| Bank segment (HEI only) | 5 · Bank segment (HEI only) Selected financial information American Savings Bank, F.S.B. Statements of Income Data Years ended December 31 2015 2014 2013 (in thousands) Interest and dividend income Interest and fees on loans $ 184,782 $ 179,341 $ 172,969 Interest and dividends on investment securities 15,120 11,945 13,095 Total interest and dividend income 199,902 191,286 186,064 Interest expense Interest on deposit liabilities 5,348 5,077 5,092 Interest on other borrowings 5,978 5,731 4,985 Total interest expense 11,326 10,808 10,077 Net interest income 188,576 180,478 175,987 Provision for loan losses 6,275 6,126 1,507 Net interest income after provision for loan losses 182,301 174,352 174,480 Noninterest income Fees from other financial services 22,211 21,747 27,099 Fee income on deposit liabilities 22,368 19,249 18,363 Fee income on other financial products 8,094 8,131 8,405 Bank-owned life insurance 4,078 3,949 3,928 Mortgage banking income 6,330 2,913 8,309 Gains on sale of investment securities — 2,847 1,226 Other income, net 4,750 2,375 4,753 Total noninterest income 67,831 61,211 72,083 Noninterest expense Compensation and employee benefits 90,518 79,885 82,910 Occupancy 16,365 17,197 16,747 Data processing 12,103 11,690 10,952 Services 10,204 10,269 9,015 Equipment 6,577 6,564 7,295 Office supplies, printing and postage 5,749 6,089 4,233 Marketing 3,463 3,999 3,373 FDIC insurance 3,274 3,261 3,253 Other expense 18,067 17,314 19,637 Total noninterest expense 166,320 156,268 157,415 Income before income taxes 83,812 79,295 89,148 Income taxes 29,082 27,994 31,421 Net income $ 54,730 $ 51,301 $ 57,727 Statements of Comprehensive Income Years ended December 31 2015 2014 2013 (in thousands) Net income $ 54,730 $ 51,301 $ 57,727 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 $1,541, ($3,856),and $9,037 for 2015, 2014 and 2013, respectively (2,334 ) 5,840 (13,686 ) Less: reclassification adjustment for net realized gains included in net income, net of taxes of nil, $1,132 and $488 for 2015, 2014 and 2013, respectively — (1,715 ) (738 ) Retirement benefit plans: Net gains (losses) arising during the period, net of (taxes) benefits of ($59), $6,164 and ($10,450) for 2015, 2014 and 2013, respectively 90 (9,336 ) 15,826 Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $1,011, $561 and $1,187 for 2015, 2014 and 2013, respectively 1,531 850 1,797 Other comprehensive income (loss), net of taxes (713 ) (4,361 ) 3,199 Comprehensive income $ 54,017 $ 46,940 $ 60,926 Balance Sheets Data December 31 2015 2014 (in thousands) Assets Cash and due from banks $ 127,201 $ 107,233 Interest-bearing deposits 93,680 54,230 Available-for-sale investment securities, at fair value 820,648 550,394 Stock in Federal Home Loan Bank, at cost 10,678 69,302 Loans receivable held for investment 4,615,819 4,434,651 Allowance for loan losses (50,038 ) (45,618 ) Net loans 4,565,781 4,389,033 Loans held for sale, at lower of cost or fair value 4,631 8,424 Other 309,946 305,416 Goodwill 82,190 82,190 Total assets $ 6,014,755 $ 5,566,222 Liabilities and shareholder’s equity Deposit liabilities–noninterest-bearing $ 1,520,374 $ 1,342,794 Deposit liabilities–interest-bearing 3,504,880 3,280,621 Other borrowings 328,582 290,656 Other 101,029 118,363 Total liabilities 5,454,865 5,032,434 Commitments and contingencies Common stock 1 1 Additional paid in capital 340,496 338,411 Retained earnings 236,664 211,934 Accumulated other comprehensive loss, net of tax benefits Net unrealized gains (losses) on securities $ (1,872 ) $ 462 Retirement benefit plans (15,399 ) (17,271 ) (17,020 ) (16,558 ) Total shareholder’s equity 559,890 533,788 Total liabilities and shareholder’s equity $ 6,014,755 $ 5,566,222 December 31 2015 2014 (in thousands) Other assets Bank-owned life insurance $ 138,139 $ 134,115 Premises and equipment, net 88,077 92,407 Prepaid