| Bank segment | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income and Comprehensive Income Data Three months ended March 31 (in thousands) 2024 2023 Interest and dividend income Interest and fees on loans $ 72,971 $ 64,842 Interest and dividends on investment securities 14,964 14,637 Total interest and dividend income 87,935 79,479 Interest expense Interest on deposit liabilities 17,432 6,837 Interest on other borrowings 8,154 7,721 Total interest expense 25,586 14,558 Net interest income 62,349 64,921 Provision for credit losses (2,159) 1,175 Net interest income after provision for credit losses 64,508 63,746 Noninterest income Fees from other financial services 4,874 4,679 Fee income on deposit liabilities 4,898 4,599 Fee income on other financial products 2,743 2,744 Bank-owned life insurance 3,584 1,425 Mortgage banking income 424 130 Other income, net 686 801 Total noninterest income 17,209 14,378 Noninterest expense Compensation and employee benefits 32,459 30,204 Occupancy 5,063 5,588 Data processing 4,846 5,012 Services 4,151 2,595 Equipment 2,649 2,646 Office supplies, printing and postage 1,018 1,165 Marketing 776 1,016 Other expense 4,942 6,191 Total noninterest expense 55,904 54,417 Income before income taxes 25,813 23,707 Income taxes 4,879 5,145 Net income 20,934 18,562 Other comprehensive income (loss), net of taxes (9,768) 18,430 Comprehensive income $ 11,166 $ 36,992 Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*: Three months ended March 31 (in thousands) 2024 2023 Interest and dividend income $ 87,935 $ 79,479 Noninterest income 17,209 14,378 *Revenues-Bank 105,144 93,857 Total interest expense 25,586 14,558 Provision for credit losses (2,159) 1,175 Noninterest expense 55,904 54,417 Less: Retirement defined benefits credit—other than service costs (281) (187) *Expenses-Bank 79,612 70,337 *Operating income-Bank 25,532 23,520 Add back: Retirement defined benefits credit—other than service costs (281) (187) Income before income taxes $ 25,813 $ 23,707 American Savings Bank, F.S.B. Balance Sheets Data (in thousands) March 31, 2024 December 31, 2023 Assets Cash and due from banks $ 126,259 $ 184,383 Interest-bearing deposits 100,681 251,072 Cash and cash equivalents 226,940 435,455 Investment securities Available-for-sale, at fair value 1,091,889 1,136,439 Held-to-maturity, at amortized cost (fair value of $1,074,735 and $1,103,668, at March 31, 2024 and December 31, 2023, respectively) 1,191,074 1,201,314 Stock in Federal Home Loan Bank, at cost 32,489 14,728 Loans held for investment 6,116,722 6,180,810 Allowance for credit losses (71,057) (74,372) Net loans 6,045,665 6,106,438 Loans held for sale, at lower of cost or fair value 2,923 15,168 Other 687,059 681,460 Goodwill 82,190 82,190 Total assets $ 9,360,229 $ 9,673,192 Liabilities and shareholder’s equity Deposit liabilities—noninterest-bearing $ 2,557,240 $ 2,599,762 Deposit liabilities—interest-bearing 5,447,824 5,546,016 Other borrowings 593,000 750,000 Other 220,570 247,563 Total liabilities 8,818,634 9,143,341 Common stock 1 1 Additional paid-in capital 358,645 358,067 Retained earnings 484,989 464,055 Accumulated other comprehensive loss, net of tax benefits Net unrealized losses on securities $ (293,466) $ (282,963) Retirement benefit plans (8,574) (302,040) (9,309) (292,272) Total shareholder’s equity 541,595 529,851 Total liabilities and shareholder’s equity $ 9,360,229 $ 9,673,192 Other assets Bank-owned life insurance $ 191,448 $ 187,857 Premises and equipment, net 184,684 187,042 Accrued interest receivable 29,697 28,472 Mortgage-servicing rights 8,050 8,169 Low-income housing investments 108,314 112,234 Deferred tax asset 108,240 104,292 Other 56,626 53,394 $ 687,059 $ 681,460 Other liabilities Accrued expenses $ 114,289 $ 115,231 Cashier’s checks 34,908 40,479 Advance payments by borrowers 5,559 10,107 Other 65,814 81,746 $ 220,570 $ 247,563 Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death. Other borrowings consisted of FHLB advances and borrowings from the Federal Reserve Bank. Investment securities. The major components of investment securities were as follows: Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair