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Bank segment

9 Months Ended

Sep. 30, 2021

Selected financial information

American Savings Bank, F.S.B.

Statements of Income and Comprehensive Income Data


	Three months ended September 30				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Interest and dividend income
Interest and fees on loans	$	49,445	$	52,419	$	150,418	$	161,505
Interest and dividends on investment securities	11,996		7,221		31,709		22,939
Total interest and dividend income	61,441		59,640		182,127		184,444
Interest expense
Interest on deposit liabilities	1,176		2,287		3,919		8,945
Interest on other borrowings	5		61		55		449
Total interest expense	1,181		2,348		3,974		9,394
Net interest income	60,260		57,292		178,153		175,050
Provision for credit losses	(1,725)		13,970		(22,367)		39,504
Net interest income after provision for credit losses	61,985		43,322		200,520		135,546
Noninterest income
Fees from other financial services	4,800		4,233		15,337		11,906
Fee income on deposit liabilities	4,262		3,832		12,029		11,842
Fee income on other financial products	2,124		1,524		6,767		4,608
Bank-owned life insurance	2,026		1,965		6,211		4,432
Mortgage banking income	1,272		7,681		7,497		15,933
Gain on sale of investment securities, net	—		—		528		9,275
Other income, net	283		(231)		631		(69)
Total noninterest income	14,767		19,004		49,000		57,927
Noninterest expense
Compensation and employee benefits	30,888		26,431		86,595		77,287
Occupancy	5,157		5,693		15,226		16,402
Data processing	4,278		3,366		13,162		11,052
Services	2,272		2,624		7,609		7,907
Equipment	2,373		2,001		6,989		6,630
Office supplies, printing and postage	1,072		1,187		3,094		3,577
Marketing	995		727		2,308		1,908
FDIC insurance	808		714		2,412		1,567
Other expense1	3,668		4,556		9,790		15,813
Total noninterest expense	51,511		47,299		147,185		142,143
Income before income taxes	25,241		15,027		102,335		51,330
Income taxes	5,976		2,877		23,230		9,405
Net income	19,265		12,150		79,105		41,925
Other comprehensive income (loss), net of taxes	(11,684)		1,393		(40,439)		20,960
Comprehensive income	$	7,581	$	13,543	$	38,666	$	62,885

1 The three- and nine-month periods ended September 30, 2021 include approximately $0.1 million and $0.5 million, respectively, of certain direct and incremental COVID-19 related costs. The three and nine-month periods ended September 30, 2020 include approximately $0.7 million and $4.5 million, respectively, of certain significant direct and incremental COVID-19 related costs. These costs for the first nine months of 2020, which have been recorded in Other expense, include $2.4 million of compensation expense and $1.7 million of enhanced cleaning and sanitation costs.

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


	Three months ended September 30,				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Interest and dividend income	$	61,441	$	59,640	$	182,127	$	184,444
Noninterest income	14,767		19,004		49,000		57,927
Less: Gain on sale of investment securities, net	—		—		528		9,275
*Revenues-Bank	76,208		78,644		230,599		233,096
Total interest expense	1,181		2,348		3,974		9,394
Provision for credit losses	(1,725)		13,970		(22,367)		39,504
Noninterest expense	51,511		47,299		147,185		142,143
Less: Retirement defined benefits expense (credit)—other than service costs	(184)		473		(1,648)		1,341
*Expenses-Bank	51,151		63,144		130,440		189,700
*Operating income-Bank	25,057		15,500		100,159		43,396
Add back: Retirement defined benefits expense (credit)—other than service costs	(184)		473		(1,648)		1,341
Add back: Gain on sale of investment securities, net	—		—		528		9,275
Income before income taxes	$	25,241	$	15,027	$	102,335	$	51,330

American Savings Bank, F.S.B.

