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Bank segment

9 Months Ended

Sep. 30, 2023

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)	2023		2022		2023		2022
Interest and dividend income
Interest and fees on loans	$	71,540	$	53,365	$	204,348	$	147,499
Interest and dividends on investment securities	14,096		15,052		42,508		43,729
Total interest and dividend income	85,636		68,417		246,856		191,228
Interest expense
Interest on deposit liabilities	14,446		1,704		30,944		3,572
Interest on other borrowings	8,598		1,055		25,171		1,199
Total interest expense	23,044		2,759		56,115		4,771
Net interest income	62,592		65,658		190,741		186,457
Provision for credit losses	8,835		(186)		10,053		(692)
Net interest income after provision for credit losses	53,757		65,844		180,688		187,149
Noninterest income
Fees from other financial services	4,703		4,763		14,391		15,066
Fee income on deposit liabilities	4,924		4,879		14,027		14,122
Fee income on other financial products	2,440		2,416		7,952		7,663
Bank-owned life insurance	2,303		122		5,683		661
Mortgage banking income	341		181		701		1,630
Gain on sale of real estate	—		—		495		1,002

Other income, net	627		633		2,106		1,480
Total noninterest income	15,338		12,994		45,355		41,624
Noninterest expense
Compensation and employee benefits	29,902		28,597		89,500		83,478
Occupancy	5,154		5,577		16,281		16,996
Data processing	5,133		4,509		15,240		13,144
Services	3,627		2,751		8,911		7,712
Equipment	3,125		2,432		8,728		7,163
Office supplies, printing and postage	1,022		1,123		3,296		3,256
Marketing	984		925		2,834		2,877

Other expense	7,399		5,643		19,742		14,542
Total noninterest expense	56,346		51,557		164,532		149,168
Income before income taxes	12,749		27,281		61,511		79,605
Income taxes	1,384		6,525		11,380		17,513
Net income	11,365		20,756		50,131		62,092
Other comprehensive income (loss), net of taxes	(34,231)		(98,942)		(23,011)		(310,218)
Comprehensive income (loss)	$	(22,866)	$	(78,186)	$	27,120	$	(248,126)

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


	Three months ended September 30				Nine months ended September 30
(in thousands)	2023		2022		2023		2022
Interest and dividend income	$	85,636	$	68,417	$	246,856	$	191,228
Noninterest income	15,338		12,994		45,355		41,624
Less: Gain on sale of real estate	—		—		495		1,002

*Revenues-Bank	100,974		81,411		291,716		231,850
Total interest expense	23,044		2,759		56,115		4,771
Provision for credit losses	8,835		(186)		10,053		(692)
Noninterest expense	56,346		51,557		164,532		149,168
Less: Gain on sale of real estate	—		—		495		1,002
Less: Retirement defined benefits credit—other than service costs	(190)		(181)		(564)		(552)
*Expenses-Bank	88,415		54,311		230,769		152,797
*Operating income-Bank	12,559		27,100		60,947		79,053
Add back: Retirement defined benefits credit—other than service costs	(190)		(181)		(564)		(552)

Income before income taxes	$	12,749	$	27,281	$	61,511	$	79,605

American Savings Bank, F.S.B.

Balance Sheets Data


(in thousands)	September 30, 2023				December 31, 2022
Assets
Cash and due from banks			$	139,059			$	153,042
Interest-bearing deposits			124,531				3,107
Cash and cash equivalents			263,590				156,149

Investment securities
Available-for-sale, at fair value			1,266,412				1,429,667
Held-to-maturity, at amortized cost (fair value of $1,052,221 and $1,150,971, respectively)			1,212,005				1,251,747
Stock in Federal Home Loan Bank, at cost			18,000				26,560
Loans held for investment			6,191,006				5,978,906
Allowance for credit losses			(76,366)				(72,216)
Net loans			6,114,640				5,906,690
Loans held for sale, at lower of cost or fair value			2,171				824
Other			698,420				692,143
Goodwill			82,190				82,190
Total assets			$	9,657,428			$	9,545,970
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing			$	2,573,010			$	2,811,077
Deposit liabilities—interest-bearing			5,651,341				5,358,619
Other borrowings			750,000				695,120
Other			224,136				212,269
Total liabilities			9,198,487				9,077,085

