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Bank segment

9 Months Ended

Sep. 30, 2022

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)	2022		2021		2022		2021
Interest and dividend income
Interest and fees on loans	$	53,365	$	49,445	$	147,499	$	150,418
Interest and dividends on investment securities	15,052		11,996		43,729		31,709
Total interest and dividend income	68,417		61,441		191,228		182,127
Interest expense
Interest on deposit liabilities	1,704		1,176		3,572		3,919
Interest on other borrowings	1,055		5		1,199		55
Total interest expense	2,759		1,181		4,771		3,974
Net interest income	65,658		60,260		186,457		178,153
Provision for credit losses	(186)		(1,725)		(692)		(22,367)
Net interest income after provision for credit losses	65,844		61,985		187,149		200,520
Noninterest income
Fees from other financial services	4,763		4,800		15,066		15,337
Fee income on deposit liabilities	4,879		4,262		14,122		12,029
Fee income on other financial products	2,416		2,124		7,663		6,767
Bank-owned life insurance	122		2,026		661		6,211
Mortgage banking income	181		1,272		1,630		7,497
Gain on sale of real estate	—		—		1,002		—
Gain on sale of investment securities, net	—		—		—		528
Other income, net	633		283		1,480		631
Total noninterest income	12,994		14,767		41,624		49,000
Noninterest expense
Compensation and employee benefits	28,597		30,888		83,478		86,595
Occupancy	5,577		5,157		16,996		15,226
Data processing	4,509		4,278		13,144		13,162
Services	2,751		2,272		7,712		7,609
Equipment	2,432		2,373		7,163		6,989
Office supplies, printing and postage	1,123		1,072		3,256		3,094
Marketing	925		995		2,877		2,308
FDIC insurance	914		808		2,613		2,412
Other expense	4,729		3,668		11,929		9,790
Total noninterest expense	51,557		51,511		149,168		147,185
Income before income taxes	27,281		25,241		79,605		102,335
Income taxes	6,525		5,976		17,513		23,230
Net income	20,756		19,265		62,092		79,105
Other comprehensive loss, net of taxes	(98,942)		(11,684)		(310,218)		(40,439)
Comprehensive income (loss)	$	(78,186)	$	7,581	$	(248,126)	$	38,666

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


	Three months ended September 30				Nine months ended September 30
(in thousands)	2022		2021		2022		2021
Interest and dividend income	$	68,417	$	61,441	$	191,228	$	182,127
Noninterest income	12,994		14,767		41,624		49,000
Less: Gain on sale of real estate	—		—		1,002		—
Less: Gain on sale of investment securities, net	—		—		—		528
*Revenues-Bank	81,411		76,208		231,850		230,599
Total interest expense	2,759		1,181		4,771		3,974
Provision for credit losses	(186)		(1,725)		(692)		(22,367)
Noninterest expense	51,557		51,511		149,168		147,185
Less: Gain on sale of real estate	—		—		1,002		—
Less: Retirement defined benefits credit—other than service costs	(181)		(184)		(552)		(1,648)
*Expenses-Bank	54,311		51,151		152,797		130,440
*Operating income-Bank	27,100		25,057		79,053		100,159
Add back: Retirement defined benefits credit—other than service costs	(181)		(184)		(552)		(1,648)
Add back: Gain on sale of investment securities, net	—		—		—		528
Income before income taxes	$	27,281	$	25,241	$	79,605	$	102,335

American Savings Bank, F.S.B.

Balance Sheets Data


(in thousands)	September 30, 2022				December 31, 2021
Assets
Cash and due from banks			$	143,618			$	100,051
Interest-bearing deposits			6,179				151,189
Cash and cash equivalents			149,797				251,240

Investment securities
Available-for-sale, at fair value			2,232,336				2,574,618
Held-to-maturity, at amortized cost (fair value of $411,191 and $510,474, respectively)			510,879				522,270
Stock in Federal Home Loan Bank, at cost			15,000				10,000
Loans held for investment			5,687,390				5,211,114
Allowance for credit losses			(70,406)				(71,130)
Net loans			5,616,984				5,139,984
Loans held for sale, at lower of cost or fair value			3,101				10,404
Other			705,324				590,897
Goodwill			82,190				82,190
Total assets			$	9,315,611			$	9,181,603
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing			$	2,921,857			$	2,976,632
Deposit liabilities—interest-bearing			5,337,028				5,195,580
Other borrowings			409,040				88,305
Other			198,596				193,268
Total liabilities			8,866,521				8,453,785