expenses 3,550 3,196 Accrued interest receivable 15,192 13,632 Mortgage-servicing rights 8,884 11,540 Low-income housing equity investments 37,793 33,438 Real estate acquired in settlement of loans, net 1,030 891 Other 17,281 16,197 $ 309,946 $ 305,416 Other liabilities Accrued expenses $ 30,705 $ 37,880 Federal and state income taxes payable 13,448 28,642 Cashier’s checks 21,768 20,509 Advance payments by borrowers 10,311 9,652 Other 24,797 21,680 $ 101,029 $ 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. Available-for-sale investment securities. The major components of investment securities were as follows: Gross unrealized losses Gross Gross Estimated Less than 12 months 12 months or longer (dollars in thousands) Amortized cost unrealized gains unrealized losses fair value Number of issues Fair value Amount Number of issues Fair value Amount December 31, 2015 Available-for-sale U.S. Treasury and federal agency obligations $ 213,234 $ 1,025 $ (1,300 ) $ 212,959 13 $ 83,053 $ (866 ) 3 $ 17,378 $ (434 ) Mortgage-related securities- FNMA, FHLMC and GNMA 610,522 3,564 (6,397 ) 607,689 38 305,785 (2,866 ) 25 125,817 (3,531 ) $ 823,756 $ 4,589 $ (7,697 ) $ 820,648 51 $ 388,838 $ (3,732 ) 28 $ 143,195 $ (3,965 ) 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 ) ASB does not believe that the investment securities that were in an unrealized loss position as of December 31, 2015 , represent an other-than-temporary impairment. Total gross unrealized losses were primarily attributable to rising interest rates relative to when the investment securities were purchased and not due to the credit quality of the investment securities. The contractual cash flows of the investment 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 did not recognize OTTI for 2015 , 2014 and 2013 . 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: Amortized Fair December 31, 2015 Cost value (in thousands) Due in one year or less $ — $ — Due after one year through five years 86,379 86,935 Due after five years through ten years 71,972 71,812 Due after ten years 54,883 54,212 213,234 212,959 Mortgage-related securities-FNMA,FHLMC and GNMA 610,522 607,689 Total available-for-sale securities $ 823,756 $ 820,648 The proceeds, gross gains and losses from sales of available-for-sale investment securities were as follows: Years ended December 31 2015 2014 2013 (in millions) Proceeds $ — $ 79.6 $ 71.4 Gross gains — 2.8 1 Gross losses — — — Interest income from taxable and non-taxable investment securities were as follows: Years ended December 31 2015 2014 2013 (in thousands) Taxable $ 15,120 $ 11,666 $ 11,474 Non-taxable — 279 1,621 $ 15,120 $ 11,945 $ 13,095 ASB pledged securities with a market value of approximately $100.5 million and $88.6 million as of December 31, 2015 and 2014 , respectively, as collateral for public funds deposits, automated clearinghouse transactions with Bank of Hawaii, to-be-announced mortgage-backed securities settlements with JP Morgan, and deposits in ASB’s bankruptcy account with the Federal Reserve Bank of San Francisco. As of December 31, 2015 and 2014 , securities with a carrying value of $260.5 million and $230.2 million , respectively, were pledged as collateral for securities sold under agreements to repurchase. Stock in FHLB . As of December 31, 2015 and 2014 , ASB’s stock in FHLB was carried at cost ( $10.7 million and $69.3 million , respectively) because it can only be redeemed at par and it is a required investment based on measurements of ASB’s capital, assets and borrowing levels. In May 2015, the FHLB of Seattle and FHLB of Des Moines completed the merger of the two banks and began operating as the FHLB of Des Moines on June 1, 2015. At December 31, 2014, the Company had $55 million of FHLB stock in excess of the required investment. With the merger, all of the Company's excess FHLB stock was repurchased. The FHLB