| Bank segment | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income Data Three months ended Six months (in thousands) 2015 2014 2015 2014 Interest and dividend income Interest and fees on loans $ 46,035 $ 43,851 $ 91,233 $ 87,533 Interest and dividends on investment securities 3,306 2,950 6,357 5,985 Total interest and dividend income 49,341 46,801 97,590 93,518 Interest expense Interest on deposit liabilities 1,266 1,237 2,526 2,462 Interest on other borrowings 1,487 1,420 2,953 2,825 Total interest expense 2,753 2,657 5,479 5,287 Net interest income 46,588 44,144 92,111 88,231 Provision for loan losses 1,825 1,021 2,439 2,016 Net interest income after provision for loan losses 44,763 43,123 89,672 86,215 Noninterest income Fees from other financial services 5,550 5,217 10,905 10,345 Fee income on deposit liabilities 5,424 4,645 10,739 9,066 Fee income on other financial products 2,103 2,064 3,992 4,354 Bank-owned life insurance 1,058 982 2,041 1,945 Mortgage banking income 2,068 246 3,890 874 Gains on sale of investment securities — — — 2,847 Other income, net 239 661 974 1,286 Total noninterest income 16,442 13,815 32,541 30,717 Noninterest expense Compensation and employee benefits 22,319 19,872 44,085 40,158 Occupancy 4,009 4,489 8,122 8,442 Data processing 2,953 2,971 6,069 6,031 Services 2,833 2,855 5,174 5,128 Equipment 1,690 1,609 3,391 3,254 Office supplies, printing and postage 1,303 1,456 2,786 3,072 Marketing 844 1,031 1,685 1,742 FDIC insurance 773 805 1,584 1,601 Other expense 4,755 3,894 8,960 7,016 Total noninterest expense 41,479 38,982 81,856 76,444 Income before income taxes 19,726 17,956 40,357 40,488 Income taxes 6,875 6,420 14,031 14,553 Net income $ 12,851 $ 11,536 $ 26,326 $ 25,935 American Savings Bank, F.S.B. Statements of Comprehensive Income Data Three months ended Six months (in thousands) 2015 2014 2015 2014 Net income $ 12,851 $ 11,536 $ 26,326 $ 25,935 Other comprehensive income (loss), net of taxes: Net unrealized gains (losses) on available-for-sale investment securities: Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of (taxes) benefits of $2,439, $(1,679), $161 and $(3,343) for the respective periods (3,694 ) 2,543 (243 ) 5,063 Less: reclassification adjustment for net realized gains included in net income, net of taxes of nil, nil, nil and $1,132 for the respective periods — — — (1,715 ) Retirement benefit plans: Less: amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $255, $142, $514 and $286 for the respective periods 387 215 779 434 Other comprehensive income (loss), net of taxes (3,307 ) 2,758 536 3,782 Comprehensive income $ 9,544 $ 14,294 $ 26,862 $ 29,717 American Savings Bank, F.S.B. Balance Sheets Data (in thousands) June 30, 2015 December 31, 2014 Assets Cash and due from banks $ 106,914 $ 107,233 Interest-bearing deposits 162,088 54,230 Available-for-sale investment securities, at fair value 693,520 550,394 Stock in Federal Home Loan Bank, at cost 10,678 69,302 Loans receivable held for investment 4,457,182 4,434,651 Allowance for loan losses (46,365 ) (45,618 ) Net loans 4,410,817 4,389,033 Loans held for sale, at lower of cost or fair value 5,581 8,424 Other 305,310 305,416 Goodwill 82,190 82,190 Total assets $ 5,777,098 $ 5,566,222 Liabilities and shareholder’s equity Deposit liabilities—noninterest-bearing $ 1,455,721 $ 1,342,794 Deposit liabilities—interest-bearing 3,347,550 3,280,621 Other borrowings 314,157 290,656 Other 113,015 118,363 Total liabilities 5,230,443 5,032,434 Commitments and contingencies Common stock 1 1 Additional paid in capital 339,416 338,411 Retained earnings 223,260 211,934 Accumulated other comprehensive loss, net of tax benefits Net unrealized gains on securities $ 219 $ 462 Retirement benefit plans (16,241 ) (16,022 ) (17,020 ) (16,558 ) Total shareholder’s equity 546,655 533,788 Total liabilities and shareholder’s