Balance Sheets Data


(in thousands)	September 30, 2021				December 31, 2020
Assets
Cash and due from banks			$	109,942			$	178,422
Interest-bearing deposits			80,007				114,304
Cash and cash equivalents			189,949				292,726

Investment securities
Available-for-sale, at fair value			2,580,830				1,970,417
Held-to-maturity, at amortized cost (fair value of $484,654 and $229,963, respectively)			491,871				226,947
Stock in Federal Home Loan Bank, at cost			10,000				8,680
Loans held for investment			5,122,124				5,333,843
Allowance for credit losses			(75,944)				(101,201)
Net loans			5,046,180				5,232,642
Loans held for sale, at lower of cost or fair value			53,998				28,275
Other			555,401				554,656
Goodwill			82,190				82,190
Total assets			$	9,010,419			$	8,396,533
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing			$	2,931,394			$	2,598,500
Deposit liabilities—interest-bearing			5,045,144				4,788,457
Other borrowings			129,305				89,670
Other			168,064				183,731
Total liabilities			8,273,907				7,660,358

Common stock			1				1
Additional paid-in capital			353,429				351,758
Retained earnings			408,575				369,470
Accumulated other comprehensive income (loss), net of taxes
Net unrealized gains (losses) on securities	$	(20,322)			$	19,986
Retirement benefit plans	(5,171)		(25,493)		(5,040)		14,946
Total shareholder’s equity			736,512				736,175
Total liabilities and shareholder’s equity			$	9,010,419			$	8,396,533

Other assets
Bank-owned life insurance			$	166,486			$	163,265
Premises and equipment, net			205,624				206,134
Accrued interest receivable			22,036				24,616
Mortgage-servicing rights			10,272				10,020
Low-income housing investments			84,728				83,435


Other			66,255				67,186
			$	555,401			$	554,656
Other liabilities
Accrued expenses			$	59,270			$	62,694
Federal and state income taxes payable			—				6,582
Cashier’s checks			37,451				38,011
Advance payments by borrowers			5,129				10,207
Other			66,214				66,237
			$	168,064			$	183,731

Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.

Other borrowings consisted of securities sold under agreements to repurchase of $129.3 million and $89.7 million at September 30, 2021 and December 31, 2020, respectively.

Investment securities. The major components of investment securities were as follows:


	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Gross unrealized losses
									Less than 12 months					12 months or longer
(dollars in thousands)									Number of issues	Fair value		Amount		Number of issues	Fair value		Amount
September 30, 2021
Available-for-sale
U.S. Treasury and federal agency obligations	$	90,831	$	1,334	$	(90)	$	92,075	1	$	19,851	$	(90)	—	$	—	$	—
Mortgage-backed securities*	2,471,650		11,193		(41,160)		2,441,683		105	1,772,753		(36,561)		9	123,882		(4,599)
Corporate bonds	30,684		961		—		31,645		—	—		—		—	—		—
Mortgage revenue bonds	15,427		—		—		15,427		—	—		—		—	—		—
	$	2,608,592	$	13,488	$	(41,250)	$	2,580,830	106	$	1,792,604	$	(36,651)	9	$	123,882	$	(4,599)
Held-to-maturity
U.S. Treasury and Federal agency obligations	$	40,064	$	100	$	(13)	$	40,151	1	$	19,941	$	(13)	—	$	—	$	—
Mortgage-backed securities*	451,807		2,387		(9,691)		444,503		23	325,907		(8,278)		2	23,860		(1,413)
	$	491,871	$	2,487	$	(9,704)	$	484,654	24	$	345,848	$	(8,291)	2	$	23,860	$	(1,413)
December 31, 2020
Available-for-sale
U.S. Treasury and federal agency obligations	$	60,260	$	2,062	$	—	$	62,322	—	$	—	$	—	—	$	—	$	—
Mortgage-backed securities*	1,825,893		26,817		(3,151)		1,849,559		22	373,924		(3,151)		—	—		—
Corporate bonds	29,776		1,575		—		31,351		—	—		—		—	—		—
Mortgage revenue bonds	27,185		—		—		27,185		—	—		—		—	—		—
	$	1,943,114	$	30,454	$	(3,151)	$	1,970,417	22	$	373,924	$	(3,151)	—	$	—	$	—
Held-to-maturity
Mortgage-backed securities*	$	226,947	$	3,846	$	(830)	$	229,963	7	$	114,152	$	(830)	—	$	—	$	—
	$	226,947	$	3,846	$	(830)	$	229,963	7	$	114,152	$	(830)	—	$	—	$	—