Common stock			1				1
Additional paid-in capital			357,742				355,806
Retained earnings			460,824				449,693
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities	$	(350,234)			$	(328,904)
Retirement benefit plans	(9,392)		(359,626)		(7,711)		(336,615)
Total shareholder’s equity			458,941				468,885
Total liabilities and shareholder’s equity			$	9,657,428			$	9,545,970

Other assets
Bank-owned life insurance			$	186,143			$	182,986
Premises and equipment, net			189,950				195,324
Accrued interest receivable			29,361				25,077
Mortgage-servicing rights			8,376				9,047
Low-income housing investments			103,580				106,978


Deferred tax asset			127,735				116,441
Real estate acquired in settlement of loans, net			—				115
Other			53,275				56,175
			$	698,420			$	692,143
Other liabilities
Accrued expenses			$	102,540			$	97,295
Federal and state income taxes payable			845				863
Cashier’s checks			38,483				36,401
Advance payments by borrowers			4,289				9,637
Other			77,979				68,073
			$	224,136			$	212,269

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 and borrowings from the Federal Reserve Bank.

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, 2023
Available-for-sale
U.S. Treasury and federal agency obligations	$	82,252	$	—	$	(7,252)	$	75,000	—	$	—	$	—	14	$	75,000	$	(7,252)
Mortgage-backed securities*	1,427,186		—		(282,019)		1,145,167		5	12,650		(3,432)		178	1,132,517		(278,587)
Corporate bonds	35,273		—		(3,522)		31,751		—	—		—		3	31,751		(3,522)
Mortgage revenue bonds	14,494		—		—		14,494		—	—		—		—	—		—
	$	1,559,205	$	—	$	(292,793)	$	1,266,412	5	$	12,650	$	(3,432)	195	$	1,239,268	$	(289,361)
Held-to-maturity
U.S. Treasury and federal agency obligations	$	59,912	$	—	$	(9,541)	$	50,371	—	$	—	$	—	3	$	50,371	$	(9,541)
Mortgage-backed securities*	1,152,093		—		(150,243)		1,001,850		62	612,587		(42,892)		41	389,263		(107,351)
	$	1,212,005	$	—	$	(159,784)	$	1,052,221	62	$	612,587	$	(42,892)	44	$	439,634	$	(116,892)
December 31, 2022
Available-for-sale
U.S. Treasury and federal agency obligations	$	88,344	$	—	$	(7,281)	$	81,063	12	$	41,201	$	(2,120)	4	$	39,862	$	(5,161)
Mortgage-backed securities*	1,530,582		—		(237,614)		1,292,968		113	455,836		(56,999)		70	837,132		(180,615)
Corporate bonds	44,377		—		(3,643)		40,734		4	29,644		(2,028)		1	11,090		(1,615)
Mortgage revenue bonds	14,902		—		—		14,902		—	—		—		—	—		—
	$	1,678,205	$	—	$	(248,538)	$	1,429,667	129	$	526,681	$	(61,147)	75	$	888,084	$	(187,391)
Held-to-maturity
U.S. Treasury and federal agency obligations	$	59,894	$	—	$	(8,478)	$	51,416	1	$	16,874	$	(3,222)	2	$	34,542	$	(5,256)
Mortgage-backed securities*	1,191,853		2,670		(94,968)		1,099,555		22	183,629		(10,593)		51	567,250		(84,375)
	$	1,251,747	$	2,670	$	(103,446)	$	1,150,971	23	$	200,503	$	(13,815)	53	$	601,792	$	(89,631)

* 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, 2023 and December 31, 2022, 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 rated 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, 2023 and December 31, 2022.

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, 2023	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	1,811	$	1,782
Due after one year through five years	115,714		104,970
Due after five years through ten years	14,494		14,494
Due after ten years	—		—
	132,019		121,246
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,427,186		1,145,166
Total available-for-sale securities	$	1,559,205	$	1,266,412
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years	39,824		34,133
Due after five years through ten years	20,088		16,238
Due after ten years	—		—
	59,912		50,371
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	1,152,093		1,001,850
Total held-to-maturity securities	$	1,212,005	$	1,052,221

There were no sales of available-for-sale securities for the three months and nine months ended September 30, 2023 and 2022.