equity $ 5,777,098 $ 5,566,222 Other assets Bank-owned life insurance $ 136,062 $ 134,115 Premises and equipment, net 85,976 92,407 Prepaid expenses 3,728 3,196 Accrued interest receivable 14,052 13,632 Mortgage-servicing rights 12,265 11,540 Low-income housing equity investments 30,974 33,438 Real estate acquired in settlement of loans, net 318 891 Other 21,935 16,197 $ 305,310 $ 305,416 Other liabilities Accrued expenses $ 26,915 $ 37,880 Federal and state income taxes payable 26,502 28,642 Cashier’s checks 27,670 20,509 Advance payments by borrowers 10,093 9,652 Other 21,835 21,680 $ 113,015 $ 118,363 Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death. Other borrowings consisted of securities sold under agreements to repurchase and advances from the Federal Home Loan Bank (FHLB) of $214 million and $100 million , respectively, as of June 30, 2015 and $191 million and $100 million , respectively, as of December 31, 2014 . Available-for-sale investment securities. The major components of investment securities were as follows: Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value Gross unrealized losses Less than 12 months 12 months or longer (dollar in thousands) Number of issues Fair value Amount Number of issues Fair value Amount June 30, 2015 Available-for-sale U.S. Treasury and federal agency obligations $ 168,143 $ 1,355 $ (1,039 ) $ 168,459 12 $ 76,835 $ (477 ) 3 $ 18,332 $ (562 ) Mortgage-related securities- FNMA, FHLMC and GNMA 525,014 5,217 (5,170 ) 525,061 20 170,965 (1,622 ) 25 136,546 (3,548 ) $ 693,157 $ 6,572 $ (6,209 ) $ 693,520 32 $ 247,800 $ (2,099 ) 28 $ 154,878 $ (4,110 ) December 31, 2014 Available-for-sale U.S. Treasury and federal agency obligations $ 119,507 $ 1,092 $ (1,039 ) $ 119,560 6 $ 41,970 $ (361 ) 5 $ 29,168 $ (678 ) Mortgage-related securities- FNMA, FHLMC and GNMA 430,120 5,653 (4,939 ) 430,834 6 47,029 (164 ) 29 172,623 (4,775 ) $ 549,627 $ 6,745 $ (5,978 ) $ 550,394 12 $ 88,999 $ (525 ) 34 $ 201,791 $ (5,453 ) The unrealized losses on ASB’s investments in mortgage-related securities and obligations issued by federal agencies were caused by interest rate movements. Because ASB does not intend to sell the securities and has determined it is more likely than not that it will not be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, ASB did not consider these investments to be other-than-temporarily impaired at June 30, 2015 . The fair values of ASB’s investment securities could decline if interest rates rise or spreads widen. U.S. Treasury and federal agency obligations have contractual terms to maturity. Mortgage-related securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.The contractual maturities of available-for-sale investment securities were as follows: June 30, 2015 Amortized cost Fair value (in thousands) Due in one year or less $ — $ — Due after one year through five years 37,272 37,631 Due after five years through ten years 77,747 78,291 Due after ten years 53,124 52,537 168,143 168,459 Mortgage-related securities-FNMA,FHLMC and GNMA 525,014 525,061 Total available-for-sale securities $ 693,157 $ 693,520 Allowance for loan losses. The allowance for loan losses (balances and changes) and financing receivables were as follows: (in thousands) Residential 1-4 family Commercial real estate Home Residential land Commercial construction Residential construction Commercial loans Consumer loans Unallocated Total Three months ended Allowance for loan losses: Beginning balance $ 4,921 $ 11,228 $ 6,523 $ 2,286 $ 2,837 $ 21 $ 14,580 $ 3,399 $ — $ 45,795 Charge-offs (58 ) — (17 ) — — — (756 ) (983 ) — (1,814 ) Recoveries 55 — 8 136 — — 106 254 — 559 Provision (627 ) (808 ) 99 (319 ) (262 ) (3 ) 3,539 206 — 1,825 Ending balance $ 4,291 $ 10,420 $ 6,613 $ 2,103 $ 2,575 $ 18 $ 17,469 $ 2,876 $ — $ 46,365 Three months ended Allowance for loan losses: Beginning