points adverse rate change |  | $ | (556 | ) |  | $ | (567 | )
50 basis points adverse rate change |  | (1,144 | ) |  | (1,154 | )
Discount rate: |  |  |  |
25 basis points adverse rate change |  | (134 | ) |  | (128 | )
50 basis points adverse rate change |  | (266 | ) |  | (254 | )
The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear. Other borrowings. 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. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:
(in millions) |  | Gross amount of recognized liabilities |  | Gross amount offset in the Balance Sheet |  | Net amount of liabilities presented in the Balance Sheet
Repurchase agreements |  |  |  |  |  |
March 31, 2017 |  | $100 |  | $— |  | $100
December 31, 2016 |  | 93 |  | — |  | 93
|  | Gross amount not offset in the Balance Sheet
(in millions) |  | Net amount of liabilities presented in the Balance Sheet |  | Financial instruments |  | Cash collateral pledged
March 31, 2017 |  |  |  |  |  |  |  |  |
Financial institution |  | $ | — |  |  | $ | — |  |  | $ | — |
Government entities |  | — |  |  | — |  |  | — |
Commercial account holders |  | 100 |  |  | 119 |  |  | — |
Total |  | $ | 100 |  |  | $ | 119 |  |  | $ | — |
December 31, 2016 |  |  |  |  |  |  |  |  |
Financial institution |  | $ | — |  |  | $ | — |  |  | $ | — |
Government entities |  | 14 |  |  | 15 |  |  | — |
Commercial account holders |  | 79 |  |  | 101 |  |  | — |
Total |  | $ | 93 |  |  | $ | 116 |  |  | $ | — |
The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the consolidated balance sheets. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts. Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans. ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time. The notional amount and fair value of ASB’s derivative financial instruments were as follows:
|  | March 31, 2017 |  | December 31, 2016
(in thousands) |  | Notional amount |  | Fair value |  | Notional amount |  | Fair value
Interest rate lock commitments |  | $ | 21,771 |  |  | $ | 317 |  |  | $ | 25,883 |  |  | $ | 421 |
Forward commitments |  | 22,120 |  |  | (104 | ) |  | 30,813 |  |  | (177 | )
ASB’s derivative financial instruments, their fair values and balance sheet location were as follows:
Derivative Financial Instruments Not Designated as Hedging Instruments 1 |  | March 31, 2017 |  | December 31, 2016
(in thousands) |  | Asset derivatives |  | Liability derivatives |  | Asset derivatives |  | Liability derivatives
Interest rate lock commitments |  | $ | 317 |  |  | $ | — |  |  | $ | 445 |  |  | $ | 24 |
Forward commitments |  | — |  |  | 104 |  |  | 8 |  |  | 185 |
|  | $ | 317 |  |  | $ | 104 |  |  | $ | 453 |  |  | $ | 209 |
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 March 31
(in thousands) |  |  | 2017 |  | 2016
Interest rate lock commitments |  | Mortgage banking income |  | $ | (104 | ) |  | $ | 271 |
Forward commitments |  | Mortgage banking income |  | 73 |  |  | (163 | )
|  |  |  | $ | (31 | ) |  | $ | 108 |
Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $14.4 million and $14.0 million at March 31, 2017 and December 31, 2016, 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 March 31, 2017, 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. 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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