| Bank segment | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income Data Three months ended Nine months ended (in thousands) 2015 2014 2015 2014 Interest and dividend income Interest and fees on loans $ 46,413 $ 45,532 $ 137,646 $ 133,065 Interest and dividends on investment securities 4,213 2,773 10,570 8,758 Total interest and dividend income 50,626 48,305 148,216 141,823 Interest expense Interest on deposit liabilities 1,355 1,312 3,881 3,774 Interest on other borrowings 1,515 1,438 4,468 4,263 Total interest expense 2,870 2,750 8,349 8,037 Net interest income 47,756 45,555 139,867 133,786 Provision for loan losses 2,997 1,550 5,436 3,566 Net interest income after provision for loan losses 44,759 44,005 134,431 130,220 Noninterest income Fees from other financial services 5,639 5,642 16,544 15,987 Fee income on deposit liabilities 5,883 5,109 16,622 14,175 Fee income on other financial products 2,096 1,971 6,088 6,325 Bank-owned life insurance 1,021 1,000 3,062 2,945 Mortgage banking income 1,437 875 5,327 1,749 Gains on sale of investment securities — — — 2,847 Other income, net 2,389 634 3,363 1,920 Total noninterest income 18,465 15,231 51,006 45,948 Noninterest expense Compensation and employee benefits 22,728 19,892 66,813 60,050 Occupancy 4,128 4,517 12,250 12,959 Data processing 3,032 2,684 9,101 8,715 Services 2,556 2,580 7,730 7,708 Equipment 1,608 1,672 4,999 4,926 Office supplies, printing and postage 1,511 1,415 4,297 4,487 Marketing 934 948 2,619 2,690 FDIC insurance 809 840 2,393 2,441 Other expense 5,116 4,182 14,076 11,198 Total noninterest expense 42,422 38,730 124,278 115,174 Income before income taxes 20,802 20,506 61,159 60,994 Income taxes 7,351 7,253 21,382 21,806 Net income $ 13,451 $ 13,253 $ 39,777 $ 39,188 American Savings Bank, F.S.B. Statements of Comprehensive Income Data Three months ended Nine months ended (in thousands) 2015 2014 2015 2014 Net income $ 13,451 $ 13,253 $ 39,777 $ 39,188 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 $(2,543), $1,094, $(2,382) and $(2,249) for the respective periods 3,851 (1,657 ) 3,608 3,406 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 $249, $138, $763 and $424 for the respective periods 376 208 1,155 642 Other comprehensive income (loss), net of taxes 4,227 (1,449 ) 4,763 2,333 Comprehensive income $ 17,678 $ 11,804 $ 44,540 $ 41,521 American Savings Bank, F.S.B. Balance Sheets Data (in thousands) September 30, 2015 December 31, 2014 Assets Cash and due from banks $ 103,934 $ 107,233 Interest-bearing deposits 73,041 54,230 Available-for-sale investment securities, at fair value 785,837 550,394 Stock in Federal Home Loan Bank, at cost 10,678 69,302 Loans receivable held for investment 4,535,404 4,434,651 Allowance for loan losses (48,274 ) (45,618 ) Net loans 4,487,130 4,389,033 Loans held for sale, at lower of cost or fair value 5,598 8,424 Other 307,089 305,416 Goodwill 82,190 82,190 Total assets $ 5,855,497 $ 5,566,222 Liabilities and shareholder’s equity Deposit liabilities—noninterest-bearing $ 1,422,843 $ 1,342,794 Deposit liabilities—interest-bearing 3,403,111 3,280,621 Other borrowings 368,593 290,656 Other 103,553 118,363 Total liabilities 5,298,100 5,032,434 Commitments and contingencies Common stock 1 1 Additional paid in capital 339,980 338,411 Retained earnings 229,211 211,934 Accumulated other comprehensive loss, net of tax benefits Net unrealized gains on securities $ 4,070 $ 462 Retirement benefit plans (15,865 ) (11,795 ) (17,020 ) (16,558 ) Total shareholder’s equity 557,397 533,788 Total liabilities and shareholder’s equity $ 5,855,497 $ 5,566,222 Other assets Bank-owned life insurance $ 136,969 $ 134,115 Premises and equipment, net 87,432 92,407 Prepaid expenses 3,879 3,196 Accrued interest receivable 14,577 13,632 Mortgage-servicing rights 12,258 11,540 Low-income housing equity investments 34,323 33,438 Real estate acquired in settlement of loans, net 247 891 Other 17,404 16,197 $ 307,089 $ 305,416 Other liabilities Accrued expenses $ 28,952 $ 