balance $ 5,475 $ 5,715 $ 5,969 $ 1,575 $ 3,063 $ 24 $ 15,592 $ 2,316 $ 1,194 $ 40,923 Charge-offs (94 ) — (136 ) (47 ) — — (246 ) (461 ) — (984 ) Recoveries 555 — 314 77 — — 225 241 — 1,412 Provision (269 ) 1,515 934 232 327 2 (427 ) (99 ) (1,194 ) 1,021 Ending balance $ 5,667 $ 7,230 $ 7,081 $ 1,837 $ 3,390 $ 26 $ 15,144 $ 1,997 $ — $ 42,372 Six months ended Allowance for loan losses: Beginning balance $ 4,662 $ 8,954 $ 6,982 $ 1,875 $ 5,471 $ 28 $ 14,017 $ 3,629 $ — $ 45,618 Charge-offs (214 ) — (20 ) — — — (802 ) (1,925 ) — (2,961 ) Recoveries 67 — 39 185 — — 447 531 — 1,269 Provision (224 ) 1,466 (388 ) 43 (2,896 ) (10 ) 3,807 641 — 2,439 Ending balance $ 4,291 $ 10,420 $ 6,613 $ 2,103 $ 2,575 $ 18 $ 17,469 $ 2,876 $ — $ 46,365 Ending balance: individually evaluated for impairment $ 1,363 $ — $ 269 $ 1,048 $ — $ — $ 2,702 $ 8 $ 5,390 Ending balance: collectively evaluated for impairment $ 2,928 $ 10,420 $ 6,344 $ 1,055 $ 2,575 $ 18 $ 14,767 $ 2,868 $ — $ 40,975 Financing Receivables: Ending balance $ 2,045,357 $ 561,262 $ 820,296 $ 17,273 $ 62,444 $ 19,984 $ 821,636 $ 115,167 $ 4,463,419 Ending balance: individually evaluated for impairment $ 22,720 $ 522 $ 1,899 $ 6,534 $ — $ — $ 23,541 $ 15 $ 55,231 Ending balance: collectively evaluated for impairment $ 2,022,637 $ 560,740 $ 818,397 $ 10,739 $ 62,444 $ 19,984 $ 798,095 $ 115,152 $ 4,408,188 Six months ended Allowance for loan losses: Beginning balance $ 5,534 $ 5,059 $ 5,229 $ 1,817 $ 2,397 $ 19 $ 15,803 $ 2,367 $ 1,891 $ 40,116 Charge-offs (360 ) — (136 ) (53 ) — — (370 ) (1,022 ) — (1,941 ) Recoveries 896 — 325 163 — — 325 472 — 2,181 Provision (403 ) 2,171 1,663 (90 ) 993 7 (614 ) 180 (1,891 ) 2,016 Ending balance $ 5,667 $ 7,230 $ 7,081 $ 1,837 $ 3,390 $ 26 $ 15,144 $ 1,997 $ — $ 42,372 Ending balance: individually evaluated for impairment $ 969 $ 941 $ 14 $ 1,202 $ — $ — $ 1,239 $ 5 $ 4,370 Ending balance: collectively evaluated for impairment $ 4,698 $ 6,289 $ 7,067 $ 635 $ 3,390 $ 26 $ 13,905 $ 1,992 $ — $ 38,002 Financing Receivables: Ending balance $ 2,019,092 $ 476,116 $ 790,837 $ 17,189 $ 80,312 $ 17,441 $ 782,804 $ 111,254 $ 4,295,045 Ending balance: individually evaluated for impairment $ 17,978 $ 4,512 $ 612 $ 9,320 $ — $ — $ 18,042 $ 17 $ 50,481 Ending balance: collectively evaluated for impairment $ 2,001,114 $ 471,604 $ 790,225 $ 7,869 $ 80,312 $ 17,441 $ 764,762 $ 111,237 $ 4,244,564 Credit quality . ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans. Each loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications: Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the PD Model rating, the LGD, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens, and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the Bank may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The credit risk profile by internally assigned grade for loans was as follows: June 30, 2015 December 31, 2014 (in thousands) Commercial real estate Commercial construction Commercial Commercial real estate Commercial construction Commercial Grade: Pass $ 507,904 $ 58,356 $ 763,238 $ 493,105 $ 79,312 $ 743,334 Special mention 7,232 4,088 10,313 5,209 — 16,095 Substandard 46,126 — 47,492 33,603 17,126 31,665 Doubtful — — 593 — — 663 Loss — — — — — — Total $ 561,262 $ 62,444 $ 821,636 $ 531,917 $ 96,438 $ 791,757 The credit risk profile based on payment activity for loans was as follows: (in thousands) 30-59 days past due 60-89 days past due Greater than 90 days Total past due Current Total financing receivables Recorded investment> 90 days and accruing June 30, 2015 Real estate: Residential 1-4 family $ 5,016 $ 1,900 $ 11,998 $ 18,914 $ 2,026,443 $ 2,045,357 $ — Commercial real estate — — — — 561,262 561,262 — Home equity line of credit 923 284 389 1,596 818,700 820,296 — Residential land 420 267 — 687 16,586 17,273 Commercial construction — — — — 62,444 