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

ASB does not believe that the investment securities that were in an unrealized loss position at September 30, 2021 and December 31, 2020, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at September 30, 2021 and December 31, 2020.

U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.

The contractual maturities of investment securities were as follows:


September 30, 2021	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	—	$	—
Due after one year through five years	76,247		78,071
Due after five years through ten years	45,268		45,649
Due after ten years	15,427		15,427
	136,942		139,147
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	2,471,650		2,441,683
Total available-for-sale securities	$	2,608,592	$	2,580,830
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	40,064		40,151
Due after ten years	—		—
	40,064		40,151
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	451,807		444,503
Total held-to-maturity securities	$	491,871	$	484,654

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


	Three months ended September 30				Nine months ended September 30
	2021		2020		2021		2020
(in thousands)
Proceeds	$	—	$	—	$	197,354	$	169,157
Gross gains	—		—		975		9,312
Gross losses	—		—		447		37
Tax expense on realized gains	—		—		142		2,492

The components of loans were summarized as follows:


	September 30, 2021		December 31, 2020
(in thousands)
Real estate:
Residential 1-4 family	$	2,172,073	$	2,144,239
Commercial real estate	1,090,816		983,865
Home equity line of credit	851,416		963,578
Residential land	19,399		15,617
Commercial construction	109,716		121,424
Residential construction	9,170		11,022
Total real estate	4,252,590		4,239,745
Commercial	758,338		936,748
Consumer	122,656		168,733
Total loans	5,133,584		5,345,226
Less: Deferred fees and discounts	(11,460)		(11,383)
Allowance for credit losses	(75,944)		(101,201)
Total loans, net	$	5,046,180	$	5,232,642

ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential

property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.

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


(in thousands)	Residential 1-4 family		Commercial real estate		Home equity line of credit		Residential land		Commercial construction		Residential construction		Commercial loans		Consumer loans		Total
Three months ended September 30, 2021
Allowance for credit losses:
Beginning balance	$	5,518	$	28,708	$	5,335	$	618	$	1,629	$	16	$	20,058	$	16,370	$	78,252
Charge-offs	(47)		—		(5)		—		—		—		(266)		(1,597)		(1,915)
Recoveries	5		—		7		35		—		—		417		1,118		1,582
Provision	522		(2,750)		441		(19)		104		(3)		(758)		488		(1,975)
Ending balance	$	5,998	$	25,958	$	5,778	$	634	$	1,733	$	13	$	19,451	$	16,379	$	75,944
Three months ended September 30, 2020
Allowance for credit losses:
Beginning balance	$	3,911	$	21,100	$	6,214	$	356	$	4,757	$	14	$	13,868	$	31,087	$	81,307
Charge-offs	—		—		—		—		—		—		(1,727)		(3,881)		(5,608)
Recoveries	12		—		50		12		—		—		211		1,005		1,290
Provision	(286)		11,049		(390)		178		1,282		(3)		5,840		(3,200)		14,470
Ending balance	$	3,637	$	32,149	$	5,874	$	546	$	6,039	$	11	$	18,192	$	25,011	$	91,459
Nine months ended September 30, 2021
Allowance for credit losses:
Beginning balance	$	4,600	$	35,607	$	6,813	$	609	$	4,149	$	11	$	25,462	$	23,950	$	101,201
Charge-offs	(67)		—		(45)		—		—		—		(1,356)		(6,388)		(7,856)
Recoveries	59		—		83		56		—		—		1,056		3,312		4,566
Provision	1,406		(9,649)		(1,073)		(31)		(2,416)		2		(5,711)		(4,495)		(21,967)
Ending balance	$	5,998	$	25,958	$	5,778	$	634	$	1,733	$	13	$	19,451	$	16,379	$	75,944