The components of loans were summarized as follows:


	September 30, 2023		December 31, 2022
(in thousands)
Real estate:
Residential 1-4 family	$	2,566,300	$	2,479,637
Commercial real estate	1,400,570		1,358,123
Home equity line of credit	1,032,749		1,002,905
Residential land	20,245		20,679
Commercial construction	168,539		88,489
Residential construction	17,295		20,788
Total real estate	5,205,698		4,970,621
Commercial	732,458		779,691
Consumer	282,946		254,709
Total loans	6,221,102		6,005,021
Less: Deferred fees and discounts	(30,096)		(26,115)
Allowance for credit losses	(76,366)		(72,216)
Total loans, net	$	6,114,640	$	5,906,690

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, 2023
Allowance for credit losses:
Beginning balance	$	4,708	$	20,278	$	7,139	$	653	$	2,549	$	26	$	11,358	$	22,357	$	69,068
Charge-offs	—		—		—		—		—		—		(125)		(2,667)		(2,792)
Recoveries	57		—		131		1		—		—		725		841		1,755
Provision	1,702		2,180		505		(33)		1,075		16		(1,175)		4,065		8,335
Ending balance	$	6,467	$	22,458	$	7,775	$	621	$	3,624	$	42	$	10,783	$	24,596	$	76,366
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
Nine months ended September 30, 2023
Allowance for credit losses:
Beginning balance	$	6,270	$	21,898	$	6,125	$	717	$	1,195	$	46	$	12,426	$	23,539	$	72,216
Charge-offs	(990)		—		(360)		—		—		—		(509)		(7,558)		(9,417)
Recoveries	63		—		165		4		—		—		1,329		2,653		4,214
Provision	1,124		560		1,845		(100)		2,429		(4)		(2,463)		5,962		9,353
Ending balance	$	6,467	$	22,458	$	7,775	$	621	$	3,624	$	42	$	10,783	$	24,596	$	76,366



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

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, 2023
Allowance for loan commitments:
Beginning balance	$	600	$	3,800	$	200	$	4,600
Provision	—		500		—		500
Ending balance	$	600	$	4,300	$	200	$	5,100
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
Nine months ended September 30, 2023
Allowance for loan commitments:
Beginning balance	$	400	$	2,600	$	1,400	$	4,400
Provision	200		1,700		(1,200)		700
Ending balance	$	600	$	4,300	$	200	$	5,100
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

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)	2023		2022		2021		2020		2019		Prior		Revolving		Converted to term loans		Total
September 30, 2023
Residential 1-4 family
Current	$	199,880	$	414,053	$	741,401	$	405,552	$	107,566	$	692,167	$	—	$	—	$	2,560,619
30-59 days past due	—		—		—		267		—		2,654		—		—		2,921
60-89 days past due	—		—		—		—		—		973		—		—		973
Greater than 89 days past due	—		—		—		—		—		1,787		—		—		1,787
	199,880		414,053		741,401		405,819		107,566		697,581		—		—		2,566,300
Current YTD period
Gross charge-offs	—		—		—		—		—		990		—		—		990
Home equity line of credit
Current	—		—		—		—		—		—		976,029		54,579		1,030,608
30-59 days past due	—		—		—		—		—		—		463		246		709
60-89 days past due	—		—		—		—		—		—		350		321		671
Greater than 89 days past due	—		—		—		—		—		—		495		266		761
	—		—		—		—		—		—		977,337		55,412		1,032,749
Current YTD period
Gross charge-offs	—		—		—		—		—		—		77		283		360
Residential land
Current	3,077		5,118		7,549		3,518		—		983		—		—		20,245
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	3,077		5,118		7,549		3,518		—		983		—		—		20,245
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Residential construction
Current	2,780		11,019		3,496		—		—		—		—		—		17,295
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	2,780		11,019		3,496		—		—		—		—		—		17,295
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Consumer
Current	82,282		164,693		12,203		2,394		1,010		222		10,345		3,413		276,562
30-59 days past due	822		1,882		122		43		49		1		46		156		3,121
60-89 days past due	362		933		108		35		52		—		32		81		1,603
Greater than 89 days past due	375		785		102		33		26		2		151		186		1,660
	83,841		168,293		12,535		2,505		1,137		225		10,574		3,836		282,946
Current YTD period
Gross charge-offs	850		4,637		840		163		363		39		279		387		7,558
Commercial real estate
Pass	81,287		390,352		177,125		265,808		66,112		329,235		15,482		—		1,325,401
Special Mention	—		—		11,214		3,381		14,452		22,367		—		—		51,414
Substandard	5,386		—		1,549		—		11,048		5,772		—		—		23,755
Doubtful	—		—		—		—		—		—		—		—		—
	86,673		390,352		189,888		269,189		91,612		357,374		15,482		—		1,400,570