Common stock			1				1
Additional paid-in capital			355,293				353,895
Retained earnings			441,796				411,704
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities	$	(340,266)			$	(32,037)
Retirement benefit plans	(7,734)		(348,000)		(5,745)		(37,782)
Total shareholder’s equity			449,090				727,818
Total liabilities and shareholder’s equity			$	9,315,611			$	9,181,603

Other assets
Bank-owned life insurance			$	181,107			$	177,566
Premises and equipment, net			196,035				202,299
Accrued interest receivable			23,140				20,854
Mortgage-servicing rights			9,351				9,950
Low-income housing investments			110,700				110,989
Real estate acquired in settlement of loans, net			271				—
Real estate held for sale			3,030				—
Deferred tax asset			120,442				7,699
Other			61,248				61,540
			$	705,324			$	590,897
Other liabilities
Accrued expenses			$	94,782			$	87,905

Cashier’s checks			36,393				33,675
Advance payments by borrowers			4,488				9,994
Other			62,933				61,694
			$	198,596			$	193,268

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 FHLB advances of $125.0 million and nil at September 30, 2022 and December 31, 2021, respectively, and securities sold under agreements to repurchase of $284.0 million and $88.3 million at September 30, 2022 and December 31, 2021, 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, 2022
Available-for-sale
U.S. Treasury and federal agency obligations	$	104,278	$	—	$	(7,865)	$	96,413	16	$	78,651	$	(5,672)	1	$	17,762	$	(2,193)
Mortgage-backed securities*	2,533,445		13		(452,503)		2,080,955		139	735,328		(110,054)		109	1,342,950		(342,449)
Corporate bonds	44,412		—		(4,477)		39,935		5	39,935		(4,477)		—	—		—
Mortgage revenue bonds	15,033		—		—		15,033		—	—		—		—	—		—
	$	2,697,168	$	13	$	(464,845)	$	2,232,336	160	$	853,914	$	(120,203)	110	$	1,360,712	$	(344,642)
Held-to-maturity
U.S. Treasury and Federal agency obligations	$	59,888	$	—	$	(8,918)	$	50,970	2	$	33,821	$	(6,106)	1	$	17,149	$	(2,812)
Mortgage-backed securities*	450,991		—		(90,770)		360,221		13	91,218		(19,048)		24	269,003		(71,722)
	$	510,879	$	—	$	(99,688)	$	411,191	15	$	125,039	$	(25,154)	25	$	286,152	$	(74,534)
December 31, 2021
Available-for-sale
U.S. Treasury and federal agency obligations	$	89,714	$	803	$	(427)	$	90,090	4	$	44,827	$	(427)	—	$	—	$	—
Mortgage-backed securities*	2,482,618		6,511		(51,206)		2,437,923		120	1,845,243		(38,321)		18	271,012		(12,885)
Corporate bonds	30,625		655		(102)		31,178		1	12,780		(102)		—	—		—
Mortgage revenue bonds	15,427		—		—		15,427		—	—		—		—	—		—
	$	2,618,384	$	7,969	$	(51,735)	$	2,574,618	125	$	1,902,850	$	(38,850)	18	$	271,012	$	(12,885)
Held-to-maturity
U.S. Treasury and Federal agency obligations	$	59,871	$	168	$	(170)	$	59,869	2	$	39,594	$	(170)	—	$	—	$	—
Mortgage-backed securities*	462,399		1,480		(13,274)		450,605		22	290,883		(7,665)		7	106,483		(5,609)
	$	522,270	$	1,648	$	(13,444)	$	510,474	24	$	330,477	$	(7,835)	7	$	106,483	$	(5,609)

* 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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021.