Nine months ended September 30, 2020
Allowance for credit losses:
Beginning balance, prior to adoption of ASU No. 2016-13	$	2,380	$	15,053	$	6,922	$	449	$	2,097	$	3	$	10,245	$	16,206	$	53,355
Impact of adopting ASU No. 2016-13	2,150		208		(541)		(64)		289		14		922		16,463		19,441
Charge-offs	(7)		—		—		(351)		—		—		(2,795)		(16,466)		(19,619)
Recoveries	67		—		56		26		—		—		503		2,426		3,078
Provision	(953)		16,888		(563)		486		3,653		(6)		9,317		6,382		35,204
Ending balance	$	3,637	$	32,149	$	5,874	$	546	$	6,039	$	11	$	18,192	$	25,011	$	91,459

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


(in thousands)	Home equity line of credit		Commercial construction		Commercial loans		Total
Three months ended September 30, 2021
Allowance for loan commitments:
Beginning balance	$	400	$	2,400	$	850	$	3,650
Provision	—		300		(50)		250
Ending balance	$	400	$	2,700	$	800	$	3,900
Three months ended September 30, 2020
Allowance for loan commitments:
Beginning balance	$	300	$	7,500	$	300	$	8,100
Provision	—		(800)		300		(500)
Ending balance	$	300	$	6,700	$	600	$	7,600
Nine months ended September 30, 2021
Allowance for loan commitments:
Beginning balance	$	300	$	3,000	$	1,000	$	4,300
Provision	100		(300)		(200)		(400)
Ending balance	$	400	$	2,700	$	800	$	3,900
Nine months ended September 30, 2020
Allowance for loan commitments:
Beginning balance, prior to adoption of ASU No. 2016-13	$	392	$	931	$	418	$	1,741
Impact of adopting ASU No. 2016-13	(92)		1,745		(94)		1,559
Provision	—		4,024		276		4,300
Ending balance	$	300	$	6,700	$	600	$	7,600