37,880 Federal and state income taxes payable 21,565 28,642 Cashier’s checks 25,852 20,509 Advance payments by borrowers 5,389 9,652 Other 21,795 21,680 $ 103,553 $ 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 $269 million and $100 million , respectively, as of September 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 September 30, 2015 Available-for-sale U.S. Treasury and federal agency obligations $ 209,025 $ 2,435 $ (342 ) $ 211,118 4 $ 24,676 $ (46 ) 3 $ 18,218 $ (296 ) Mortgage-related securities- FNMA, FHLMC and GNMA 570,055 6,884 (2,220 ) 574,719 8 57,263 (278 ) 25 132,874 (1,942 ) $ 779,080 $ 9,319 $ (2,562 ) $ 785,837 12 $ 81,939 $ (324 ) 28 $ 151,092 $ (2,238 ) 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 September 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: September 30, 2015 Amortized cost Fair value (in thousands) Due in one year or less $ — $ — Due after one year through five years 75,332 76,786 Due after five years through ten years 71,667 72,198 Due after ten years 62,026 62,134 209,025 211,118 Mortgage-related securities-FNMA,FHLMC and GNMA 570,055 574,719 Total available-for-sale securities $ 779,080 $ 785,837 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 $ 4,291 $ 10,420 $ 6,613 $ 2,103 $ 2,575 $ 18 $ 17,469 $ 2,876 $ — $ 46,365 Charge-offs (138 ) — (185 ) — — — (126 ) (1,271 ) — (1,720 ) Recoveries 45 — 33 34 — — 279 241 — 632 Provision 285 987 446 (73 ) 944 (5 ) (920 ) 1,333 — 2,997 Ending balance $ 4,483 $ 11,407 $ 6,907 $ 2,064 $ 3,519 $ 13 $ 16,702 $ 3,179 $ — $ 48,274 Three months ended Allowance for loan losses: Beginning balance $ 5,667 $ 7,230 $ 7,081 $ 1,837 $ 3,390 $ 26 $ 15,144 $ 1,997 $ — $ 42,372 Charge-offs (632 ) — (46 ) (28 ) — — (886 ) (592 ) — (2,184 ) Recoveries 160 — 299 90 — — 952 222 — 1,723 Provision 670 3 (119 ) (92 ) 1,724 3 (1,130 ) 491 — 1,550 Ending balance $ 5,865 $ 7,233 $ 7,215 $ 1,807 $ 5,114 $ 29 $ 14,080 $ 2,118 $ — $ 43,461 Nine 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 (352 ) — (205 ) — — — (928 ) (3,196 ) — (4,681 ) Recoveries 112 — 72 219 — — 726 772 — 1,901 Provision 61 2,453 58 (30 ) (1,952 ) (15 ) 2,887 1,974 — 5,436 Ending balance $ 4,483 $ 11,407 $ 6,907 $ 2,064 $ 3,519 $ 13 $ 16,702 $ 3,179 $ — $ 48,274 Ending balance: individually evaluated for impairment $ 1,388 $ — $ 469 $ 919 $ — $ — $ 3,084 $ 7 $ 5,867 Ending balance: collectively evaluated for impairment $ 3,095 $ 11,407 $ 6,438 $ 1,145 $ 3,519 $ 13 $ 13,618 $ 3,172 $ — $ 42,407 Financing Receivables: Ending balance $ 2,062,458 $ 618,113 $ 832,267 $ 17,369 $ 80,230 $ 14,318 $ 798,428 $ 118,450 $ 4,541,633 Ending balance: individually evaluated for impairment $ 22,560 $ — $ 2,909 $ 5,710 $ — $ — $ 22,853 $ 14 $ 54,046 Ending balance: collectively evaluated for impairment $ 2,039,898 $ 618,113 $ 829,358 $ 11,659 $ 80,230 $ 14,318 $ 775,575 $ 118,436 $ 4,487,587 Nine 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 (992 ) — (182 ) (81 ) — — (1,256 ) (1,614 ) — (4,125 ) Recoveries 1,056 — 624 253 — — 1,277 694 — 3,904 Provision 267 2,174 1,544 (182 ) 2,717 10 (1,744 ) 671 (1,891 ) 3,566 Ending balance $ 5,865 $ 7,233 $ 7,215 $ 1,807 $ 5,114 $ 29 $ 14,080 $ 2,118 $ — $ 43,461 Ending balance: individually evaluated for impairment $ 917 $ 4 $ 8 $ 1,171 $ — $ — $ 810 $ 5 $ 2,915 Ending balance: collectively evaluated for impairment $ 4,948 $ 7,229 $ 7,207 $ 636 $ 5,114 $ 29 $ 13,270 $ 2,113 $ — $ 40,546 Financing Receivables: Ending balance $ 2,030,337 $ 502,356 $ 808,991 $ 16,935 $ 87,461 $ 18,699 $ 770,079 $ 107,531 $ 4,342,389 Ending balance: individually evaluated for impairment $ 20,015 $ 754 $ 392 $ 8,872 $ — $ — $ 15,058 $ 16 $ 45,107 Ending balance: collectively evaluated for impairment $ 2,010,322 $ 501,602 $ 808,599 $ 8,063 $ 87,461 $ 18,699 $ 755,021 $ 107,515 $ 4,297,282 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 loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens, and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the Bank