62,444 — Residential construction — — — — 19,984 19,984 — Commercial 907 147 528 1,582 820,054 821,636 — Consumer 1,119 331 295 1,745 113,422 115,167 — Total loans $ 8,385 $ 2,929 $ 13,210 $ 24,524 $ 4,438,895 $ 4,463,419 $ — December 31, 2014 Real estate: Residential 1-4 family $ 6,124 $ 1,732 $ 12,632 $ 20,488 $ 2,023,717 $ 2,044,205 $ — Commercial real estate — — — — 531,917 531,917 — Home equity line of credit 1,341 501 194 2,036 816,779 818,815 — Residential land — — — — 16,240 16,240 — Commercial construction — — — — 96,438 96,438 — Residential construction — — — — 18,961 18,961 — Commercial 699 145 569 1,413 790,344 791,757 — Consumer 829 333 403 1,565 121,091 122,656 — Total loans $ 8,993 $ 2,711 $ 13,798 $ 25,502 $ 4,415,487 $ 4,440,989 $ — The credit risk profile based on nonaccrual loans, accruing loans 90 days or more past due and TDR loans was as follows: (in thousands) June 30, 2015 December 31, 2014 Real estate: Residential 1-4 family $ 18,172 $ 19,253 Commercial real estate 522 5,112 Home equity line of credit 1,962 1,087 Residential land 712 720 Commercial construction — — Residential construction — — Commercial 9,225 10,053 Consumer 543 661 Total nonaccrual loans $ 31,136 $ 36,886 Real estate: Residential 1-4 family $ — $ — Commercial real estate — — Home equity line of credit — — Residential land — — Commercial construction — — Residential construction — — Commercial — — Consumer — — Total accruing loans 90 days or more past due $ — $ — Real estate: Residential 1-4 family $ 14,257 $ 13,525 Commercial real estate — — Home equity line of credit 1,362 480 Residential land 5,822 7,130 Commercial construction — — Residential construction — — Commercial 1,315 2,972 Consumer — — Total troubled debt restructured loans not included above $ 22,756 $ 24,107 The total carrying amount and the total unpaid principal balance of impaired loans were as follows: June 30, 2015 Three months ended Six months ended (in thousands) Recorded investment Unpaid principal balance Related Allowance Average recorded investment Interest income recognized* Average recorded investment Interest income recognized* With no related allowance recorded Real estate: Residential 1-4 family $ 11,132 $ 12,417 $ — $ 11,193 $ 66 $ 11,373 $ 155 Commercial real estate 522 593 — 530 — 543 — Home equity line of credit 376 583 — 433 1 417 2 Residential land 2,597 3,366 — 3,026 44 2,831 96 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 5,221 7,119 — 5,432 139 6,363 141 Consumer — — — — — — — $ 19,848 $ 24,078 $ — $ 20,614 $ 250 $ 21,527 $ 394 With an allowance recorded Real estate: Residential 1-4 family $ 11,588 $ 11,641 $ 1,363 $ 11,794 $ 130 $ 11,651 $ 256 Commercial real estate — — — 1,474 — 2,978 — Home equity line of credit 1,523 1,585 269 1,212 8 919 14 Residential land 3,937 4,015 1,048 4,142 84 4,666 167 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 18,320 20,161 2,702 9,358 36 7,170 86 Consumer 15 15 8 15 — 15 — $ 35,383 $ 37,417 $ 5,390 $ 27,995 $ 258 $ 27,399 $ 523 Total Real estate: Residential 1-4 family $ 22,720 $ 24,058 $ 1,363 $ 22,987 $ 196 $ 23,024 $ 411 Commercial real estate 522 593 — 2,004 — 3,521 — Home equity line of credit 1,899 2,168 269 1,645 9 1,336 16 Residential land 6,534 7,381 1,048 7,168 128 7,497 263 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 23,541 27,280 2,702 14,790 175 13,533 227 Consumer 15 15 8 15 — 15 — $ 55,231 $ 61,495 $ 5,390 $ 48,609 $ 508 $ 48,926 $ 917 December 31, 2014 Year ended December 31, 2014 (in thousands) Recorded investment Unpaid principal balance Related allowance Average recorded investment Interest income recognized* With no related allowance recorded Real estate: Residential 1-4 family $ 11,654 $ 12,987 $ — $ 9,056 $ 227 Commercial real estate 571 626 — 194 — Home equity line of credit 363 606 — 402 5 Residential land 2,344 3,200 — 2,728 172 Commercial