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

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

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


	Term Loans by Origination Year												Revolving Loans
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Converted to term loans		Total
September 30, 2021
Residential 1-4 family
Current	$	541,140	$	471,759	$	150,704	$	75,827	$	142,235	$	778,048	$	—	$	—	$	2,159,713
30-59 days past due	—		—		—		—		—		2,224		—		—		2,224
60-89 days past due	—		276		—		—		—		1,308		—		—		1,584
Greater than 89 days past due	—		—		3,949		424		—		4,179		—		—		8,552
	541,140		472,035		154,653		76,251		142,235		785,759		—		—		2,172,073
Home equity line of credit
Current	—		—		—		—		—		—		809,566		39,932		849,498
30-59 days past due	—		—		—		—		—		—		126		129		255
60-89 days past due	—		—		—		—		—		—		107		101		208
Greater than 89 days past due	—		—		—		—		—		—		1,029		426		1,455
	—		—		—		—		—		—		810,828		40,588		851,416
Residential land
Current	8,905		7,341		1,659		647		268		182		—		—		19,002
30-59 days past due	—		—		—		—		—		97		—		—		97
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		300		—		—		300
	8,905		7,341		1,659		647		268		579		—		—		19,399
Residential construction
Current	4,664		4,238		—		—		268		—		—		—		9,170
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	4,664		4,238		—		—		268		—		—		—		9,170
Consumer
Current	27,059		18,662		38,546		16,378		907		283		13,745		3,819		119,399
30-59 days past due	206		152		523		282		21		—		126		117		1,427
60-89 days past due	24		58		368		198		43		—		61		28		780
Greater than 89 days past due	29		140		396		158		44		—		149		134		1,050
	27,318		19,012		39,833		17,016		1,015		283		14,081		4,098		122,656
Commercial real estate
Pass	142,977		278,941		62,907		60,174		55,824		257,110		11,288		—		869,221
Special Mention	1,360		4,237		34,617		46,447		23,027		42,850		—		—		152,538
Substandard	—		—		14,021		1,872		1,838		51,326		—		—		69,057
Doubtful	—		—		—		—		—		—		—		—		—
	144,337		283,178		111,545		108,493		80,689		351,286		11,288		—		1,090,816
Commercial construction
Pass	11,225		39,137		25,913		11,342		—		—		22,099		—		109,716
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	11,225		39,137		25,913		11,342		—		—		22,099		—		109,716
Commercial
Pass	218,541		112,545		78,076		53,829		19,043		60,661		93,979		16,334		653,008
Special Mention	52		27,498		11,810		279		2,682		19,495		20,459		21		82,296
Substandard	427		214		4,273		1,824		5,318		3,188		5,845		1,945		23,034
Doubtful	—		—		—		—		—		—		—		—		—
	219,020		140,257		94,159		55,932		27,043		83,344		120,283		18,300		758,338
Total loans	$	956,609	$	965,198	$	427,762	$	269,681	$	251,518	$	1,221,251	$	978,579	$	62,986	$	5,133,584


	Term Loans by Origination Year												Revolving Loans
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Converted to term loans		Total
December 31, 2020
Residential 1-4 family
Current	$	567,282	$	218,988	$	111,243	$	203,916	$	184,888	$	849,788	$	—	$	—	$	2,136,105
30-59 days past due	—		—		—		—		—		2,629		—		—		2,629
60-89 days past due	—		476		—		—		—		2,314		—		—		2,790
Greater than 89 days past due	—		—		—		353		—		2,362		—		—		2,715
	567,282		219,464		111,243		204,269		184,888		857,093		—		—		2,144,239
Home equity line of credit
Current	—		—		—		—		—		—		927,106		33,228		960,334
30-59 days past due	—		—		—		—		—		—		552		298		850
60-89 days past due	—		—		—		—		—		—		267		75		342
Greater than 89 days past due	—		—		—		—		—		—		1,463		589		2,052
	—		—		—		—		—		—		929,388		34,190		963,578
Residential land
Current	8,357		3,427		1,598		939		22		272		—		—		14,615
30-59 days past due	—		—		—		—		—		702		—		—		702
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		300		—		—		300
	8,357		3,427		1,598		939		22		1,274		—		—		15,617
Residential construction
Current	6,919		3,093		385		625		—		—		—		—		11,022
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	6,919		3,093		385		625		—		—		—		—		11,022
Consumer
Current	28,818		67,159		37,072		7,207		293		348		18,351		3,758		163,006
30-59 days past due	406		1,085		727		155		4		—		138		90		2,605
60-89 days past due	191		549		427		165		3		—		97		59		1,491
Greater than 89 days past due	131		532		409		119		7		—		262		171		1,631
	29,546		69,325		38,635		7,646		307		348		18,848		4,078		168,733
Commercial real estate
Pass	270,603		63,301		62,168		28,432		55,089		155,654		11,000		—		646,247
Special Mention	10,261		36,405		57,952		33,763		68,287		48,094		—		—		254,762
Substandard	—		14,720		4,181		1,892		4,423		57,640		—		—		82,856
Doubtful	—		—		—		—		—		—		—		—		—
	280,864		114,426		124,301		64,087		127,799		261,388		11,000		—		983,865
Commercial construction
Pass	14,480		31,965		26,990		—		5,562		—		22,517		—		101,514
Special Mention	1,910		—		—		18,000		—		—		—		—		19,910
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	16,390		31,965		26,990		18,000		5,562		—		22,517		—		121,424
Commercial
Pass	392,088		117,791		75,533		29,211		12,520		35,770		74,520		11,004		748,437
Special Mention	37,836		23,087		1,920		6,990		30,264		13,250		31,362		11,218		155,927
Substandard	304		7,785		2,043		4,017		7,542		3,113		5,265		1,928		31,997
Doubtful	—		—		—		—		—		—		387		—		387
	430,228		148,663		79,496		40,218		50,326		52,133		111,534		24,150		936,748
Total loans	$	1,339,586	$	590,363	$	382,648	$	335,784	$	368,904	$	1,172,236	$	1,093,287	$	62,418	$	5,345,226