may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The credit risk profile by internally assigned grade for loans was as follows: September 30, 2015 December 31, 2014 (in thousands) Commercial real estate Commercial construction Commercial Commercial real estate Commercial construction Commercial Grade: Pass $ 563,734 $ 70,950 $ 745,624 $ 493,105 $ 79,312 $ 743,334 Special mention 9,460 9,280 10,316 5,209 — 16,095 Substandard 44,919 — 40,662 33,603 17,126 31,665 Doubtful — — 1,826 — — 663 Loss — — — — — — Total $ 618,113 $ 80,230 $ 798,428 $ 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 September 30, 2015 Real estate: Residential 1-4 family $ 6,354 $ 1,722 $ 11,852 $ 19,928 $ 2,042,530 $ 2,062,458 $ — Commercial real estate — — — — 618,113 618,113 — Home equity line of credit 1,192 81 436 1,709 830,558 832,267 — Residential land 120 — 415 535 16,834 17,369 — Commercial construction — — — — 80,230 80,230 — Residential construction — — — — 14,318 14,318 — Commercial 546 312 1,005 1,863 796,565 798,428 — Consumer 1,357 491 377 2,225 116,225 118,450 — Total loans $ 9,569 $ 2,606 $ 14,085 $ 26,260 $ 4,515,373 $ 4,541,633 $ — 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) September 30, 2015 December 31, 2014 Real estate: Residential 1-4 family $ 19,987 $ 19,253 Commercial real estate — 5,112 Home equity line of credit 1,982 1,087 Residential land 975 720 Commercial construction — — Residential construction — — Commercial 21,767 10,053 Consumer 645 661 Total nonaccrual loans $ 45,356 $ 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 $ 14,182 $ 13,525 Commercial real estate — — Home equity line of credit 2,297 480 Residential land 4,735 7,130 Commercial construction — — Residential construction — — Commercial 1,212 2,972 Consumer — — Total troubled debt restructured loans not included above $ 22,426 $ 24,107 The total carrying amount and the total unpaid principal balance of impaired loans were as follows: September 30, 2015 Three months ended Nine 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 $ 11,125 $ 12,476 $ — $ 11,159 $ 119 $ 11,301 $ 274 Commercial real estate — — — — 74 362 74 Home equity line of credit 507 744 — 498 1 444 3 Residential land 1,652 2,421 — 2,280 29 2,647 125 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 3,152 4,765 — 4,250 3 5,659 144 Consumer — — — — — — — $ 16,436 $ 20,406 $ — $ 18,187 $ 226 $ 20,413 $ 620 With an allowance recorded Real estate: Residential 1-4 family $ 11,435 $ 11,488 $ 1,388 $ 11,451 $ 174 $ 11,585 $ 430 Commercial real estate — — — — — 1,985 — Home equity line of credit 2,402 2,464 469 2,048 13 1,295 27 Residential land 4,058 4,136 919 3,971 74 4,435 241 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 19,701 21,976 3,084 18,487 106 10,942 192 Consumer 14 14 7 14 — 15 — $ 37,610 $ 40,078 $ 5,867 $ 35,971 $ 367 $ 30,257 $ 890 Total Real estate: Residential 1-4 family $ 22,560 $ 23,964 $ 1,388 $ 22,610 $ 293 $ 22,886 $ 704 Commercial real estate — — — — 74 2,347 74 Home equity line of credit 2,909 3,208 469 2,546 14 1,739 30 Residential land 5,710 6,557 919 6,251 103 7,082 366 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 22,853 26,741 3,084 22,737 109 16,601 336 Consumer 14 14 7 14 — 15 — $ 54,046 $ 60,484 $ 5,867 $ 54,158 $ 593 $ 50,670 $ 1,510 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 September 30, 2015 Nine months ended September 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 3 $ 860 $ 866 $ 1 10 $ 2,055 $ 2,079 $ 48 Commercial real estate — — — — — — — — Home equity line of credit 10 943 943 140 32 2,062 2,062 300 Residential land — — — — — — — — Commercial construction — — — — — — — — Residential construction — — — — — — — — Commercial 2 1,208 1,208 16 6 1,461 1,461 94 Consumer — — — — — — — — 15 $ 3,011 $ 3,017 $ 157 48 $ 5,578 $ 5,602 $ 442 Three months ended September 30, 2014 Nine months ended September 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 6 $ 1,800 $ 1,825 $ 43 18 $ 4,915 $ 4,972 $ 294 Commercial real estate — — — — — — — — Home equity line of