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, 2022	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	15,239	$	15,195
Due after one year through five years	81,842		76,442
Due after five years through ten years	66,642		59,744
Due after ten years	—		—
	163,723		151,381
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	2,533,445		2,080,955
Total available-for-sale securities	$	2,697,168	$	2,232,336
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	59,888		50,970
Due after ten years	—		—
	59,888		50,970
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	450,991		360,221
Total held-to-maturity securities	$	510,879	$	411,191

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
(in thousands)	2022		2021		2022		2021
Proceeds	$	—	$	—	$	—	$	197,354
Gross gains	—		—		—		975
Gross losses	—		—		—		447
Tax expense on realized gains	—		—		—		142

Transfer of available-for sale securities to held-to-maturity - subsequent event. In October 2022, ASB transferred 66 available-for-sale investment securities with a fair value of $755 million to the held-to-maturity category. On the date of transfer, these securities had a total unrealized loss of $206 million. There was no impact to net income as a result of the transfer.

These transfers were executed to mitigate the potential future impact to capital through accumulated other comprehensive loss and the impact of rising rates on the market value of the investment securities. ASB believes that it maintains sufficient liquidity for future business needs and it has the positive intent and ability to hold these securities to maturity.

The components of loans were summarized as follows:


	September 30, 2022		December 31, 2021
(in thousands)
Real estate:
Residential 1-4 family	$	2,392,780	$	2,299,212
Commercial real estate	1,295,737		1,056,982
Home equity line of credit	967,153		835,663
Residential land	21,539		19,859
Commercial construction	89,185		91,080
Residential construction	20,303		11,138
Total real estate	4,786,697		4,313,934
Commercial	703,737		793,304
Consumer	216,744		113,966
Total loans	5,707,178		5,221,204
Less: Deferred fees and discounts	(19,788)		(10,090)
Allowance for credit losses	(70,406)		(71,130)
Total loans, net	$	5,616,984	$	5,139,984

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, 2022
Allowance for credit losses:
Beginning balance	$	8,520	$	20,900	$	6,096	$	677	$	2,634	$	46	$	12,413	$	18,170	$	69,456
Charge-offs	—		—		—		—		—		—		(143)		(1,503)		(1,646)
Recoveries	2		—		14		—		—		—		303		963		1,282
Provision	(938)		136		(167)		12		(1,635)		3		378		3,525		1,314
Ending balance	$	7,584	$	21,036	$	5,943	$	689	$	999	$	49	$	12,951	$	21,155	$	70,406
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
Nine months ended September 30, 2022
Allowance for credit losses:
Beginning balance	$	6,545	$	24,696	$	5,657	$	646	$	2,186	$	18	$	15,798	$	15,584	$	71,130
Charge-offs	—		—		—		—		—		—		(367)		(4,354)		(4,721)
Recoveries	13		—		56		101		—		—		1,055		2,964		4,189
Provision	1,026		(3,660)		230		(58)		(1,187)		31		(3,535)		6,961		(192)
Ending balance	$	7,584	$	21,036	$	5,943	$	689	$	999	$	49	$	12,951	$	21,155	$	70,406



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

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, 2022
Allowance for loan commitments:
Beginning balance	$	400	$	4,100	$	1,400	$	5,900
Provision	—		(1,500)		—		(1,500)
Ending balance	$	400	$	2,600	$	1,400	$	4,400
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
Nine months ended September 30, 2022
Allowance for loan commitments:
Beginning balance	$	400	$	3,700	$	800	$	4,900
Provision	—		(1,100)		600		(500)
Ending balance	$	400	$	2,600	$	1,400	$	4,400
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