Revolving loans converted to term loans during the nine months ended September 30, 2021 in the commercial, home equity line of credit and consumer portfolios were $1.6 million, $13.6 million and $1.9 million, respectively. Revolving loans converted to term loans during the nine months ended September 30, 2020 in the commercial, home equity line of credit and consumer portfolios were $13.8 million, $10.0 million and $2.0 million, respectively.

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


(in thousands)	30-59 days past due		60-89 days past due		Greater than 90 days		Total past due		Current		Total financing receivables		Amortized cost> 90 days and accruing
September 30, 2021
Real estate:
Residential 1-4 family	$	2,224	$	1,584	$	8,552	$	12,360	$	2,159,713	$	2,172,073	$	—
Commercial real estate	—		—		—		—		1,090,816		1,090,816		—
Home equity line of credit	255		208		1,455		1,918		849,498		851,416		—
Residential land	97		—		300		397		19,002		19,399		—
Commercial construction	—		—		—		—		109,716		109,716		—
Residential construction	—		—		—		—		9,170		9,170		—
Commercial	937		68		110		1,115		757,223		758,338		—
Consumer	1,427		780		1,050		3,257		119,399		122,656		—
Total loans	$	4,940	$	2,640	$	11,467	$	19,047	$	5,114,537	$	5,133,584	$	—
December 31, 2020
Real estate:
Residential 1-4 family	$	2,629	$	2,790	$	2,715	$	8,134	$	2,136,105	$	2,144,239	$	—
Commercial real estate	—		488		—		488		983,377		983,865		—
Home equity line of credit	850		342		2,052		3,244		960,334		963,578		—
Residential land	702		—		300		1,002		14,615		15,617		—
Commercial construction	—		—		—		—		121,424		121,424		—
Residential construction	—		—		—		—		11,022		11,022		—
Commercial	608		300		132		1,040		935,708		936,748		—
Consumer	2,605		1,491		1,631		5,727		163,006		168,733		—
Total loans	$	7,394	$	5,411	$	6,830	$	19,635	$	5,325,591	$	5,345,226	$	—

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


(in thousands)	September 30, 2021						December 31, 2020
	With a Related ACL		Without a Related ACL		Total		With a Related ACL		Without a Related ACL		Total
Real estate:
Residential 1-4 family	$	13,307	$	7,997	$	21,304	$	8,991	$	2,835	$	11,826
Commercial real estate	15,062		1,251		16,313		15,847		2,875		18,722
Home equity line of credit	4,564		1,364		5,928		5,791		1,567		7,358
Residential land	97		300		397		108		300		408
Commercial construction	—		—		—		—		—		—
Residential construction	—		—		—		—		—		—
Commercial	1,573		2,080		3,653		1,819		3,328		5,147
Consumer	2,198		—		2,198		3,935		—		3,935
Total	$	36,801	$	12,992	$	49,793	$	36,491	$	10,905	$	47,396

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


(in thousands)	September 30, 2021		December 31, 2020
Real estate:
Residential 1-4 family	$	7,545	$	7,932
Commercial real estate	3,136		3,281
Home equity line of credit	6,986		8,148
Residential land	985		1,555
Commercial construction	—		—
Residential construction	—		—
Commercial	7,251		6,108
Consumer	52		54
Total troubled debt restructured loans accruing interest	$	25,955	$	27,078

ASB did not recognize interest on nonaccrual loans for the three and nine months ended September 30, 2021 and 2020.

