| Bank segment | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income Data Three months ended June 30 Six months ended June 30 (in thousands) 2016 2015 2016 2015 Interest and dividend income Interest and fees on loans $ 49,690 $ 46,035 $ 98,127 $ 91,233 Interest and dividends on investment securities 4,443 3,306 9,460 6,357 Total interest and dividend income 54,133 49,341 107,587 97,590 Interest expense Interest on deposit liabilities 1,691 1,266 3,283 2,526 Interest on other borrowings 1,467 1,487 2,952 2,953 Total interest expense 3,158 2,753 6,235 5,479 Net interest income 50,975 46,588 101,352 92,111 Provision for loan losses 4,753 1,825 9,519 2,439 Net interest income after provision for loan losses 46,222 44,763 91,833 89,672 Noninterest income Fees from other financial services 5,701 5,550 11,200 10,905 Fee income on deposit liabilities 5,262 5,424 10,418 10,739 Fee income on other financial products 2,207 2,103 4,412 3,992 Bank-owned life insurance 1,006 1,058 2,004 2,041 Mortgage banking income 1,554 2,068 2,749 3,890 Gains on sale of investment securities, net 598 — 598 — Other income, net 288 239 621 974 Total noninterest income 16,616 16,442 32,002 32,541 Noninterest expense Compensation and employee benefits 21,919 22,319 44,353 44,085 Occupancy 4,115 4,009 8,253 8,122 Data processing 3,277 2,953 6,449 6,069 Services 2,755 2,833 5,666 5,174 Equipment 1,771 1,690 3,434 3,391 Office supplies, printing and postage 1,583 1,303 2,948 2,786 Marketing 899 844 1,760 1,685 FDIC insurance 913 773 1,797 1,584 Other expense 5,382 4,755 9,357 8,960 Total noninterest expense 42,614 41,479 84,017 81,856 Income before income taxes 20,224 19,726 39,818 40,357 Income taxes 6,939 6,875 13,860 14,031 Net income $ 13,285 $ 12,851 $ 25,958 $ 26,326 American Savings Bank, F.S.B. Statements of Comprehensive Income Data Three months ended June 30 Six months ended June 30 (in thousands) 2016 2015 2016 2015 Net income $ 13,285 $ 12,851 $ 25,958 $ 26,326 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 ($1,925), $2,439, ($6,830) and $161 for the respective periods 2,915 (3,694 ) 10,344 (243 ) Less: reclassification adjustment for net realized gains included in net income, net of taxes of $238, nil, $238 and nil for the respective periods (360 ) — (360 ) — 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 $140, $255, $277 and $514 for the respective periods 211 387 419 779 Other comprehensive income (loss), net of taxes 2,766 (3,307 ) 10,403 536 Comprehensive income $ 16,051 $ 9,544 $ 36,361 $ 26,862 American Savings Bank, F.S.B. Balance Sheets Data (in thousands) June 30, 2016 December 31, 2015 Assets Cash and due from banks $ 111,738 $ 127,201 Interest-bearing deposits 62,850 93,680 Available-for-sale investment securities, at fair value 894,021 820,648 Stock in Federal Home Loan Bank, at cost 11,218 10,678 Loans receivable held for investment 4,754,954 4,615,819 Allowance for loan losses (55,331 ) (50,038 ) Net loans 4,699,623 4,565,781 Loans held for sale, at lower of cost or fair value 6,217 4,631 Other 320,233 309,946 Goodwill 82,190 82,190 Total assets $ 6,188,090 $ 6,014,755 Liabilities and shareholder’s equity Deposit liabilities—noninterest-bearing $ 1,583,420 $ 1,520,374 Deposit liabilities—interest-bearing 3,648,783 3,504,880 Other borrowings 272,887 328,582 Other 103,396 101,029 Total liabilities 5,608,486 5,454,865 Commitments and contingencies Common stock 1 1 Additional paid in capital 341,849 340,496 Retained earnings 244,622 236,664 Accumulated other comprehensive loss, net of tax benefits Net unrealized gains (losses) on securities $ 8,111 $ (1,872 ) Retirement benefit plans (14,979 ) (6,868 ) (15,399 ) (17,271 ) Total shareholder’s equity 579,604 559,890 Total liabilities and shareholder’s equity $ 6,188,090 $ 6,014,755 Other assets Bank-owned life insurance $ 140,176 $ 138,139 Premises and equipment, net 91,256 88,077 Prepaid expenses 4,715 3,550 Accrued interest receivable 15,749 15,192 Mortgage-servicing rights 9,016 8,884 Low-income housing equity investments 41,080 37,793 Real estate acquired in settlement of loans, net 446 1,030 Other 17,795 17,281 $ 320,233 $ 309,946 Other liabilities Accrued expenses $ 30,569 $ 30,705 Federal and state income taxes payable 16,761 13,448 Cashier’s checks 21,497 21,768 Advance payments by borrowers 10,851 10,311 Other 23,718 24,797 $ 103,396 $ 101,029 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 $173 million and $100 million , respectively, as of June 30, 2016 and $229 million and $100 million , respectively, as of December 31, 2015 . 