credit 1 91 91 — 1 91 91 — Residential land 2 256 256 — 18 4,304 4,304 400 Commercial construction — — — — — — — — Residential construction — — — — — — — — Commercial 2 2,600 2,600 — 7 3,827 3,827 14 Consumer — — — — — — — — 11 $ 4,747 $ 4,772 $ 43 44 $ 13,137 $ 13,194 $ 708 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 September 30, 2015 Nine months ended September 30, 2015 (dollars in thousands) Number of contracts Recorded investment Number of contracts Recorded investment Troubled debt restructurings that Real estate loans: Residential 1-4 family — $ — — $ — Commercial real estate — — — — Home equity line of credit 1 7 1 7 Residential land — — — — Commercial construction — — — — Residential construction — — — — Commercial loans — — — — Consumer loans — — — — 1 $ 7 1 $ 7 Three months ended September 30, 2014 Nine months ended September 30, 2014 (dollars in thousands) Number of contracts Recorded investment Number of contracts Recorded investment Troubled debt restructurings that Real estate loans: Residential 1-4 family — $ — 1 $ 390 Commercial real estate — — — — Home equity line of credit — — — — Residential land — — — — Commercial construction — — — — Residential construction — — — — Commercial loans — — — — Consumer loans — — — — — $ — 1 $ 390 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 September 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 September 30, 2015 and 2014 and $2.7 million and $2.6 million for the nine months ended September 30, 2015 and 2014, respectively. The carrying values of mortgage servicing assets were as follows: (in thousands) Gross Accumulated amortization Valuation allowance Net September 30, 2015 $ 29,818 $ (17,560 ) $ — $ 12,258 September 30, 2014 26,685 (15,003 ) (158 ) 11,524 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 2,636 1,098 Amortization (2,123 ) (1,297 ) Other-than-temporary impairment (4 ) (57 ) Carrying amount before valuation allowance, September 30 12,258 11,682 Valuation allowance for mortgage servicing rights Balance, January 1 209 251 Provision (recovery) (205 ) (36 ) Other-than-temporary impairment (4 ) (57 ) Balance, September 30 — 158 Net carrying value of mortgage servicing rights $ 12,258 $ 11,524 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) September 30, 2015 December 31, 2014 Unpaid principal balance $ 1,503,369 $ 1,391,030 Weighted average note rate 4.01 % 4.07 % Weighted average discount rate 9.5 % 9.6 % Weighted average prepayment speed 9.9 % 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) September 30, 2015 December 31, 2014 Prepayment rate: 25 basis points adverse rate change $ (832 ) $ (757 ) 50 basis points adverse rate change (1,643 ) (1,524 ) Discount rate: 25 basis points adverse rate change (148 ) (140 ) 50 basis points adverse rate change (293 ) (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. In October 2015, ASB entered into an agreement to sell certain MSRs for approximately 1,500 underlying fully amortizing, conventional residential mortgage loans with an unpaid principal balance of $419 million , subject to FNMA approval. 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 September 30, 2015 $269 $— $269 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 September 30, 2015 Financial institution $ 50 $ 50 $ — $ — Government entities 66 66 — — Commercial account holders 153 153 — — Total $ 269 $ 269 $ — $ — 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: September 30, 2015 December 31, 2014 (in thousands) Notional amount Fair value Notional amount Fair value Interest rate lock commitments $ 27,587 $ 585 $ 29,330 $ 390 Forward commitments 24,706 (124 ) 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 September 30, 2015 December 31, 2014 (in thousands) Asset derivatives Liability derivatives Asset derivatives Liability Interest rate lock commitments $ 585 $ — $ 393 $ 3 Forward commitments 1 125 5 111 $ 586 $ 125 $ 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 Nine months (in thousands) 2015 2014 2015 201 |