Troubled debt restructurings. A loan modification is deemed to be a TDR when the borrower is determined to be experiencing financial difficulties and ASB grants a concession it would not otherwise consider.

The allowance for credit losses on TDR loans that do not share risk characteristics are individually evaluated based on the present value of expected future cash flows discounted at the loan’s effective original contractual rate or based on the fair value of collateral less cost to sell. The financial impact of the estimated loss is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for credit losses.

Loan modifications that occurred during the three and nine months ended September 30, 2021 and 2020 were as follows:


Loans modified as a TDR	Three months ended September 30, 2021					Nine months ended September 30, 2021
(dollars in thousands)	Number of contracts	Outstanding recorded investment (as of period end)1		Related allowance (as of period end)		Number of contracts	Outstanding recorded investment (as of period end)1		Related allowance (as of period end)
Troubled debt restructurings
Real estate:
Residential 1-4 family	1	$	442	$	81	16	$	10,363	$	309
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	—	—		—		—	—		—
Residential land	1	247		11		3	802		37
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	1	2,386		212		7	2,678		242
Consumer	—	—		—		—	—		—
	3	$	3,075	$	304	26	$	13,843	$	588


	Three months ended September 30, 2020					Nine months ended September 30, 2020
(dollars in thousands)	Number of contracts	Outstanding recorded investment (as of period end)1		Related allowance (as of period end)		Number of contracts	Outstanding recorded investment (as of period end)1		Related allowance (as of period end)
Troubled debt restructurings
Real estate:
Residential 1-4 family	—	$	—	$	—	1	$	146	$	7
Commercial real estate	—	—		—		2	16,149		4,019
Home equity line of credit	—	—		—		2	22		1
Residential land	—	—		—		2	228		15
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	2	52		45		5	207		180
Consumer	—	—		—		—	—		—
	2	$	52	$	45	12	$	16,752	$	4,222

1 The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-off, or foreclosed upon by period end are not included.

There were no loans modified in TDRs that experienced a payment default of 90 days or more during the third quarter and first nine months of 2021 and 2020.

If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at September 30, 2021 and December 31, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes.

In response to the COVID-19 pandemic, the Board of Governors of the FRB, the FDIC, the National Credit Union Administration, the OCC, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to accounting for loan modifications, past due reporting and nonaccrual status and charge-offs.

Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with the FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. Financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral. Lastly, during short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral.

Loans considered collateral-dependent were as follows:


	Amortized cost
(in thousands)	September 30, 2021		December 31, 2020		Collateral type
Real estate:
Residential 1-4 family	$	5,268	$	2,541	Residential real estate property
Commercial real estate	1,251		2,875		Commercial real estate property
Home equity line of credit	1,364		1,567		Residential real estate property
Residential land	300		300		Residential real estate property
Total real estate	8,183		7,283
Commercial	780		934		Business assets
Total	$	8,963	$	8,217

ASB had $3.4 million and $3.8 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2021 and December 31, 2020, respectively.

Mortgage servicing rights (MSRs). In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold.

ASB received proceeds from the sale of residential mortgages of $38.3 million and $128.0 million for the three months ended September 30, 2021 and 2020, respectively, $304.8 million and $387.2 million for the nine months ended September 30, 2021 and 2020, respectively, and recognized gains on such sales of $1.3 million and $7.7 million for the three months ended September 30, 2021 and 2020, respectively, $7.5 million and $15.9 million for the nine months ended September 30, 2021 and 2020, respectively.