	Term Loans by Origination Year												Revolving Loans
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Converted to term loans		Total
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Commercial construction
Pass	10,643		21,440		66,143		356		—		—		69,957		—		168,539
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	10,643		21,440		66,143		356		—		—		69,957		—		168,539
Current YTD period
Gross charge-offs	—		—		—		—		—		—		—		—		—
Commercial
Pass	82,145		209,364		124,453		75,753		46,291		81,409		81,627		9,560		710,602
Special Mention	1,945		—		970		—		272		—		7,151		—		10,338
Substandard	—		3,054		2,040		230		763		3,409		1,506		516		11,518
Doubtful	—		—		—		—		—		—		—		—		—
	84,090		212,418		127,463		75,983		47,326		84,818		90,284		10,076		732,458
Current YTD period
Gross charge-offs	—		—		51		—		—		—		177		281		509
Total loans	$	470,984	$	1,222,693	$	1,148,475	$	757,370	$	247,641	$	1,140,981	$	1,163,634	$	69,324	$	6,221,102


	Term Loans by Origination Year												Revolving Loans
(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Converted to term loans		Total
December 31, 2022
Residential 1-4 family
Current	$	432,707	$	755,056	$	423,455	$	113,096	$	51,860	$	698,354	$	—	$	—	$	2,474,528
30-59 days past due	—		—		—		—		448		1,098		—		—		1,546
60-89 days past due	—		—		268		—		—		90		—		—		358
Greater than 89 days past due	—		—		—		—		809		2,396		—		—		3,205
	432,707		755,056		423,723		113,096		53,117		701,938		—		—		2,479,637
Home equity line of credit
Current	—		—		—		—		—		—		959,131		40,814		999,945
30-59 days past due	—		—		—		—		—		—		1,103		209		1,312
60-89 days past due	—		—		—		—		—		—		209		226		435
Greater than 89 days past due	—		—		—		—		—		—		587		626		1,213
	—		—		—		—		—		—		961,030		41,875		1,002,905
Residential land
Current	5,245		9,010		5,222		203		522		477		—		—		20,679
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	5,245		9,010		5,222		203		522		477		—		—		20,679
Residential construction
Current	7,986		11,624		1,178		—		—		—		—		—		20,788
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	7,986		11,624		1,178		—		—		—		—		—		20,788
Consumer
Current	199,574		21,330		5,543		7,580		527		140		10,810		4,782		250,286
30-59 days past due	1,110		287		65		239		30		—		81		167		1,979
60-89 days past due	756		163		88		137		19		—		45		107		1,315
Greater than 89 days past due	621		105		37		176		28		—		20		142		1,129
	202,061		21,885		5,733		8,132		604		140		10,956		5,198		254,709
Commercial real estate
Pass	390,206		177,130		283,321		51,542		63,084		278,280		8,235		—		1,251,798
Special Mention	—		11,250		3,446		40,423		—		24,466		—		—		79,585
Substandard	—		—		665		11,357		—		14,718		—		—		26,740
Doubtful	—		—		—		—		—		—		—		—		—
	390,206		188,380		287,432		103,322		63,084		317,464		8,235		—		1,358,123
Commercial construction
Pass	15,094		47,478		44		—		—		—		25,873		—		88,489
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	15,094		47,478		44		—		—		—		25,873		—		88,489
Commercial
Pass	239,852		185,013		85,220		68,161		46,142		53,192		60,871		13,964		752,415
Special Mention	—		—		—		2,374		—		645		9,005		8		12,032
Substandard	3,322		2,305		401		1,304		1,346		3,849		1,664		1,053		15,244
Doubtful	—		—		—		—		—		—		—		—		—
	243,174		187,318		85,621		71,839		47,488		57,686		71,540		15,025		779,691
Total loans	$	1,296,473	$	1,220,751	$	808,953	$	296,592	$	164,815	$	1,077,705	$	1,077,634	$	62,098	$	6,005,021