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 (dollars in thousands) Number of issues Fair value Amount Number of issues Fair value Amount June 30, 2016 Available-for-sale U.S. Treasury and federal agency obligations $ 194,048 $ 4,131 $ (20 ) $ 198,159 — $ — $ — 1 $ 3,842 $ (20 ) Mortgage-related securities- FNMA, FHLMC and GNMA 686,506 10,022 (666 ) 695,862 3 20,608 (65 ) 14 63,466 (601 ) $ 880,554 $ 14,153 $ (686 ) $ 894,021 3 $ 20,608 $ (65 ) 15 $ 67,308 $ (621 ) 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 ) ASB does not believe that the investment securities that were in an unrealized loss position at June 30, 2016 , 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 the quarters ended June 30, 2016 and 2015. 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, 2016 Amortized cost Fair value (in thousands) Due in one year or less $ 9,991 $ 10,001 Due after one year through five years 81,303 83,162 Due after five years through ten years 81,439 83,406 Due after ten years 21,315 21,590 194,048 198,159 Mortgage-related securities-FNMA,FHLMC and GNMA 686,506 695,862 Total available-for-sale securities $ 880,554 $ 894,021 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 Unallo-cated Total Three months ended June 30, 2016 Allowance for loan losses: Beginning balance $ 4,593 $ 11,806 $ 7,172 $ 1,740 $ 6,164 $ 12 $ 16,991 $ 3,848 $ — $ 52,326 Charge-offs (15 ) — — — — — (962 ) (1,528 ) — (2,505 ) Recoveries 35 — 16 16 — — 425 265 — 757 Provision (229 ) 1,755 648 (67 ) 829 — 631 1,186 — 4,753 Ending balance $ 4,384 $ 13,561 $ 7,836 $ 1,689 $ 6,993 $ 12 $ 17,085 $ 3,771 $ — $ 55,331 Three months ended June 30, 2015 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 Six months ended June 30, 2016 Allowance for loan losses: Beginning balance $ 4,186 $ 11,342 $ 7,260 $ 1,671 $ 4,461 $ 13 $ 17,208 $ 3,897 $ — $ 50,038 Charge-offs (60 ) — — — — — (2,305 ) (3,098 ) — (5,463 ) Recoveries 52 — 31 119 — — 560 475 — 1,237 Provision 206 2,219 545 (101 ) 2,532 (1 ) 1,622 2,497 — 9,519 Ending balance $ 4,384 $ 13,561 $ 7,836 $ 1,689 $ 6,993 $ 12 $ 17,085 $ 3,771 $ — $ 55,331 June 30, 2016 Ending balance: individually evaluated for impairment $ 1,709 $ 172 $ 826 $ 819 $ — $ — $ 2,647 $ 7 $ 6,180 Ending balance: collectively evaluated for impairment $ 2,675 $ 13,389 $ 7,010 $ 870 $ 6,993 $ 12 $ 14,438 $ 3,764 $ — $ 49,151 Financing Receivables: Ending balance $ 2,064,343 $ 740,322 $ 860,522 $ 18,447 $ 134,642 $ 16,004 $ 772,565 $ 153,212 $ 4,760,057 Ending balance: individually evaluated for impairment $ 22,279 $ 3,630 $ 4,646 $ 4,453 $ — $ — $ 24,153 $ 12 $ 59,173 Ending balance: collectively evaluated for impairment $ 2,042,064 $ 736,692 $ 855,876 $ 13,994 $ 134,642 $ 16,004 $ 748,412 $ 153,200 $ 4,700,884 Six months ended June 30, 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 (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 December 31, 2015 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 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: June 30, 2016 December 31, 2015 (in thousands) Commercial real estate Commercial construction Commercial Commercial real estate Commercial construction Commercial Grade: Pass $ 664,731 $ 107,552 $ 712,020 $ 642,410 $ 86,991 $ 703,208 Special mention 43,607 — 12,607 7,710 13,805 7,029 Substandard 31,984 27,090 47,698 40,441 — 47,975 Doubtful — — 240 — — 447 Loss — — — — — — Total $ 740,322 $ 134,642 $ 772,565 $ 690,561 $ 100,796 $ 758,659 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, 2016 Real estate: Residential 1-4 family $ 5,421 $ 1,860 $ 10,526 $ 17,807 $ 2,046,536 $ 2,064,343 $ — Commercial real estate — — — — 740,322 740,322 — Home equity line of credit 878 445 602 1,925 858,597 860,522 — Residential land — — 148 148 18,299 18,447 — Commercial construction — — — — 134,642 134,642 — Residential construction — — — — 16,004 16,004 — Commercial 438 111 308 857 771,708 772,565 — Consumer 1,354 692 476 2,522 150,690 153,212 — Total loans $ 8,091 $ 3,108 $ 12,060 $ 23,259 $ 4,736,798 $ 4,760,057 $ — 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 $ — 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, 2016 December 31, 2015 Real estate: Residential 1-4 family $ 21,056 $ 20,554 Commercial real estate 3,630 1,188 Home equity line of credit 3,331 2,254 Residential land 693 970 Commercial construction — — Residential construction — — Commercial 18,827 20,174 Consumer 807 895 Total nonaccrual loans $ 48,344 $ 46,035 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 $ 13,450 $ 13,962 Commercial real estate — — Home equity line of credit 3,400 2,467 Residential land 3,760 4,713 Commercial construction — — Residential construction — — Commercial 5,420 1,104 Consumer — — Total troubled debt restructured loans not included above $ 26,030 $ 22,246 The total carrying amount and the total unpaid principal balance of impaired loans were as follows: June 30, 2016 Three months ended June 30, 2016 Six months ended June 30, 2016 (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 $ 10,262 $ 11,381 $ — $ 10,672 $ 152 $ 10,532 $ 203 Commercial real estate 1,144 1,422 — 1,152 — 1,163 — Home equity line of credit 1,020 1,288 — 1,038 9 943 9 Residential land 1,482 2,178 — 1,484 15 1,537 31 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 15,430 16,776 — 8,369 7 5,818 13 Consumer — — — — — — — $ 29,338 $ 33,045 $ — $ 22,715 $ 183 $ 19,993 $ 256 With an allowance recorded Real estate: Residential 1-4 family $ 12,017 $ 12,220 $ 1,709 $ 11,982 $ 115 $ 12,000 $ 237 Commercial real estate 2,486 2,526 172 2,519 — 1,686 — Home equity line of credit 3,626 3,699 826 3,299 28 3,122 55 Residential land 2,971 2,971 819 2,977 54 3,177 121 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 8,723 8,904 2,647 16,821 180 16,896 210 Consumer 12 12 7 12 — 12 — $ 29,835 $ 30,332 $ 6,180 $ 37,610 $ 377 $ 36,893 $ 623 Total Real estate: Residential 1-4 family $ 22,279 $ 23,601 $ 1,709 $ 22,654 $ 267 $ 22,532 $ 440 Commercial real estate 3,630 3,948 172 3,671 — 2,849 — Home equity line of credit 4,646 4,987 826 4,337 37 4,065 64 Residential land 4,453 5,149 819 4,461 69 4,714 152 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 24,153 25,680 2,647 25,190 187 22,714 223 Consumer 12 12 7 12 — 12 — $ 59,173 $ 63,377 $ 6,180 $ 60,325 $ 560 $ 56,886 $ 879 December 31, 2015 Three months ended June 30, 2015 Six months ended June 30, 2015 (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 $ 10,596 $ 11,805 $ — $ 11,193 $ 66 $ 11,373 $ 155 Commercial real estate 1,188 1,436 — 530 — 543 — Home equity line of credit 707 948 — 433 1 417 2 Residential land 1,644 2,412 — 3,026 44 2,831 96 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 5,671 6,333 — 5,432 139 6,363 141 Consumer — — — — — — — $ 19,806 $ 22,934 $ — $ 20,614 $ 250 $ 21,527 $ 394 With an allowance recorded Real estate: Residential 1-4 family $ 11,861 $ 11,914 $ 1,453 $ 11,794 $ 130 $ 11,651 $ 256 Commercial real estate — — — 1,474 — 2,978 — Home equity line of credit 2,518 2,579 442 1,212 8 919 14 Residential land 4,039 4,117 891 4,142 84 4,666 167 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 15,448 16,073 3,527 9,358 36 7,170 86 Consumer 13 13 7 15 — 15 — $ 33,879 $ 34,696 $ 6,320 $ 27,995 $ 258 $ 27,399 $ 523 Total Real estate: Residential 1-4 family $ 22,457 $ 23,719 $ 1,453 $ 22,987 $ 196 $ 23,024 $ 411 Commercial real estate 1,188 1,436 — 2,004 — 3,521 — Home equity line of credit 3,225 3,527 442 1,645 9 1,336 16 Residential land 5,683 6,529 891 7,168 128 7,497 263 Commercial construction — — — — — — — Residential construction — — — — — — — Commercial 21,119 22,406 3,527 14,790 175 13,533 227 Consumer 13 13 7 15 — 15 — $ 53,685 $ 57,630 $ 6,320 $ 48,609 $ 508 $ 48,926 $ 917 * 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 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 and the impact on the allowance for loan losses were as follows: Three months ended June 30, 2016 Six months ended June 30, 2016 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 5 $ 891 $ 885 $ 98 9 $ 1,988 $ 2,100 $ 259 Commercial real estate — — — — — — — — Home equity line of credit 8 768 768 181 18 1,437 1,437 255 Residential land 1 120 121 — 1 120 121 — Commercial construction — — — — — — — — Residential construction — — — — — — — — Commercial 5 457 457 145 8 16,657 16,657 670 Consumer — — — — — — — — 19 $ 2,236 $ 2,231 $ 424 36 $ 20,202 $ 20,315 $ 1,184 Three months ended June 30, 2015 Six months ended June 30, 2015 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 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 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 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, 2016 Six months ended June 30, 2016 (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 $ 488 Commercial real estate — — — — Home equity line of credit — — — — Residential land — — — — Commercial construction — — — — Residential construction — — — — Commercial 1 26 1 26 Consumer — — — — 1 $ 26 2 $ 514 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 modified in a TDR totaled $2.7 million at June 30, 2016 . 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 other than the servicing rights of certain loans sold. ASB received proceeds from the sale of residential mortgages of $58.1 million and $95.0 million for the three months ended June 30, 2016 and 2015 and $98.5 million and $173.3 million for the six months ended June 30, 2016 and 2015, respectively, and recognized gains on such sales of $1.5 million and $2.1 million for the three months ended June 30, 2016 and 2015 and $2.7 million and $3.9 million for the six months ended June 30, 2016 and 2015 respectively. There were no repurchased mortgage loans for the three months ended June 30, 2016 and 2015 and six months ended June 30, 2016 and 2015. The repurchase reserve was $0.1 million and nil for the period ended June 30, 2016 and 2015, respectively. Mortgage servicing fees, a component of other income, net, were $0.7 million and $0.9 million for the three months ended June 30, 2016 and 2015 and $1.4 million and $1.8 million for the six months ended June 30, 2016 and 2015, respectively. Changes in the carrying value of mortgage servicing rights were as follows: (in thousands) Gross 1 Accumulated amortization 1 Valuation allowance Net June 30, 2016 $ 15,652 $ (6,636 ) $ — $ 9,016 December 31, 2015 14,531 (5,647 ) — 8,884 1 Reflects the impact of loans paid in full. Changes related to mortgage servicing rights were as follows: (in thousands) 2016 2015 Mortgage servicing rights Balance, January 1 $ 8,884 $ 11,749 Amount capitalized 1,120 2,001 Amortization (988 ) (1,444 ) Other-than-temporary impairment — (4 ) Carrying amount before valuation allowance, June 30 9,016 12,302 Valuation allowance for mortgage servicing rights Balance, January 1 — 209 Provision (recovery) — (168 ) Other-than-temporary impairment — (4 ) Balance, June 30 — 37 Net carrying value of mortgage servicing rights $ 9,016 $ 12,265 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: (dollars in thousands) June 30, 2016 December 31, 2015 Unpaid principal balance $ 1,137,226 $ 1,097,314 Weighted average note rate 4.03 % 4.05 % Weighted average discount rate 9.4 % 9.6 % Weighted average prepayment speed 11.4 % 9.3 % 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: (dollars in thousands) June 30, 2016 December 31, 2015 Prepayment rate: 25 basis points adverse rate change $ (567 ) $ (561 ) 50 basis points adverse rate change (1,037 ) (1,104 ) Discount rate: 25 basis points adverse rate change (97 ) (111 ) 50 basis points adverse rate change (192 ) (220 ) 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. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for 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, 2016 $173 $— $173 December 31, 2015 229 — 229 Gross amount not offset in the Balance Sheet (in millions) Liabilities presented in the Balance Sheet Financial instruments Cash collateral pledged June 30, 2016 Financial institution $ 50 $ 57 $ — Government entities 27 42 — Commercial account holders 96 117 — Total $ 173 $ 216 $ — December 31, 2015 Financial institution $ 50 $ 56 $ — Government entities 56 61 — Commercial account holders 123 144 — Total $ 229 $ 261 $ — The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. 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 consolidated balance sheets. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts. Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing 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 |