construction — — — — — Residential construction — — — — — Commercial 8,235 11,471 — 5,204 38 Consumer — — — 8 — $ 23,167 $ 28,890 $ — $ 17,592 $ 442 With an allowance recorded Real estate: Residential 1-4 family $ 11,327 $ 11,347 $ 951 $ 8,822 $ 419 Commercial real estate 4,541 4,541 1,845 3,415 478 Home equity line of credit 416 420 46 132 6 Residential land 5,506 5,584 1,057 6,415 484 Commercial construction — — — — — Residential construction — — — — — Commercial 4,873 5,211 760 12,089 438 Consumer 16 16 6 9 — $ 26,679 $ 27,119 $ 4,665 $ 30,882 $ 1,825 Total Real estate: Residential 1-4 family $ 22,981 $ 24,334 $ 951 $ 17,878 $ 646 Commercial real estate 5,112 5,167 1,845 3,609 478 Home equity line of credit 779 1,026 46 534 11 Residential land 7,850 8,784 1,057 9,143 656 Commercial construction — — — — — Residential construction — — — — — Commercial 13,108 16,682 760 17,293 476 Consumer 16 16 6 17 — $ 49,846 $ 56,009 $ 4,665 $ 48,474 $ 2,267 * Since loan was classified as impaired. Troubled debt restructurings. A loan modification is deemed to be a troubled debt restructuring (TDR) when ASB grants a concession it would not otherwise consider were it not for the borrower’s financial difficulty. When a borrower experiencing financial difficulty fails to make a required payment on a loan or is in imminent default, ASB takes a number of steps to improve the collectability of the loan and maximize the likelihood of full repayment. At times, ASB may modify or restructure a loan to help a distressed borrower improve its financial position to eventually be able to fully repay the loan, provided the borrower has demonstrated both the willingness and the ability to fulfill the modified terms. TDR loans are considered an alternative to foreclosure or liquidation with the goal of minimizing losses to ASB and maximizing recovery. ASB may consider various types of concessions in granting a TDR including maturity date extensions, extended amortization of principal, temporary deferral of principal payments, and temporary interest rate reductions. ASB rarely grants principal forgiveness in its TDR modifications. Residential loan modifications generally involve interest rate reduction, extending the amortization period, or capitalizing certain delinquent amounts owed not to exceed the original loan balance. Land loans at origination are typically structured as a three -year term, interest-only monthly payment with a balloon payment due at maturity. Land loan TDR modifications typically involve extending the maturity date up to five years and converting the payments from interest-only to principal and interest monthly, at the same or higher interest rate. Commercial loan modifications generally involve extensions of maturity dates, extending the amortization period, and temporary deferral of principal payments. ASB generally does not reduce the interest rate on commercial loan TDR modifications. Occasionally, additional collateral and/or guaranties are obtained. All TDR loans are classified as impaired and are segregated and reviewed separately when assessing the adequacy of the allowance for loan losses based on the appropriate method of measuring impairment: (1) present value of expected future cash flows discounted at the loan’s effective original contractual rate, (2) fair value of collateral less cost to sell, or (3) observable market price. The financial impact of the calculated impairment amount is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for loan losses. Loan modifications that occurred and the impact on the allowance for loan losses were as follows: Three months ended June 30, 2015 Six months ended June 30, 2015 Number of contracts Outstanding recorded investment 1 Net increase in allowance Number of contracts Outstanding recorded investment 1 Net increase in allowance (dollars in thousands) Pre-modification