Revolving loans converted to term loans during the nine months ended September 30, 2023 in the commercial, home equity line of credit and consumer portfolios were $6.1 million, $20.4 million and $1.1 million, respectively. 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.

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, 2023
Real estate:
Residential 1-4 family	$	2,921	$	973	$	1,787	$	5,681	$	2,560,619	$	2,566,300	$	—
Commercial real estate	—		—		—		—		1,400,570		1,400,570		—
Home equity line of credit	709		671		761		2,141		1,030,608		1,032,749		—
Residential land	—		—		—		—		20,245		20,245		—
Commercial construction	—		—		—		—		168,539		168,539		—
Residential construction	—		—		—		—		17,295		17,295		—
Commercial	575		100		77		752		731,706		732,458		—
Consumer	3,121		1,603		1,660		6,384		276,562		282,946		—
Total loans	$	7,326	$	3,347	$	4,285	$	14,958	$	6,206,144	$	6,221,102	$	—
December 31, 2022
Real estate:
Residential 1-4 family	$	1,546	$	358	$	3,205	$	5,109	$	2,474,528	$	2,479,637	$	—
Commercial real estate	508		217		—		725		1,357,398		1,358,123		—
Home equity line of credit	1,312		435		1,213		2,960		999,945		1,002,905		—
Residential land	—		—		—		—		20,679		20,679		—
Commercial construction	—		—		—		—		88,489		88,489		—
Residential construction	—		—		—		—		20,788		20,788		—
Commercial	614		18		77		709		778,982		779,691		—
Consumer	1,979		1,315		1,129		4,423		250,286		254,709		—
Total loans	$	5,959	$	2,343	$	5,624	$	13,926	$	5,991,095	$	6,005,021	$	—

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


(in thousands)	September 30, 2023						December 31, 2022
	With a Related ACL		Without a Related ACL		Total		With a Related ACL		Without a Related ACL		Total
Real estate:
Residential 1-4 family	$	573	$	2,500	$	3,073	$	4,198	$	2,981	$	7,179
Commercial real estate	—		—		—		—		—		—
Home equity line of credit	2,764		1,017		3,781		3,654		1,442		5,096
Residential land	106		—		106		420		—		420
Commercial construction	—		—		—		—		—		—
Residential construction	—		—		—		—		—		—
Commercial	508		—		508		2,183		—		2,183
Consumer	2,414		—		2,414		1,588		—		1,588
Total	$	6,365	$	3,517	$	9,882	$	12,043	$	4,423	$	16,466

ASB did not recognize interest on nonaccrual loans for the nine months ended September 30, 2023 and 2022.

Modifications Made to Borrowers Experiencing Financial Difficulty. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loan information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. ASB uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of the modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

Modifications may include interest rate reductions, interest only payments for an extended period of time, protracted terms such as amortization and maturity beyond the customary length of time found in the normal marketplace, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or repossession of collateral.

During the nine months ended September 30, 2023, no loans received a material modification based on borrower financial difficulty.

Troubled debt restructurings. Prior to January 1, 2023, a loan modification was deemed to be a TDR when the borrower was determined to be experiencing financial difficulties and ASB granted a concession it would not otherwise consider. With the adoption of ASU No. 2022-02, accounting guidance for TDRs by creditors is eliminated. Loan refinancing and restructuring guidance is applied to determine whether a modification results in a new loan or a continuation of an existing loan. ASB will continue TDR disclosures for years prior to the adoption of ASU No. 2022-02.

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


(in thousands)	December 31, 2022
Real estate:
Residential 1-4 family	$	8,821
Commercial real estate	9,477
Home equity line of credit	4,404
Residential land	782
Commercial construction	—
Residential construction	—
Commercial	6,596
Consumer	50
Total troubled debt restructured loans accruing interest	$	30,130

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


	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

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.