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)	2022		2021		2020		2019		2018		Prior		Revolving		Converted to term loans		Total
September 30, 2022
Residential 1-4 family
Current	$	305,656	$	761,490	$	428,088	$	115,625	$	53,423	$	720,572	$	—	$	—	$	2,384,854
30-59 days past due	—		—		—		—		—		1,389		—		—		1,389
60-89 days past due	—		—		—		—		—		2,040		—		—		2,040
Greater than 89 days past due	—		—		267		—		809		3,421		—		—		4,497
	305,656		761,490		428,355		115,625		54,232		727,422		—		—		2,392,780
Home equity line of credit
Current	—		—		—		—		—		—		924,228		41,514		965,742
30-59 days past due	—		—		—		—		—		—		242		130		372
60-89 days past due	—		—		—		—		—		—		106		43		149
Greater than 89 days past due	—		—		—		—		—		—		427		463		890
	—		—		—		—		—		—		925,003		42,150		967,153
Residential land
Current	5,516		9,263		5,410		338		525		390		—		—		21,442
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		97		—		—		97
	5,516		9,263		5,410		338		525		487		—		—		21,539
Residential construction
Current	6,028		11,804		2,471		—		—		—		—		—		20,303
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	6,028		11,804		2,471		—		—		—		—		—		20,303
Consumer
Current	152,156		24,939		7,779		11,509		1,487		167		11,097		4,536		213,670
30-59 days past due	786		181		119		303		43		—		41		74		1,547
60-89 days past due	229		111		50		162		35		—		23		53		663
Greater than 89 days past due	128		178		69		213		61		—		68		147		864
	153,299		25,409		8,017		12,187		1,626		167		11,229		4,810		216,744
Commercial real estate
Pass	293,602		179,753		297,137		51,953		57,857		297,949		4,235		—		1,182,486
Special Mention	—		11,250		3,467		40,838		415		27,202		—		—		83,172
Substandard	—		—		668		11,371		1,822		16,218		—		—		30,079
Doubtful	—		—		—		—		—		—		—		—		—
	293,602		191,003		301,272		104,162		60,094		341,369		4,235		—		1,295,737
Commercial construction
Pass	—		46,263		9,570		—		11,342		—		22,010		—		89,185
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	—		46,263		9,570		—		11,342		—		22,010		—		89,185
Commercial
Pass	145,209		185,304		82,895		68,730		39,524		65,509		75,669		14,430		677,270
Special Mention	—		—		295		6,103		25		784		3,750		10		10,967
Substandard	422		2,496		143		766		1,355		4,819		4,382		1,117		15,500
Doubtful	—		—		—		—		—		—		—		—		—
	145,631		187,800		83,333		75,599		40,904		71,112		83,801		15,557		703,737
Total loans	$	909,732	$	1,233,032	$	838,428	$	307,911	$	168,723	$	1,140,557	$	1,046,278	$	62,517	$	5,707,178


	Term Loans by Origination Year												Revolving Loans
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Converted to term loans		Total
December 31, 2021
Residential 1-4 family
Current	$	791,758	$	461,683	$	133,345	$	64,421	$	124,994	$	712,452	$	—	$	—	$	2,288,653
30-59 days past due	—		—		—		809		—		2,210		—		—		3,019
60-89 days past due	—		—		—		—		—		1,468		—		—		1,468
Greater than 89 days past due	—		—		2,987		—		—		3,085		—		—		6,072
	791,758		461,683		136,332		65,230		124,994		719,215		—		—		2,299,212
Home equity line of credit
Current	—		—		—		—		—		—		794,518		39,116		833,634
30-59 days past due	—		—		—		—		—		—		296		313		609
60-89 days past due	—		—		—		—		—		—		16		70		86
Greater than 89 days past due	—		—		—		—		—		—		838		496		1,334
	—		—		—		—		—		—		795,668		39,995		835,663
Residential land
Current	10,572		6,794		1,116		532		267		181		—		—		19,462
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		397		—		—		397
	10,572		6,794		1,116		532		267		578		—		—		19,859
Residential construction
Current	7,856		3,019		—		—		263		—		—		—		11,138
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	7,856		3,019		—		—		263		—		—		—		11,138
Consumer
Current	37,563		15,488		29,383		10,897		302		238		12,740		4,157		110,768
30-59 days past due	202		181		517		234		15		—		156		70		1,375
60-89 days past due	59		127		392		183		8		—		7		106		882
Greater than 89 days past due	14		93		387		192		27		—		141		87		941
	37,838		15,889		30,679		11,506		352		238		13,044		4,420		113,966
Commercial real estate
Pass	173,794		275,242		49,317		56,490		33,581		259,583		11,602		—		859,609
Special Mention	19,600		3,529		42,935		30,870		20,788		32,824		—		—		150,546
Substandard	—		684		13,936		1,859		1,805		28,543		—		—		46,827
Doubtful	—		—		—		—		—		—		—		—		—
	193,394		279,455		106,188		89,219		56,174		320,950		11,602		—		1,056,982
Commercial construction
Pass	17,140		43,261		—		11,342		—		—		19,337		—		91,080
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	17,140		43,261		—		11,342		—		—		19,337		—		91,080
Commercial
Pass	266,087		96,963		79,329		56,497		31,019		66,570		96,673		15,510		708,648
Special Mention	40		27,336		10,071		202		439		8,966		15,303		18		62,375
Substandard	427		184		3,737		1,777		4,457		2,961		7,083		1,655		22,281
Doubtful	—		—		—		—		—		—		—		—		—
	266,554		124,483		93,137		58,476		35,915		78,497		119,059		17,183		793,304
Total loans	$	1,325,112	$	934,584	$	367,452	$	236,305	$	217,965	$	1,119,478	$	958,710	$	61,598	$	5,221,204