There were no repurchased mortgage loans for the three and nine months ended September 30, 2021 and 2020. The repurchase reserve, which represents ASB’s loss estimate related to mortgage loan repurchases, was $0.1 million as of September 30, 2021 and 2020.

Mortgage servicing fees, a component of other income, net, were $1.0 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively, and were $2.8 million and $2.5 million for the nine months ended September 30, 2021 and 2020, respectively.

Changes in the carrying value of MSRs were as follows:


(in thousands)	Gross carrying amount1		Accumulated amortization		Valuation allowance		Net carrying amount
September 30, 2021	$	22,182	$	(11,910)	$	—	$	10,272
December 31, 2020	22,950		(12,670)		(260)		10,020

1 Reflects impact of loans paid in full

Changes related to MSRs were as follows:


	Three months ended September 30,				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Mortgage servicing rights
Beginning balance	$	10,754	$	9,911	$	10,280	$	9,101
Amount capitalized	315		1,119		2,885		3,481
Amortization	(797)		(1,095)		(2,893)		(2,647)
Other-than-temporary impairment	—		—		—		—
Carrying amount before valuation allowance	10,272		9,935		10,272		9,935
Valuation allowance for mortgage servicing rights
Beginning balance	—		264		260		—
Provision	—		118		(260)		382
Other-than-temporary impairment	—		—		—		—
Ending balance	—		382		—		382
Net carrying value of mortgage servicing rights	$	10,272	$	9,553	$	10,272	$	9,553

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

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

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


(dollars in thousands)	September 30, 2021			December 31, 2020
Unpaid principal balance	$	1,521,966		$	1,450,312
Weighted average note rate	3.42		%	3.68		%
Weighted average discount rate	9.25		%	9.25		%
Weighted average prepayment speed	11.7		%	17.7		%

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)	September 30, 2021		December 31, 2020
Prepayment rate:
25 basis points adverse rate change	$	(1,045)	$	(738)
50 basis points adverse rate change	(2,209)		(1,445)
Discount rate:
25 basis points adverse rate change	(115)		(68)
50 basis points adverse rate change	(229)		(135)

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

Other borrowings. As of September 30, 2021 and December 31, 2020, ASB had no FHLB advances outstanding or federal funds purchased with the Federal Reserve Bank. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of September 30, 2021.

Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the condensed consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents

securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:


(in millions)	Gross amount of recognized liabilities		Gross amount offset in the Balance Sheets		Net amount of liabilities presented in the Balance Sheets
Repurchase agreements
September 30, 2021	$	129	$	—	$	129
December 31, 2020	90		—		90


	Gross amount not offset in the Balance Sheets
(in millions)	Net amount of liabilities presented in the Balance Sheets		Financial instruments		Cash collateral pledged
Commercial account holders



September 30, 2021	$	129	$	146	$	—




December 31, 2020	90		92		—

The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts.

Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans.

ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.

ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.

Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

The notional amount and fair value of ASB’s derivative financial instruments were as follows:


	September 30, 2021				December 31, 2020
(in thousands)	Notional amount		Fair value		Notional amount		Fair value
Interest rate lock commitments	$	22,289	$	308	$	120,980	$	4,536
Forward commitments	21,750		109		100,500		(500)

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, 2021				December 31, 2020
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	308	$	—	$	4,536	$	—
Forward commitments	121		12		—		500
	$	429	$	12	$	4,536	$	500

1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.

The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:


Derivative Financial Instruments Not Designated as Hedging Instruments	Location of net gains (losses) recognized in the Statements of Income	Three months ended September 30,				Nine months ended September 30
(in thousands)		2021		2020		2021		2020
Interest rate lock commitments	Mortgage banking income	$	(63)	$	2,930	$	(4,228)	$	4,974
Forward commitments	Mortgage banking income	150		44		609		(201)
		$	87	$	2,974	$	(3,619)	$	4,773

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $37.8 million and $41.0 million at September 30, 2021 and December 31, 2020, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of September 30, 2021, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.