repurchased a total of $58.6 million and $23.2 million of FHLB stock from ASB in 2015 and 2014, respectively. There was no other significant impact on ASB as a result of the merger. Periodically and as conditions warrant, ASB reviews its investment in the stock of the FHLB for impairment. ASB evaluated its investment in FHLB stock for OTTI as of December 31, 2015 , consistent with its accounting policy. ASB did not recognize an OTTI loss for 2015 based on its evaluation of the underlying investment, including: • the net income and growth in retained earnings recorded by the FHLB in the first nine months of 2015 ; • compliance by the FHLB with all of its regulatory capital requirements and being classified “adequately capitalized” by the Federal Housing Finance Agency (Finance Agency); • being authorized by the Finance Agency to repurchase excess stock; • the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB; • the liquidity position of the FHLB; and • ASB’s intent and assessment of whether it will more likely than not be required to sell the FHLB stock before recovery of its par value. Future deterioration in the FHLB's financial position and/or negative developments in any of the factors considered in ASB's impairment evaluation above may result in future impairment losses. Loans receivable. The components of loans receivable were summarized as follows: December 31 2015 2014 (in thousands) Real estate: Residential 1-4 family $ 2,069,665 $ 2,044,205 Commercial real estate 690,561 531,917 Home equity line of credit 846,294 818,815 Residential land 18,229 16,240 Commercial construction 100,796 96,438 Residential construction 14,089 18,961 Total real estate 3,739,634 3,526,576 Commercial 758,659 791,757 Consumer 123,775 122,656 Total loans 4,622,068 4,440,989 Less: Deferred fees and discounts (6,249 ) (6,338 ) Allowance for loan losses (50,038 ) (45,618 ) Total loans, net $ 4,565,781 $ 4,389,033 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 properties, the loan-to-value ratio may not exceed 80% of the lower of the appraised value or purchase price at origination. ASB is subject to the risk that the insurance company cannot satisfy the bank's claim on policies. ASB services real estate loans for investors (principal balance of $1.5 billion , $1.4 billion and $1.4 billion as of December 31, 2015 , 2014 and 2013 , respectively), which are not included in the accompanying consolidated balance sheets data. ASB reports fees earned for servicing such loans as income when the related mortgage loan payments are collected and charges loan servicing cost to expense as incurred. As of December 31, 2015 and 2014 , ASB had pledged loans with an amortized cost of approximately $2.3 billion and $1.9 billion , respectively, as collateral to secure advances from the FHLB. As of December 31, 2015 and 2014 , the aggregate amount of loans to directors and executive officers of ASB and its affiliates and any related interests (as defined in Federal Reserve Board (FRB) Regulation O) of such individuals, was $27.8 million and $49.6 million , respectively. The $21.8 million decrease in such loans in 2015 was attributed to closed lines of credits and repayments of $21.8 million . As of December 31, 2015 and 2014 , $25.8 million and $46.2 million of the loan balances, respectively, were to related interests of individuals who are directors of ASB. All such loans were made at ASB’s normal credit terms. Management believes these loans do not represent more than a normal risk of collection. Allowance for loan losses. As discussed in Note 1, ASB must maintain an allowance for loan losses that is adequate to absorb estimated probable credit losses associated with its loan portfolio. The allowance for loan losses (balances and changes) and financing receivables were as follows: (in thousands) Residential 1-4 family Commercial Home equity Residential land Commercial