Post-modification (as of period end) Pre-modification Post-modification (as of period end) Troubled debt restructurings Real estate: Residential 1-4 family 2 $ 318 $ 318 $ — 7 $ 1,195 $ 1,213 $ 47 Commercial real estate — — — — — — — — Home equity line of credit 13 690 690 105 22 1,119 1,119 160 Residential land — — — — — — — — Commercial construction — — — — — — — — Residential construction — — — — — — — — Commercial 3 161 161 78 4 253 253 78 Consumer — — — — — — — — 18 $ 1,169 $ 1,169 $ 183 33 $ 2,567 $ 2,585 $ 285 Three months ended June 30, 2014 Six months ended June 30, 2014 Number of contracts Outstanding recorded 1 Net increase in allowance Number of contracts Outstanding recorded 1 Net increase in allowance (dollars in thousands) Pre-modification Post-modification (as of period end) Pre-modification Post-modification (as of period end) Troubled debt restructurings Real estate: Residential 1-4 family 7 $ 2,194 $ 2,212 $ 207 12 $ 3,115 $ 3,147 $ 251 Commercial real estate — — — — — — — — Home equity line of credit — — — — — — — — Residential land 9 2,915 2,915 225 16 4,048 4,048 400 Commercial construction — — — — — — — — Residential construction — — — — — — — — Commercial 2 754 754 — 5 1,227 1,227 14 Consumer — — — — — — — — 18 $ 5,863 $ 5,881 $ 432 33 $ 8,390 $ 8,422 $ 665 1 The reported balances include loans that became TDR during the period, and were fully paid-off, charged-off, or sold prior to period end. Loans modified in TDRs that experienced a payment default of 90 days or more in for the indicated periods, and for which the payment of default occurred within one year of the modification, were as follows: Three months ended June 30, 2014 Six months ended June 30, 2014 (dollars in thousands) Number of contracts Recorded investment Number of contracts Recorded investment Troubled debt restructurings that subsequently defaulted Real estate loans: Residential 1-4 family 1 $ 390 1 $ 390 Commercial real estate — — — — Home equity line of credit — — — — Residential land — — — — Commercial construction — — — — Residential construction — — — — Commercial loans — — — — Consumer loans — — — — 1 $ 390 1 $ 390 There were no loans modified in TDRs that experienced a payment default of 90 days or more in the second quarter of 2015 and six months ended June 30, 2015, and for which the payment of default occurred within one year of the modification. If loans modified in a TDR subsequently default, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been impaired or modified in TDRs totaled $0.1 million at June 30, 2015 . Mortgage servicing rights . In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these sales, but may retain the servicing rights of the loans sold. Mortgage servicing fees, a component of other income, net, were $0.9 million for the three months ended June 30, 2015 and 2014 and $1.8 million and $1.7 million for the six months ended June 30, 2015 and 2014, respectively. The carrying values of mortgage servicing assets were as follows: (in thousands) Gross Accumulated amortization Valuation allowance Net June 30, 2015 $ 29,182 $ (16,880 ) $ (37 ) $ 12,265 June 30, 2014 26,357 (14,578 ) (174 ) 11,605 Changes related to mortgage servicing rights were as follows: (in thousands) 2015 2014 Mortgage servicing rights Balance, January 1 $ 11,749 $ 11,938 Amount capitalized 2,001 753 Amortization (1,444 ) (872 ) Other-than-temporary impairment (4 ) (40 ) Carrying amount before valuation allowance, June 30 12,302 11,779 Valuation allowance for mortgage servicing rights Balance, January 1 209 251 Provision (recovery) (168 ) (37 ) Other-than-temporary impairment (4 ) (40 ) Balance, June 30 37 174 Net carrying value of mortgage servicing rights $ 12,265 $ 11,605 ASB capitalizes mortgage servicing rights acquired through either the purchase or origination of mortgage loans for sale with servicing rights