Revolving loans converted to term loans during the nine months ended September 30, 2022 in the commercial, home equity line of credit and consumer portfolios were $1.6 million, $12.9 million and $2.7 million, respectively. 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.

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, 2022
Real estate:
Residential 1-4 family	$	1,389	$	2,040	$	4,497	$	7,926	$	2,384,854	$	2,392,780	$	—
Commercial real estate	—		—		—		—		1,295,737		1,295,737		—
Home equity line of credit	372		149		890		1,411		965,742		967,153		—
Residential land	—		—		97		97		21,442		21,539		—
Commercial construction	—		—		—		—		89,185		89,185		—
Residential construction	—		—		—		—		20,303		20,303		—
Commercial	366		110		2,100		2,576		701,161		703,737		—
Consumer	1,547		663		864		3,074		213,670		216,744		—
Total loans	$	3,674	$	2,962	$	8,448	$	15,084	$	5,692,094	$	5,707,178	$	—
December 31, 2021
Real estate:
Residential 1-4 family	$	3,019	$	1,468	$	6,072	$	10,559	$	2,288,653	$	2,299,212	$	—
Commercial real estate	—		—		—		—		1,056,982		1,056,982		—
Home equity line of credit	609		86		1,334		2,029		833,634		835,663		—
Residential land	—		—		397		397		19,462		19,859		—
Commercial construction	—		—		—		—		91,080		91,080		—
Residential construction	—		—		—		—		11,138		11,138		—
Commercial	700		313		48		1,061		792,243		793,304		—
Consumer	1,375		882		941		3,198		110,768		113,966		—
Total loans	$	5,703	$	2,749	$	8,792	$	17,244	$	5,203,960	$	5,221,204	$	—

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


(in thousands)	September 30, 2022						December 31, 2021
	With a Related ACL		Without a Related ACL		Total		With a Related ACL		Without a Related ACL		Total
Real estate:
Residential 1-4 family	$	6,125	$	4,219	$	10,344	$	16,045	$	3,703	$	19,748
Commercial real estate	—		—		—		14,104		1,221		15,325
Home equity line of credit	3,715		916		4,631		4,227		1,294		5,521
Residential land	312		97		409		97		300		397
Commercial construction	—		—		—		—		—		—
Residential construction	—		—		—		—		—		—
Commercial	2,591		811		3,402		1,446		692		2,138
Consumer	1,346		—		1,346		1,845		—		1,845
Total	$	14,089	$	6,043	$	20,132	$	37,764	$	7,210	$	44,974

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


(in thousands)	September 30, 2022		December 31, 2021
Real estate:
Residential 1-4 family	$	7,671	$	6,949
Commercial real estate	9,633		3,055
Home equity line of credit	4,814		6,021
Residential land	806		980
Commercial construction	—		—
Residential construction	—		—
Commercial	6,011		7,860
Consumer	51		52
Total troubled debt restructured loans accruing interest	$	28,986	$	24,917

ASB did not recognize interest on nonaccrual loans for the nine months ended September 30, 2022 and 2021.

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.

Loans modified as a TDR. Loan modifications that occurred during the three and nine months ended September 30, 2022 and 2021 were as follows:


	Three months ended September 30, 2022					Nine months ended September 30, 2022
(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	2	$	512	$	—	3	$	893	$	135
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	—	—		—		—	—		—
Residential land	1	204		16		1	204		16
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	—	—		—		1	288		20
Consumer	—	—		—		—	—		—
	3	$	716	$	16	5	$	1,385	$	171


	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

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 2022 and 2021.