construction Residential construction Commercial Consumer Unallo- cated Total December 31, 2015 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 (356 ) — (205 ) — — — (1,074 ) (4,791 ) — (6,426 ) Recoveries 226 — 80 507 — — 2,773 985 — 4,571 Provision (346 ) 2,388 403 (711 ) (1,010 ) (15 ) 1,492 4,074 6,275 Ending balance $ 4,186 $ 11,342 $ 7,260 $ 1,671 $ 4,461 $ 13 $ 17,208 $ 3,897 $ — $ 50,038 Ending balance: individually evaluated for impairment $ 1,453 $ — $ 442 $ 891 $ — $ — $ 3,527 $ 7 $ 6,320 Ending balance: collectively evaluated for impairment $ 2,733 $ 11,342 $ 6,818 $ 780 $ 4,461 $ 13 $ 13,681 $ 3,890 $ — $ 43,718 Financing Receivables: Ending balance $ 2,069,665 $ 690,561 $ 846,294 $ 18,229 $ 100,796 $ 14,089 $ 758,659 $ 123,775 $ 4,622,068 Ending balance: individually evaluated for impairment $ 22,457 $ 1,188 $ 3,225 $ 5,683 $ — $ — $ 21,119 $ 13 $ 53,685 Ending balance: collectively evaluated for impairment $ 2,047,208 $ 689,373 $ 843,069 $ 12,546 $ 100,796 $ 14,089 $ 737,540 $ 123,762 $ 4,568,383 December 31, 2014 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 (987 ) — (196 ) (81 ) — — (1,872 ) (2,414 ) — (5,550 ) Recoveries 1,180 — 752 469 — — 1,636 889 — 4,926 Provision (1,065 ) 3,895 1,197 (330 ) 3,074 9 (1,550 ) 2,787 (1,891 ) 6,126 Ending balance $ 4,662 $ 8,954 $ 6,982 $ 1,875 $ 5,471 $ 28 $ 14,017 $ 3,629 $ — $ 45,618 Ending balance: individually evaluated for impairment $ 951 $ 1,845 $ 46 $ 1,057 $ — $ — $ 760 $ 6 $ 4,665 Ending balance: collectively evaluated for impairment $ 3,711 $ 7,109 $ 6,936 $ 818 $ 5,471 $ 28 $ 13,257 $ 3,623 $ — $ 40,953 Financing Receivables: Ending balance $ 2,044,205 $ 531,917 $ 818,815 $ 16,240 $ 96,438 $ 18,961 $ 791,757 $ 122,656 $ 4,440,989 Ending balance: individually evaluated for impairment $ 22,981 $ 5,112 $ 779 $ 7,850 $ — $ — $ 13,108 $ 16 $ 49,846 Ending balance: collectively evaluated for impairment $ 2,021,224 $ 526,805 $ 818,036 $ 8,390 $ 96,438 $ 18,961 $ 778,649 $ 122,640 $ 4,391,143 Changes in the allowance for loan losses were as follows: (dollars in thousands) 2015 2014 2013 Allowance for loan losses, January 1 $ 45,618 $ 40,116 $ 41,985 Provision for loan losses 6,275 6,126 1,507 Charge-offs, net of recoveries Real estate loans (252 ) (1,137 ) (678 ) Other loans 2,107 1,761 4,054 Net charge-offs 1,855 624 3,376 Allowance for loan losses, December 31 $ 50,038 $ 45,618 $ 40,116 Ratio of net charge-offs to average total loans 0.04 % 0.01 % 0.09 % 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: December 31 2015 2014 (in thousands) Commercial real estate Commercial construction Commercial Total Commercial real estate Commercial construction Commercial Total Grade: Pass $ 642,410 $ 86,991 $ 703,208 1,432,609 $ 493,105 $ 79,312 $ 743,334 $ 1,315,751 Special mention 7,710 13,805 7,029 28,544 5,209 — 16,095 21,304 Substandard 40,441 — 47,975 88,416 33,603 17,126 31,665 82,394 Doubtful — — 447 447 — — 663 663 Loss — — — — — — — — Total $ 690,561 $ 100,796 $ 758,659 1,550,016 $ 531,917 $ 96,438 $ 791,757 $ 1,420,112 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 December 31, 2015 Real estate: Residential 1-4 family $ 4,967 $ 3,289 $ 11,503 $ 19,759 $ 2,049,906 $ 2,069,665 $ — Commercial real estate — — — — 690,561 690,561 — Home equity line of credit 896 706 477 2,079 844,215 846,294 — Residential land — — 415 415 17,814 18,229 — Commercial construction — — — — 100,796 100,796 — Residential construction — — — — 14,089 14,089 — Commercial 125 223 878 1,226 757,433 758,659 — Consumer 1,383 593 644 2,620 121,155 123,775 — Total loans $ 7,371 $ 4,811 $ 13,917 $ 26,099 $ 4,595,969 $ 4,622,068 $ — 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: December 31 2015 2014 (in thousands) Real estate: Residential 1-4 family $ 20,554 $ 19,253 Commercial real estate 1,188 5,112 Home equity line of credit 2,254 1,087 Residential land 970 720 Commercial construction — — Residential construction — — Commercial 20,174 10,053 Consumer 895 661 Total nonaccrual loans $ 46,035 $ 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 $ 13,962 $ 13,525 Commercial real estate — — Home equity line of credit 2,467 480 Residential land 4,713 7,130 Commercial construction — — Residential construction — — Commercial 1,104 2,972 Consumer — — Total troubled debt restructured loans not included above $ 22,246 $ 24,107 The total carrying amount and the total unpaid principal balance of impaired loans were as follows: December 31 2015 2014 (in thousands) Recorded investment Unpaid principal balance Related allow- ance Average recorded investment Interest income recognized* Recorded investment Unpaid principal balance Related allow- ance Average recorded investment Interest income recognized* With no related allowance recorded Real estate: Residential 1-4 family $ 10,596 $ 11,805 $ — $ 11,215 $ 332 $ 11,654 $ 12,987 $ — $ 9,056 $ 227 Commercial real estate 1,188 1,436 — 370 74 571 626 — 194 — Home equity line of credit 707 948 — 484 4 363 606 — 402 5 Residential land 1,644 2,412 — 2,397 137 2,344 3,200 — 2,728 172 Commercial construction — — — — — — — — — — Residential construction — — — — — — — — — — Commercial 5,671 6,333 — 5,185 157 8,235 11,471 — 5,204 38 Consumer — — — — — — — — 8 — 19,806 22,934 — 19,651 704 23,167 28,890 — 17,592 442 With an allowance recorded Real estate: Residential 1-4 family 11,861 11,914 1,453 11,578 562 11,327 11,347 951 8,822 419 Commercial real estate — — — 1,699 — 4,541 4,541 1,845 3,415 478 Home equity line of credit 2,518 2,579 442 1,597 49 416 420 46 132 6 Residential land 4,039 4,117 891 4,337 318 5,506 5,584 1,057 6,415 484 Commercial construction — — — — — — — — — — Residential construction — — — — — — — — — — Commercial 15,448 16,073 3,527 12,507 211 4,873 5,211 760 12,089 438 Consumer 13 13 7 14 — 16 16 6 9 — 33,879 34,696 6,320 31,732 1,140 26,679 27,119 4,665 30,882 1,825 Total Real estate: Residential 1-4 family 22,457 23,719 1,453 22,793 894 22,981 24,334 951 17,878 646 Commercial real estate 1,188 1,436 — 2,069 74 5,112 5,167 1,845 3,609 478 Home equity line of credit 3,225 3,527 442 2,081 53 779 1,026 46 534 11 Residential land 5,683 6,529 891 6,734 455 7,850 8,784 1,057 9,143 656 Commercial construction — — — — — — — — — — Residential construction — — — — — — — — — — Commercial 21,119 22,406 3,527 17,692 368 13,108 16,682 760 17,293 476 Consumer 13 13 7 14 — 16 16 6 17 — $ 53,685 $ 57,630 $ 6,320 $ 51,383 $ 1,844 $ 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 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 or reduction 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 during 2015 and 2014 were as follows: Years ended December 31 2015 2014 Number Outstanding recorded investment Net increase in ALLL Number Outstanding recorded investment Net increase in ALLL (dollars in thousands) of Pre-modification Post-modification of contracts Pre-modification Post-modification Troubled debt restructurings Real estate: Residential 1-4 family 19 $ 3,594 $ 3,668 $ 87 38 $ 10,680 $ 10,737 $ 163 Commercial real estate 1 1,500 1,500 — — — — — Home equity line of credit 39 2,441 2,441 370 8 502 502 42 Residential land 1 218 218 — 18 4,304 4,304 242 Commercial construction — — — — — — — — Residential construction — — — — — — — — Commercial 8 2,267 2,267 486 7 3,827 3,827 13 Consumer — — — — — — — — 68 $ 10,020 $ 10,094 $ 943 71 $ 19,313 $ 19,370 $ 460 Loans modified in TDRs that experienced a payment default of 90 days or more in 2015 and 2014 , and for which the payment default occurred within one year of the modification, were as follows: Years ended December 31 2015 2014 (dollars in thousands) Number of contracts Recorded investment Number of contracts Recorded investment Troubled debt restructurings that subsequently defaulted Real estate: Residential 1-4 family — $ — 1 $ 390 Commercial real estate — — — — Home equity line of credit 1 6 — — Residential land — — — — Commercial construction — — — — Residential construction — — — — Commercial 1 1,056 1 14 Consumer — — — — 2 $ 1,062 2 $ 404 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 December 31, 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 loans, but may retain the servicing rights of the loans sold. ASB received $275.3 million , $155.0 million , and $273.8 million of proceeds from the sale of residential mortgages in 2015 , 2014 , and 2013 , respectively, and recognized gains on such sales of $6.3 million , $2.9 million , and $8.3 million in 2015 , 2014 , and 2013 , respectively. Repurchased mortgage loans in 2015 , 2014 , and 2013 , were nil , $0.5 million and $1.9 million , respectively. Mortgage servicing fees, a component of other income, net, were $3.5 million , $3.5 million , and $3.3 million for the years ended December 31, 2015 , 2014 , and 2013 , respectively. Changes in carrying value of mortgage servicing rights were as follows: (in thousands) Gross Accumulated amortization Valuation allowance Net December 31, 2015 $ 14,531 1 $ (5,647 ) 1 $ — $ 8,884 December 31, 2014 $ 27,185 $ (15,436 ) $ (209 ) $ 11,540 1 Reflects sale of mortgage servicing rights and impact of loans paid in full. Changes related to mortgage servicing rights were as follows: (in thousands) 2015 2014 2013 Mortgage servicing rights Balance, January 1 $ 11,749 $ 11,938 $ 11,316 Amount capitalized 3,123 1,637 2,611 Amortization (2,682 ) (1,731 ) (1,802 ) Sale of mortgage servicing rights (3,302 ) — — Other-than-temporary impairment (4 ) (95 ) (187 ) Carrying amount before valuation allowance, December 31 8,884 11,749 11,938 Valuation allowance for mortgage servicing rights Balance, January 1 209 251 498 Provision (recovery) (205 ) 53 (60 ) Other-than-temporary impairment (4 ) (95 ) (187 ) Balance, December 31 — 209 251 Net carrying value of mortgage servicing rights $ 8,884 $ 11,540 $ 11,687 The estimated aggregate amortization expenses of mortgage servicing rights for 2016 , 2017 , 2018 , 2019 and 2020 are $1.3 million , $1.2 million , $1.0 million , $0.9 million and $0.8 million , respectively. ASB capitalizes mortgage servicing rights acquired through either the purchase or origination of mortgage loans for sale with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the mortgage servicing rights to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the mortgage servicing rights. ASB's MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type such as fixed-rate 15 and 30 year mortgages and note rate in bands of 50 to 100 basis points. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. 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. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and expenses associated with servicing residential mortgage loans for others. ASB uses a present value cash flow model using techniques described above 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 other income, net in the 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 mortgage servicing rights used in the impairment analysis were as follows: December 31 2015 2014 (dollars in thousands) Unpaid principal balance $ 1,097,314 $ 1,391,030 Weighted average note rate 4.05 % 4.07 % Weighted average discount rate 9.6 % 9.6 % Weighted average prepayment speed 9.3 % 9.5 % The sensitivity analysis of fair value of MSR to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows: December 31 2015 2014 (in thousands) Prepayment rate: 25 basis points adverse rate change $ (561 ) $ (757 ) 50 basis points adverse rate change (1,104 ) (1,524 ) Discount rate: 25 basis points adverse rate change (111 ) (140 ) 50 basis points adverse rate change (220 ) (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. Deposit liabilities. The summarized components of deposit liabili |