Gross unrealized losses Less than 12 months 12 months or longer (dollars in thousands) Number of issues Fair Amount Number of issues Fair Amount March 31, 2024 Available-for-sale U.S. Treasury and federal agency obligations $ 10,052 $ — $ (415) $ 9,637 — $ — $ — 8 $ 9,637 $ (415) Mortgage-backed securities* 1,256,426 — (221,292) 1,035,134 2 1,340 (17) 115 1,033,794 (221,275) Corporate bonds 35,205 — (2,304) 32,901 — — — 3 32,901 (2,304) Mortgage revenue bonds 14,217 — — 14,217 — — — — — — $ 1,315,900 $ — $ (224,011) $ 1,091,889 2 $ 1,340 $ (17) 126 $ 1,076,332 $ (223,994) Held-to-maturity U.S. Treasury and federal agency obligations $ 59,923 $ — $ (7,830) $ 52,093 — $ — $ — 3 $ 52,094 $ (7,830) Mortgage-backed securities* 1,131,151 85 (108,594) 1,022,642 55 549,389 (18,604) 45 448,729 (89,990) $ 1,191,074 $ 85 $ (116,424) $ 1,074,735 55 $ 549,389 $ (18,604) 48 $ 500,823 $ (97,820) December 31, 2023 Available-for-sale U.S. Treasury and federal agency obligations $ 12,437 $ — $ (427) $ 12,010 — $ — $ — 9 $ 12,010 $ (427) Mortgage-backed securities* 1,279,852 — (202,684) 1,077,168 3 1,649 (22) 116 1,075,519 (202,662) Corporate bonds 35,239 — (2,336) 32,903 — — — 3 32,903 (2,336) Mortgage revenue bonds 14,358 — — 14,358 — — — — — — $ 1,341,886 $ — $ (205,447) $ 1,136,439 3 $ 1,649 $ (22) 128 $ 1,120,432 $ (205,425) Held-to-maturity U.S. Treasury and federal agency obligations $ 59,917 $ — $ (7,135) $ 52,782 — $ — $ — 3 $ 52,782 $ (7,135) Mortgage-backed securities* 1,141,397 2,221 (92,732) 1,050,886 37 378,326 (7,610) 43 432,082 (85,122) $ 1,201,314 $ 2,221 $ (99,867) $ 1,103,668 37 $ 378,326 $ (7,610) 46 $ 484,864 $ (92,257) * Issued or guaranteed by U.S. Government agencies or sponsored agencies ASB does not believe that the investment securities that were in an unrealized loss position at March 31, 2024 and December 31, 2023, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be rated investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government, an agency of the government or a government-sponsored entity. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at March 31, 2024 and December 31, 2023. U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages. The contractual maturities of investment securities were as follows: March 31, 2024 Amortized Fair value (in thousands) Available-for-sale Due in one year or less $ 777 $ 759 Due after one year through five years 44,480 41,779 Due after five years through ten years 14,217 14,217 Due after ten years — — 59,474 56,755 Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,256,426 1,035,134 Total available-for-sale securities $ 1,315,900 $ 1,091,889 Held-to-maturity Due in one year or less $ — $ — Due after one year through five years 39,841 35,225 Due after five years through ten years 20,082 16,868 Due after ten years — — 59,923 52,093 Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,131,151 1,022,642 Total held-to-maturity securities $ 1,191,074 $ 1,074,735 There were no sales of available-for-sale securities for the three months ended March 31, 2024 and 2023. The components of loans were summarized as follows: March 31, 2024 December 31, 2023 (in thousands) Real estate: Residential 1-4 family $ 2,598,091 $ 2,595,162 Commercial real estate 1,368,394 1,374,038 Home equity line of credit 996,049 1,017,207 Residential land 18,197 18,364 Commercial construction 185,857 172,405 Residential construction 17,756 17,843 Total real estate 5,184,344 5,195,019 Commercial 704,638 743,303 Consumer 256,273 272,256 Total loans 6,145,255 6,210,578 Less: Deferred fees and discounts (28,533) (29,768) Allowance for credit losses (71,057) (74,372) Total loans, net $ 6,045,665 $ 6,106,438 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. As of March 31, 2024, ASB had commitments to borrowers for loans and unused lines and letters of credit of $1.9 billion, of which, commitments to lend to borrowers whose loan terms have been modified in troubled debt restructurings were nil. Allowance for credit losses. The allowance for credit losses (balances and changes) by portfolio segment were as follows: (in thousands) Residential Commercial