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, 2022 and December 31, 2021.

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, 2022		December 31, 2021		Collateral type
Real estate:
Residential 1-4 family	$	4,699	$	3,493	Residential real estate property
Commercial real estate	—		1,221		Commercial real estate property
Home equity line of credit	899		1,294		Residential real estate property
Residential land	97		300		Residential real estate property
Total real estate	5,695		6,308
Commercial	187		692		Business assets
Total	$	5,882	$	7,000

ASB had $4.6 million and $3.4 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2022 and December 31, 2021, 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 $12.1 million and $38.3 million for the three months ended September 30, 2022 and 2021, respectively, and recognized gains on such sales of $0.2 million and $1.3 million for the three months ended September 30, 2022 and 2021, respectively. ASB received proceeds from the sale of residential mortgages of $126.4 million and $304.8 million for the nine months ended September 30, 2022 and 2021, respectively, and recognized gains on such sales of $1.6 million and $7.5 million for the nine months ended September 30, 2022 and 2021, respectively.

There was one repurchased mortgage loan for the three and nine months ended September 30, 2022 and no repurchased mortgage loans for the three and nine months ended September 30, 2021.

Mortgage servicing fees, a component of other income, net, were $1.0 million for the three months ended September 30, 2022 and 2021, and $2.8 million for the nine months ended September 30, 2022 and 2021.

Changes in the carrying value of MSRs were as follows:


(in thousands)	Gross carrying amount		Accumulated amortization		Valuation allowance		Net carrying amount
September 30, 2022	$	19,454	$	(10,103)	$	—	$	9,351
December 31, 2021	18,674		(8,724)		—		9,950

Changes related to MSRs were as follows:


	Three months ended September 30,				Nine months ended September 30
(in thousands)	2022		2021		2022		2021
Mortgage servicing rights
Beginning balance	$	9,696	$	10,754	$	9,950	$	10,280
Amount capitalized	117		315		1,040		2,885
Amortization	(462)		(797)		(1,639)		(2,893)
Other-than-temporary impairment	—		—		—		—
Carrying amount before valuation allowance	9,351		10,272		9,351		10,272
Valuation allowance for mortgage servicing rights
Beginning balance	—		—		—		260
Provision	—		—		—		(260)
Other-than-temporary impairment	—		—		—		—
Ending balance	—		—		—		—
Net carrying value of mortgage servicing rights	$	9,351	$	10,272	$	9,351	$	10,272

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, 2022			December 31, 2021
Unpaid principal balance	$	1,467,806		$	1,481,899
Weighted average note rate	3.36		%	3.38		%
Weighted average discount rate	9.25		%	9.25		%
Weighted average prepayment speed	6.72		%	9.77		%

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, 2022		December 31, 2021
Prepayment rate:
25 basis points adverse rate change	$	(144)	$	(714)
50 basis points adverse rate change	(299)		(1,608)
Discount rate:
25 basis points adverse rate change	(177)		(129)
50 basis points adverse rate change	(351)		(256)

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, 2022 and December 31, 2021, ASB had $125 million and nil of FHLB advances outstanding, respectively, and no federal funds purchased with the Federal Reserve Bank. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of September 30, 2022.

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, 2022	$	284	$	—	$	284
December 31, 2021	88		—		88


	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, 2022	$	284	$	285	$	—




December 31, 2021	88		161		—

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, 2022				December 31, 2021
(in thousands)	Notional amount		Fair value		Notional amount		Fair value
Interest rate lock commitments	$	5,635	$	(85)	$	39,377	$	638
Forward commitments	5,250		172		38,000		(11)

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, 2022				December 31, 2021
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	3	$	88	$	638	$	—
Forward commitments	172		—		—		11
	$	175	$	88	$	638	$	11

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)		2022		2021		2022		2021
Interest rate lock commitments	Mortgage banking income	$	(129)	$	(63)	$	(722)	$	(4,228)
Forward commitments	Mortgage banking income	145		150		182		609
		$	16	$	87	$	(540)	$	(3,619)

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $71.4 million and $62.8 million at September 30, 2022 and December 31, 2021, 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, 2022, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.