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 December 31, 2022.

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, 2023		December 31, 2022		Collateral type
Real estate:
Residential 1-4 family	$	2,584	$	3,959	Residential real estate property

Home equity line of credit	1,017		1,425		Residential real estate property



Total	$	3,601	$	5,384

ASB had $3.4 million and $4.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2023 and December 31, 2022, 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 $21.5 million and $12.1 million for the three months ended September 30, 2023 and 2022, respectively, and recognized gains on such sales of $0.3 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively. ASB received proceeds from the sale of residential mortgages of $36.1 million and $126.4 million for the nine months ended September 30, 2023 and 2022, respectively, and recognized gains on such sales of $0.7 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively.

There were no repurchased mortgage loans for the three and nine months ended September 30, 2023 and one repurchased mortgage loan for the three and nine months ended September 30, 2022.

Mortgage servicing fees, a component of other income, net, were $0.9 million and $1.0 million for the three months ended September 30, 2023 and 2022, respectively, and $2.7 million and $2.8 million for the nine months ended September 30, 2023 and 2022 respectively.

Changes in the carrying value of MSRs were as follows:


(in thousands)	Gross carrying amount		Accumulated amortization		Valuation allowance		Net carrying amount
September 30, 2023	$	18,125	$	(9,749)	$	—	$	8,376
December 31, 2022	19,544		(10,497)		—		9,047

Changes related to MSRs were as follows:


	Three months ended September 30				Nine months ended September 30
(in thousands)	2023		2022		2023		2022
Mortgage servicing rights
Beginning balance	$	8,495	$	9,696	$	9,047	$	9,950
Amount capitalized	184		117		319		1,040
Amortization	(303)		(462)		(990)		(1,639)
Other-than-temporary impairment	—		—		—		—
Carrying amount before valuation allowance	8,376		9,351		8,376		9,351
Valuation allowance for mortgage servicing rights
Beginning balance	—		—		—		—
Provision	—		—		—		—
Other-than-temporary impairment	—		—		—		—
Ending balance	—		—		—		—
Net carrying value of mortgage servicing rights	$	8,376	$	9,351	$	8,376	$	9,351

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, 2023			December 31, 2022
Unpaid principal balance	$	1,412,412		$	1,451,322
Weighted average note rate	3.44		%	3.38		%
Weighted average discount rate	10.00		%	10.00		%
Weighted average prepayment speed	5.58		%	6.56		%

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, 2023		December 31, 2022
Prepayment rate:
25 basis points adverse rate change	$	(90)	$	(92)
50 basis points adverse rate change	(207)		(214)
Discount rate:
25 basis points adverse rate change	(206)		(182)
50 basis points adverse rate change	(407)		(361)

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, 2023 and December 31, 2022, ASB had $200.0 million and $414.0 million of FHLB advances outstanding, respectively, and borrowings with the Federal Reserve Bank of $550.0 million and nil, respectively. As of September 30, 2023, ASB was in compliance with all FHLB Advances, Pledge and Security Agreement requirements and all requirements to borrow at the Federal Reserve Discount Window Primary Credit Facility under 12 CFR 201.4(a) guidelines.

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, 2023	$	—	$	—	$	—
December 31, 2022	281		—		281


	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, 2023	$	—	$	—	$	—




December 31, 2022	281		327		—

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, 2023				December 31, 2022
(in thousands)	Notional amount		Fair value		Notional amount		Fair value
Interest rate lock commitments	$	4,910	$	54	$	1,720	$	9
Forward commitments	3,500		15		1,500		18

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, 2023				December 31, 2022
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	54	$	—	$	9	$	—
Forward commitments	15		—		18		—
	$	69	$	—	$	27	$	—

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)		2023		2022		2023		2022
Interest rate lock commitments	Mortgage banking income	$	(34)	$	(129)	$	45	$	(722)
Forward commitments	Mortgage banking income	(36)		145		(3)		182
		$	(70)	$	16	$	42	$	(540)

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $77.1 million and $70.1 million at September 30, 2023 and December 31, 2022, 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, 2023, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.