real Home Residential land Commercial construction Residential construction Commercial loans Consumer loans Total Three months ended March 31, 2024 Allowance for credit losses: Beginning balance $ 7,435 $ 22,185 $ 7,778 $ 621 $ 3,603 $ 43 $ 9,122 $ 23,585 $ 74,372 Charge-offs (842) — — — — — (114) (2,719) (3,675) Recoveries 186 — 238 — — — 95 1,000 1,519 Provision (373) (1,851) 57 51 (202) (2) (1,489) 2,650 (1,159) Ending balance $ 6,406 $ 20,334 $ 8,073 $ 672 $ 3,401 $ 41 $ 7,614 $ 24,516 $ 71,057 Three months ended March 31, 2023 Allowance for credit losses: Beginning balance $ 6,270 $ 21,898 $ 6,125 $ 717 $ 1,195 $ 46 $ 12,426 $ 23,539 $ 72,216 Charge-offs (809) — (63) — — — (227) (2,323) (3,422) Recoveries 4 — 17 — — — 398 908 1,327 Provision (853) 803 (26) (97) (460) (18) (661) 2,487 1,175 Ending balance $ 4,612 $ 22,701 $ 6,053 $ 620 $ 735 $ 28 $ 11,936 $ 24,611 $ 71,296 Allowance for loan commitments. The allowance for loan commitments by portfolio segment were as follows: (in thousands) Home equity Commercial construction Commercial loans Total Three months ended March 31, 2024 Allowance for loan commitments: Beginning balance $ 600 $ 4,300 $ 200 $ 5,100 Provision — (1,200) 200 (1,000) Ending balance $ 600 $ 3,100 $ 400 $ 4,100 Three months ended March 31, 2023 Allowance for loan commitments: Beginning balance $ 400 $ 2,600 $ 1,400 $ 4,400 Provision — — — — Ending balance $ 400 $ 2,600 $ 1,400 $ 4,400 Credit quality . ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans. Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications: Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the probability of default model rating, the loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted. The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows: Term Loans by Origination Year Revolving Loans (in thousands) 2024 2023 2022 2021 2020 Prior Revolving Converted to term loans Total March 31, 2024 Residential 1-4 family Current $ 43,536 $ 260,253 $ 401,887 $ 722,614 $ 395,190 $ 761,888 $ — $ — $ 2,585,368 30-59 days past due — — — — — 2,191 — — 2,191 60-89 days past due — — — — — 773 — — 773 Greater than 89 days past due — — 1,928 1,893 1,129 4,809 — — 9,759 43,536 260,253 403,815 724,507 396,319 769,661 — — 2,598,091 Home equity line of credit Current — — — — — — 929,649 62,087 991,736 30-59 days past due — — — — — — 971 700 1,671 60-89 days past due — — — — — — 740 169 909 Greater than 89 days past due — — — — — — 1,418 315 1,733 — — — — — — 932,778 63,271 996,049 Residential land Current 1,955 3,748 3,888 5,467 1,746 718 — — 17,522 30-59 days past due — — — — — — — — — 60-89 days past due — — — — — — — — — Greater than 89 days past due — — 675 — — — — — 675 1,955 3,748 4,563 5,467 1,746 718 — — 18,197 Residential construction Current 388 6,189 10,440 739 — — — — 17,756 30-59 days past due — — — — — — — — — 60-89 days past due — — — — — — — — — Greater than 89 days past due — — — — — — — — — 388 6,189 10,440 739 — — — — 17,756 Consumer Current 8,829 76,930 141,903 8,207 1,127 406 10,207 2,395 250,004 30-59 days past due 205 612 1,559 167 11 11 152 110 2,827 60-89 days past due — 613 1,150 84 15 3 70 49 1,984 Greater than 89 days past due — 369 681 68 26 10 90 214 1,458 9,034 78,524 145,293 8,526 1,179 430 10,519 2,768 256,273 Commercial real estate Pass 8,436 104,489 382,853 191,109 265,611 363,035 15,482 — 1,331,015 Special Mention — — 1,975 — — 17,338 — — 19,313 Substandard — — — 1,527 — 13,991 — — 15,518 Doubtful — — — — — 2,548 — — 2,548 8,436 104,489 384,828 192,636 265,611 396,912 15,482 — 1,368,394 Commercial construction Pass — 55,494 39,399 26,545 1,333 — 63,086 — 185,857 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — — 55,494 39,399 26,545 1,333 — 63,086 — 185,857 Commercial Pass 11,996 102,699 178,426 105,411 72,558 83,332 99,943 6,284 660,649 Special Mention — 19,524 6,774 933 — 228 7,176 — 34,635 Substandard — — 2,869 1,790 — 3,182 1,276 139 9,256 Doubtful — — — — 98 — — — 98 11,996 122,223 188,069 108,134 72,656 86,742 108,395 6,423 704,638 Total loans $ 75,345 $ 630,920 $ 1,176,407 $ 1,066,554 $ 738,844 $ 1,254,463 $ 1,130,260 $ 72,462 $ 6,145,255 Term Loans by Origination Year