retained. Changes in mortgage interest rates impact the value of ASB’s mortgage servicing rights. Rising interest rates typically result in slower prepayment speeds in the loans being serviced for others, which increases the value of mortgage servicing rights, whereas declining interest rates typically result in faster prepayment speeds which decrease the value of mortgage servicing rights and increase the amortization of the mortgage servicing rights. Key assumptions used in estimating the fair value of the bank’s mortgage servicing rights were as follows: (dollars in thousands) June 30, 2015 December 31, 2014 Unpaid principal balance $ 1,467,492 $ 1,391,030 Weighted average note rate 4.02 % 4.07 % Weighted average discount rate 9.5 % 9.6 % Weighted average prepayment speed 11.0 % 9.5 % The sensitivity analysis of fair value of MSR to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions is as follows: (dollars in thousands) June 30, 2015 December 31, 2014 Prepayment rate: 25 basis points adverse rate change $ (814 ) $ (757 ) 50 basis points adverse rate change (1,537 ) (1,524 ) Discount rate: 25 basis points adverse rate change (132 ) (140 ) 50 basis points adverse rate change (262 ) (278 ) The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear. Other borrowings. Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the balance sheet. All such agreements are subject to master netting arrangements, which provide for conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties: (in millions) Gross amount of recognized liabilities Gross amount offset in the Balance Sheet Net amount of liabilities presented in the Balance Sheet Repurchase agreements June 30, 2015 $214 $— $214 December 31, 2014 191 — 191 Gross amount not offset in the Balance Sheet (in millions) Net amount of liabilities presented in the Balance Sheet Financial instruments Cash collateral pledged Net amount June 30, 2015 Financial institution $ 50 $ 50 $ — $ — Government entities 66 66 — — Commercial account holders 98 98 — — Total $ 214 $ 214 $ — $ — December 31, 2014 Financial institution $ 50 $ 50 $ — $ — Government entities 56 56 — — Commercial account holders 85 85 — — Total $ 191 $ 191 $ — $ — Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risk associated with selling loans. ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time. The notional amount and fair value of ASB’s derivative financial instruments were as follows: June 30, 2015 December 31, 2014 (in thousands) Notional amount Fair value Notional amount Fair value Interest rate lock commitments $ 33,178 $ 446 $ 29,330 $ 390 Forward commitments 28,551 (7 ) 32,833 (106 ) ASB’s derivative financial instruments, their fair values, and balance sheet location were as follows: Derivative Financial Instruments Not Designated as Hedging Instruments 1 June 30, 2015 December 31, 2014 (in thousands) Asset derivatives Liability derivatives Asset derivatives Liability Interest rate lock commitments $ 448 $ 2 $ 393 $ 3 Forward commitments 6 13 5 111 $ 454 $ 15 $ 398 $ 114 1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets. The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in the statements of income: Derivative Financial Instruments Not Designated as Hedging Instruments Location of net gains (losses) recognized in the Statement of Income Three months ended Six months (in thousands) 2015 2014 2015 2014 Interest rate lock commitments Mortgage banking income $ (389 ) $ (194 ) $ 56 $ (464 ) Forward commitments Mortgage banking income 258 (33 ) 99 (139 ) $ (131 ) $ (227 ) $ 155 $ (603 ) Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $8.6 million and $14.8 million at June 30, 2015 and December 31, 2014 , respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. Cash contributions and payments made on commitments to LIHTC investment partnerships are classified as operati |