Revolving Loans (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Converted to term loans Total December 31, 2023 Residential 1-4 family Current $ 263,605 $ 407,304 $ 729,256 $ 399,766 $ 104,487 $ 672,408 $ — $ — $ 2,576,826 30-59 days past due — 708 — 268 — 3,525 — — 4,501 60-89 days past due — 726 2,694 — — 1,745 — — 5,165 Greater than 89 days past due — 2,519 871 1,129 489 3,662 — — 8,670 263,605 411,257 732,821 401,163 104,976 681,340 — — 2,595,162 Home equity line of credit Current — — — — — — 954,461 59,146 1,013,607 30-59 days past due — — — — — — 1,219 262 1,481 60-89 days past due — — — — — — 597 — 597 Greater than 89 days past due — — — — — — 1,111 411 1,522 — — — — — — 957,388 59,819 1,017,207 Residential land Current 3,788 4,097 7,234 1,847 — 723 — — 17,689 30-59 days past due — — — — — — — — — 60-89 days past due — 675 — — — — — — 675 Greater than 89 days past due — — — — — — — — — 3,788 4,772 7,234 1,847 — 723 — — 18,364 Residential construction Current 5,369 10,984 1,490 — — — — — 17,843 30-59 days past due — — — — — — — — — 60-89 days past due — — — — — — — — — Greater than 89 days past due — — — — — — — — — 5,369 10,984 1,490 — — — — — 17,843 Consumer Current 87,686 153,239 9,852 1,654 451 200 10,663 2,779 266,524 30-59 days past due 805 1,314 176 29 24 — 56 163 2,567 60-89 days past due 385 886 114 41 21 — 60 69 1,576 Greater than 89 days past due 354 786 101 24 34 — 67 223 1,589 89,230 156,225 10,243 1,748 530 200 10,846 3,234 272,256 Commercial real estate Pass 104,368 384,144 180,986 267,458 65,625 307,367 15,482 — 1,325,430 Special Mention — 1,975 11,159 — 14,110 3,008 — — 30,252 Substandard — — 1,538 — 11,048 5,770 — — 18,356 Doubtful — — — — — — — — — 104,368 386,119 193,683 267,458 90,783 316,145 15,482 — 1,374,038 Commercial construction Pass 45,863 33,240 26,133 1,333 — — 65,836 — 172,405 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — 45,863 33,240 26,133 1,333 — — 65,836 — 172,405 Commercial Pass 124,667 199,796 106,669 73,976 37,580 80,012 87,206 6,250 716,156 Special Mention 1,860 6,989 951 — 250 — 7,352 — 17,402 Substandard — 2,962 1,848 98 60 3,369 1,275 133 9,745 Doubtful — — — — — — — — — 126,527 209,747 109,468 74,074 37,890 83,381 95,833 6,383 743,303 Total loans $ 638,750 $ 1,212,344 $ 1,081,072 $ 747,623 $ 234,179 $ 1,081,789 $ 1,145,385 $ 69,436 $ 6,210,578 Gross charge-offs by portfolio segment and vintage were as follows: (in thousands) 2024 2023 2022 2021 2020 Prior Total Three months ended March 31, 2024 Residential 1-4 family $ — $ — $ 361 $ 277 $ — $ 204 $ 842 Commercial real estate — — — — — — — Home equity line of credit — — — — — — — Residential land — — — — — — — Commercial construction — — — — — — — Residential construction — — — — — — — Commercial — — — 14 — 100 114 Consumer 166 937 1,342 127 36 111 2,719 Total $ 166 $ 937 $ 1,703 $ 418 $ 36 $ 415 $ 3,675 (in thousands) 2023 2022 2021 2020 2019 Prior Total Three months ended March 31, 2023 Residential 1-4 family $ — $ — $ — $ — $ — $ 809 $ 809 Commercial real estate — — — — — — — Home equity line of credit — — 43 — — 20 63 Residential land — — — — — — — Commercial construction — — — — — — — Residential construction — — — — — — — Commercial — — 51 — 8 168 227 Consumer 189 1,524 319 57 176 58 2,323 Total $ 189 $ 1,524 $ 413 $ 57 $ 184 $ 1,055 $ 3,422 Revolving loans converted to term loans during the three months ended March 31, 2024 in the commercial, home equity line of credit and consumer portfolios were $0.8 million, $6.5 million and $0.2 million, respectively. Revolving loans converted to term loans during the three months ended March 31, 2023 in the commercial, home equity line of credit and consumer portfolios were $1.2 million, $7.8 million and $1.1 million, respectively. The credit risk profile based on payment activity for loans was as follows: (in thousands) 30-59 60-89 90 days or more past due Total Current Total Amortized cost> March 31, 2024 Real estate: Residential 1-4 family $ 2,191 $ 773 $ 9,759 $ 12,723 $ 2,585,368 $ 2,598,091 $ 425 Commercial real estate — — 11,048 11,048 1,357,346 1,368,394 — Home equity line of credit 1,671 909 1,733 4,313 991,736 996,049 — Residential land — — 675 675 17,522 18,197 — Commercial construction — — — — 185,857 185,857 — Residential construction — — — — 17,756 17,756 — Commercial 72 — 139 211 704,427 704,638 — Consumer 2,827 1,984 1,458 6,269 250,004 256,273 — Total loans $ 6,761 $ 3,666 $ 24,812 $ 35,239 $ 6,110,016 $ 6,145,255 $ 425 December 31, 2023 Real estate: Residential 1-4 family $ 4,501 $ 5,165 $ 8,670 $ 18,336 $ 2,576,826 $ 2,595,162 $ 425 Commercial real estate — — 11,048 11,048 1,362,990 1,374,038 — Home equity line of credit 1,481 597 1,522 3,600 1,013,607 1,017,207 — Residential land — 675 — 675 17,689 18,364 — Commercial construction — — — — 172,405 172,405 — Residential construction — — — — 17,843 17,843 — Commercial 163 135 244 542 742,761 743,303 — Consumer 2,567 1,576 1,589 5,732 266,524 272,256 — Total loans $ 8,712 $ 8,148 $ 23,073 $ 39,933 $ 6,170,645 $ 6,210,578 $ 425 The credit risk profile based on nonaccrual loans were as follows: (in thousands) March 31, 2024 December 31, 2023 With a related ACL Without a related ACL Total With a related ACL Without a related ACL Total Real estate: Residential 1-4 family $ 8,758 $ 5,225 $ 13,983 $ 7,755 $ 2,190 $ 9,945 Commercial real estate 11,048 — 11,048 11,048 — 11,048 Home equity line of credit 2,404 1,538 3,942 2,626 1,135 3,761 Residential land 675 — 675 780 — 780 Commercial construction — — — — — — Residential construction — — — — — — Commercial 238 188 426 133 301 434 Consumer 2,516 — 2,516 2,458 — 2,458 Total $ 25,639 $ 6,951 $ 32,590 $ 24,800 $ 3,626 $ 28,426 ASB did not recognize interest on nonaccrual loans for the three months ended March 31, 2024 and 2023. Modifications Made to Borrowers Experiencing Financial Difficulty. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loan information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. ASB uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of the modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification. Modifications may include interest rate reductions, interest only payments for an extended period of time, protracted terms such as amortization and maturity beyond the customary length of time found in the normal marketplace, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or repossession of collateral. Loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024 were as follows: (in thousands) Term extension Payment delay Combination payment delay & term extension Total % of total class of loans Real estate loans Residential 1-4 family $ 266 $ 3,311 $ — $ 3,577 0.14 % Commercial real estate — — 1,975 1,975 0.14 % Home equity line of credit — 447 — 447 0.04 % Residential land — 675 — 675 3.71 % Commercial construction — — — — — Residential construction — — — — — Commercial — — — — — Consumer — — — — — Total $ 266 $ 4,433 $ 1,975 $ 6,674 0.11 % Financial effect of loan modifications during the three months ended March 31, 2024 for borrowers experiencing financial difficulty were as follows: Weighted average Term extension (in months) Payment delay (in months) Real estate loans Residential 1-4 family 156 9 Commercial real estate 9 9 Home equity line of credit — 9 Residential land — 9 Commercial construction — — Residential construction — — Commercial — — Consumer — — Credit risk profile based on payment activity for loans modified during the three months ended March 31, 2024 were as follows: (in thousands) Current 30-59 days past due 60-89 days past due 90 days or more past due Total Real estate loans Residential 1-4 family $ 266 $ — $ — $ 3,311 $ 3,577 Commercial real estate 1,975 — — — 1,975 Home equity line of credit 447 — — — 447 Residential land — — — 675 675 Commercial construction — — — — — Residential construction — — — — — Commercial — — — — — Consumer — — — — — Total $ 2,688 $ — $ — $ 3,986 $ 6,674 During the three months ended March 31, 2024, there were no loan modifications made to borrowers experiencing financial difficulty that defaulted. Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Loans considered collateral-dependent were as follows: Amortized cost (in thousands) March 31, 2024 December 31, 2023 Collateral type Real estate: Residential 1-4 family $ 5,731 $ 2,272 Residential real estate property Commercial real estate 11,048 11,048 Commercial real estate property Home equity line of credit 1,674 1,135 Residential real estate property Total real estate 18,453 14,455 Commercial 286 301 Business assets Total $ 18,739 $ 14,756 ASB had $4.8 million and $3.4 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2024 and December 31, 2023, respectively. Mortgage servicing rights (MSRs) . In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold. ASB received proceeds from the sale of residential mortgages of $26.4 million and $5.7 million for the three months ended March 31, 2024 and 2023, respectively, and recognized gains on such sales of $0.4 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. There were no repurchased mortgage loans for the three months ended March 31, 2024 and 2023. Mortgage servicing fees, a component of other income, net, were $0.9 million for the three months ended March 31, 2024 and 2023. Changes in the carrying value of MSRs were as follows: (in thousands) Gross Accumulated amortization Valuation allowance Net March 31, 2024 $ 17,939 $ (9,889) $ — $ 8,050 December 31, 2023 18,241 (10,072) — 8,169 Changes related to MSRs were as follows: Three months ended March 31 (in thousands) 2024 2023 Mortgage servicing rights Beginning balance $ 8,169 $ 9,047 Amount capitalized 198 51 Amortization (317) (353) Other-than-temporary impairment — — Carrying amount before valuation allowance 8,050 8,745 Valuation allowance for mortgage servicing rights Beginning balance — — Provision — — Other-than-temporary impairment — — Ending balance — — Net carrying value of mortgage servicing rights $ 8,050 $ 8,745 ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs. ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the condensed consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows: (dollars in thousands) March 31, 2024 December 31, 2023 Unpaid principal balance $ 1,399,266 $ 1,402,736 Weighted average note rate 3.52 % 3.47 % Weighted average discount rate 10.00 % 10.00 % Weighted average prepayment speed 6.13 % 5.71 % The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows: (dollars in thousands) March 31, 2024 December 31, 2023 Prepayment rate: 25 basis points adverse rate change $ (125) $ (90) 50 basis points adverse rate change (274) (204) Discount rate: 25 basis points adverse rate change (197) (203) 50 basis points adverse rate change (391) (402) The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear. Other borrowings. As of March 31, 2024 and December 31, 2023, ASB had $593.0 million and $200.0 million of FHLB advances outstanding, respectively, and borrowings with the Federal Reserve Bank of nil and $550.0 million, respectively. As of March 31, 2024, ASB was in compliance with all FHLB Advances, Pledge and Security Agreement requirements and all requirements to borrow at the Federal Reserve Discount Window Primary Credit Facility under 12 CFR 201.4(a) guidelines. Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans. ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time. The notional amount and fair value of ASB’s derivative financial instruments were as follows: March 31, 2024 December 31, 2023 (in thousands) Notional amount Fair value Notional amount Fair value Interest rate lock commitments $ 8,938 $ 136 $ 6,246 $ 86 Forward commitments 6,900 (13) 5,500 (18) ASB’s derivative financial instruments, their fair values and balance sheet location were as follows: Derivative Financial Instruments Not Designated as Hedging Instruments 1 March 31, 2024 December 31, 2023 (in thousands) Asset derivatives Liability Asset derivatives Liability Interest rate lock commitments $ 136 $ — $ 86 $ — Forward commitments 1 14 — 18 $ 137 $ 14 $ 86 $ 18 1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets. The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income: Derivative Financial Instruments Not Designated as Hedging Instruments Location of net gains (losses) recognized in the Statements of Income Three months ended March 31 (in thousands) 2024 2023 Interest rate lock commitments Mortgage banking income $ 50 $ 17 Forward commitments Mortgage bankin |
